Top 6 Factors That Can Affect Home Loan Interest Rates

Even when the real estate market is stagnant, purchasing a dream house can still be quite expensive with all the costs involved. For instance, the prevailing home loan interest rates range somewhere between 7% and 10%; other than that, borrowers also have to pay several charges to avail it.

Nonetheless, intending homebuyers can still avail of the benefits of a home loan and fund their dream house conveniently. Several factors like borrowers’ creditworthiness, loan value, etc. tend to influence the rate of interest against housing loans.

Factors Which Influence Housing Loan Interest Loan

Here is a list of 6 factors that affect home loan interest rates. Intending borrowers can use the same to their advantage to negotiate a favorable rate of interest.

● CIBIL score

Most financial institutions consider applicants with a credit score higher than 750 as creditworthy. With higher creditworthiness, applicants are more likely to secure a loan at a lower rate of interest. Therefore, intending borrowers should try to increase their score before they put forward their loan plea.
Here are a few ways to do it –

– Paying off debts in time.
– Maintaining a low credit utilization ratio.
– Maintaining a clean credit history.
– Restricting the number of loan applications.

● Loan value

Generally, a housing loan attracts a higher rate of interest because of the risk factor associated with the amount. Individuals who intend to apply for a high-value home loan may consider paying a large down payment. It provides a sense of assurance to the lenders and works in favor of borrowers while negotiating interest rates.

● Interest type

Borrowers can also lower the home loan interest rate significantly by opting for a suitable rate of interest. Typically, there are 2 types of interest rates – fixed and floating interest rates. As the name suggests, the fixed interest rate remains the same throughout the loan tenor.

On the other hand, the floating rate of interest tends to fluctuate throughout the loan tenor. It means borrowers may have to pay a rate lower or higher than the initial rate of interest levied on the principal loan value.

Individuals should use an online loan EMI calculator to understand which type of interest would be more feasible for them.

● Income

A stable job and a regular source of income are among the factors which impact your home loan interest rate. Applicants with a steady monthly income are considered to possess a strong financial standing and a reliable repayment capacity.

To ensure their loan application is approved at a lower rate of interest, individuals must secure a regular flow of income.

● Loan tenor

Individuals are drawn to a longer tenor because it makes the loan EMI more affordable. However, the overall cost associated with short-term loans is comparatively low and more feasible. It is because loans availed for a short term may come at a lower rate of interest.

● Property location

The home loan interest rate also depends on the location of the applicant. For example, eligible individuals living in the selected areas specified by a lending institution would be more likely to negotiate a home loan at a more attractive rate of interest.

Before applying, they should find out if they live in one of the preferred locations. By doing so, they will be better positioned to secure a better deal.

Though the interest rate is one of the major driving factors when it comes to choosing a specific loan option, intending borrowers should not base their decision entirely on it. In fact, they should factor in the feature and associated conditions that come along with the loan option.

Features to Check

Individuals should check these following features to choose an extensive loan option.

1. Availability of balance transfer and top-up loan facility.
2. Foreclosure and part-prepayment facility.
3. The flexibility of tenor.
4. Available interest types.
5. Repayment options.
6. Ease of application and documentation.
7. Additional charges and their transparency.
8. Exclusive schemes and offers like – customized insurance policies.

Also Read: 3 Ways to Reduce Interest Payment on Housing Loans

Other than these, applicants should also find out the eligibility criteria they will be required to meet to avail of a home loan. Subsequently, they must check out the factors that can affect their eligibility and the conditions to avail of home loan tax benefits.

Therefore, factors like the CIBIL score, the stability of income, tenor, interest type, loan value, and location can affect the home loan interest rate significantly. Applicants should also consider the loan option’s features and benefits to make it more favorable for their purpose.