With the easy availability of home loans, individuals can fulfil their dream of purchasing a property. Housing loan segment anticipated to witness rise as financial institutions are not offering competitive home loan interest rates after reduction of repo rates.
If you are aspiring homeowner seeking credit at competitive rate, you must know certain factors that impact interest rates.
5 crucial factors affecting home loan interest rates
Here are the five critical factors that impact interest rates on housing credit, and by keeping these in mind, individuals can secure a more affordable one:
- Credit score and history
An individual’s credit score history play significant role in determining the interest rate apply to housing loan. The lenders consider credit score as a crucial factor while assessing the creditworthiness of the applicant. Individuals with good credit score of 750 are consider owing their discipline repayment history, allowing them to avail of lower interest rates.
On the other hand, a low credit score increases the risk of lending for borrowers. It causes financiers to levy higher interest rates. It is always wise to inquire about credit score requirements of specific lending institution and apply accordingly to get favourable rates on loan.
- Types of interest rate
Generally, financial institutions offer two types of interest rates named floating and fixed. Floating interest rates change depending on the market, while the latter remains constant throughout the repayment tenor. It is consider that floating interest rates are lower than fixed ones.
Floating rates are directly link with movement of market rates. Resultantly, individuals can enjoy a comparatively lower rate of interest when the market rates go down and vice versa. On the other hand, fixed rates remain unchanged throughout the tenor; hence, the EMIs also remain constant.
Borrowers can take help of EMI calculator to determine which type of interest can be viable for them.
- Income stability
Since availing a housing loan is a long-term financial commitment, stability in terms of employment is serious point of consideration. Typically, home loan lenders consider an applicant’s monthly income to judge his/her repayment capacity, and based on that; they sanction a loan application.
Individuals who change jobs frequently are consider high-risk borrowers for financiers. Borrowers planning to apply for housing loan should find stability in their income to ease approval process.
- Down payment
The down payment a borrower makes plays a vital role in determining the home loan interest rate. The reason being, with higher down payment can reduce total loan amount, which, in turn, lowers lending risk for financiers. This paves the way for borrowers to negotiate and secure a more competitive interest rate on their housing credits.
The repayment tenor of a housing loan also affects its interest rate. Loan tenor is inversely proportional to the interest rates if period is longer, it attract higher rate, and total interest outgo is increase. On the other hand, this concept reverses with a shorter loan tenor. However, borrowers must remember that EMIs would be higher if individuals opt for shorter loan tenor.
Therefore, to reduce home loan interest rates, individuals can choose a repayment tenor carefully. They can use online calculators to learn about its detail.
Apart from these 5 reasons, the home loan interest rate also depends on the total value of a property. A high-value property will result in a higher loan amount, and thus, a steeper interest rate, and vice versa.
Besides competitive interest rates, leading HFCs also extend pre-approved offers that streamline the loan application process. These offers are applicable to a wider range of financial products, both secured and unsecured. Intending borrowers can check their pre-approved offers online by mentioning their name and contact information.
keeping these factors in mind, allow borrowers to understand interest rates and give fair idea of availing affordable home loans. Nonetheless, it is wise to perform market research to choose an affordable interest rate to ensure comfortable repayment.