Which Factors Can Affect Your Housing Loan Interest Rate?

When purchasing a residential property, availing a housing loan is one of the biggest financial commitments for most aspiring homeowners. As repayment tenor usually stretches to around 20 years, its affordability largely depends on the housing loan interest rate. A nominal difference in the interest rates can increase or decrease the overall cost of a loan significantly.

So, this 2020, if you are planning for a home loan soon, consider certain factors beforehand which may affect the current housing loan interest rate. Note that while some are beyond control, and awareness of the other factors can help you get the best deal with more attractive rates.

Factors affecting housing loan interest rates

  • Property value and location

Location is an essential factor in determining the property value and rate of interest for home loans. Well-equipped properties located in areas of grocery stores, railway stations, hospitals, bus stops, etc. attract higher resale value and vice versa. Housing Finance Companies or HFCs consider these factors in determining interest rates accordingly.

While houses with poor facilities usually attract higher rates, those with better amenities at a prominent location accrue lower rates.

  • Credit score

Although a secured loan, credit score plays an important part in determining the rate of interest. The credit score reflects a borrower’s creditworthiness and influences the lender’s trust in his/her repayment capability. Being the most-accepted benchmark, a CIBIL score above 750 is considered as excellent.

You should follow a financial discipline throughout to maintain a healthy CIBIL score for a home loan. While a lower score reduces your chances of approval, a higher CIBIL rating gives an upper hand. A healthy score gives you the grounds to negotiate for the most competitive housing loan rates with your lender.

  • Type of interest rate
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Most lenders offer fixed and floating interest rates. It is vital for borrowers to have a proper idea on either of these rates –

  • With fixed rates, the monthly instalments remain fixed and equal throughout the repayment tenor. It doesn’t get influenced by financial fluctuations.
  • With floating rates, the monthly instalments change according to market conditions and the relevant benchmark rates. As they are reliant on lenders’ base rates, the interest gets modified from time to time. While floating rates are comparatively cheaper, it can go higher following market trends, thus, increasing your cost of the loan.

Opt to enjoy the benefits of calculating EMIs beforehand. This can help you choose an appropriate type of home loan interest rate according to your preference and repayment capability.

  • Down payment 

Another factor affecting the rate of interest is down payment. When you make a higher down payment, it brings down the LTV or loan-to-value, thus, reducing the risk for the lender. This enables you to enjoy more attractive rates on your housing loan. Alternatively, financial institutions levy higher rates when the down payment is lower.

Try to pay 25% or more as a down payment for the home loan to avail a reasonable rate of interest.

  • Eligibility criteria

Every applicant needs to meet certain home loan eligibility criteria which qualify him/her for the funds. These usually encompass age, minimum salary per month, nationality, work experience, etc. Individuals who fulfil all such parameters accordingly are entitled to enjoy more attractive rates on their housing loans. On the other hand, those who do not meet the requirements adequately may have to pay higher rates.

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You can also check out some tips to decrease your home loan rates. Approach the best Housing Finance Companies in India for the best housing loan interest rate and attractive features.

HFCs such as Bajaj Housing Finance Limited bring customised pre-approved offers to make the application procedure simplified and less time-consuming. Check your pre-approved offers by submitting your name and contact details only.

Aiming towards affordable housing for all by 2020, the Indian government has introduced several subsidy benefits on home loans. It is, therefore, the right time to invest in real estate and fulfil your homeownership dream effectively. Consider the aforementioned factors and enjoy lower housing loan interest rate from the most reliable lender in India.