22 August, 2023 Home Loans
Home Loan facilitates your dream of having your own home. But before stepping further, remember, you are being evaluated for the interest rates you will be offered for your home loan
Here are the top factors that lenders consider while determining your home loan interest rates.
1. Credit Score
2. MCLR Rate
3. Locations and Value of the Property
4. Loan Quantum
5. Income stability
6. Type of Interest Rate
7. Loan Tenure and Amount
Credit Score
Credit score is used by financial institutions to check your affluence and ensure faith in your repayment capabilities. A good credit score gives you a chance to negotiate for a lower rate, whereas a lower score means you will be charged with a higher interest rate. Some easy tips for a healthy credit score of 700 and above are: keep regular checks on your debts, make timely payments of your bills, be sensible with new credit, and don’t extract cash from your credit cards.
Your credit score is also an important measurement of your repayment ability, which is why moneylenders see it as an essential parameter. Your credit score is calculated based on your payment history, existing debts, and financial obligations, among other things. A healthy credit score increases your chances of securing a Home Loan with a reasonable interest rate.
MCLR Rate
MCLR is a standard lending rate used by banks to give out loans. It is a product of four important financial principles: the marginal cost of funds, operating costs, premium charged and the effect of Cash Reserve Ratio (CRR) on the account. As these factors vary for different banks, they have different MCLR’s, and accordingly, different lending rates. A lower MCLR would result in a lower interest rate for a housing loan.
Location of the property
The location of the property is a significant determinant of home loan rates. A house or a flat in an up-and-coming locality with several facilities and ready access to conveyance facilities is likely to invite lower rates. If the property is located in a low-profile neighborhood or has insufficient amenities and poor construction, the resale value would be reduced. As a result, the lender may charge high home loan rates. Hence, you have odds to secure lower interest rates if the property is in a noticeable area. Preferably, properties at superior locations are pre-sanctioned by many reputed lenders.
Loan Quantum
Selecting the loan amount consciously is one of the ways of getting a better home loan interest rate. As a general rule of thumb, it’s wise to pay at least 20% of your property’s value as a down payment. The loan amount can impact the interest rate you are charged. A higher loan suggests a more substantial risk to the lending institution and vice versa. Thus, if you want to secure lower home loan rates, it’s sensible to make a more significant down payment. A moderate loan amount will also help ensure lower EMIs and overall reduced interest outlay. Thus, consider saving up to make an extensive down payment.
Read More - Multiple Home Loans: Can you have more than one?
CIBIL score
Your credit score governs the home loan suitability and the interest rate at which you will be returning it. It symbolizes your creditworthiness and is a measure of the risk the financial institution bears by distributing the amount. Thus, it’s vital to know the best credit score for a Home Loan and how to recover yours. A low score can make the lender cautious of your repayment capabilities, leading them to charge higher interest rates. Conversely, a higher score positions you more favorably.
To put it in perspective, suppose a financial institution charges interest in the range of 7%-15%. An individual with a score of 750 may be offered funding at 7.5%-8%. If their score is in the range of 800–900, they may even secure a loan at the lowest rates. On the other hand, an individual with a score between 600–700 may experience interest rates in the range of 10%-15%. It’s sensible to query about credit score requirements of a specific lending institution earlier.
Type of Interest Rate
Financial institutions propose two types of interest rates, floating and fixed. The first fluctuates based on changing base rate. The later remains unaffected throughout the tenor. Usually, floating interest rates are lower than fixed rates by 1%-2%. Note that floating rate reconsiderations do not impact the installment you pay but the tenor.
Hence, fixed-rate is a apt choice if you choose more certainty regarding the repayment period. On the other hand, floating-rate lets you profit from base rate decrease and enjoy lower interest charges originally. You can use an online home loan EMI calculator to calculate which type of interest rate you will be more comfortable with.
Income stability
Attaining a housing loan is an important financial obligation. The tenor can extend up to 240 months and financial institutions need to guarantee you can service installments for that period without hiccups. Your income steadiness is vital to that end.
A lending institution is likely to charge a lower home loan interest rate on salaried individuals, especially ones employed in the public sector or presumed private establishments.
Individuals eligible for pre-approved offers from lenders may also relish some lenience concerning the interest rate. These also accelerate the application process and are available on a range of financing options, including a home loan and a loan against property. You can check your pre-approved offer with just your name and mobile number.
Nonetheless, you shall be careful concerning the repayment tenure besides ensuring low home loan interest rates. You can improve the installments burden with a lengthy tenure but note that interest outgo will be substantial in that case. Thus, evaluate your urgencies before you get a home loan.
Shorter loan tenure can fetch you a lower rate of interest and longer loan tenure may draw a higher interest rate.
Plus, your loan amount can also influence the interest rates as some banks charge a higher interest rate on a high amount as it implies a more considerable risk to the lender. Thus, paying a large down payment is an intelligent way to minimize the home loan rates.
So with these facts in mind, Go ahead and Apply for a Home loan as your dream home is waiting for you!!
