For many of us, owning a home is both a personal and financial goal. Many people save for years, invest in high-yielding assets, and work lots of jobs in order to achieve their objective. However, as property prices in India continue to rise, it is becoming increasingly hard for people to pay for their houses out of their own money. However, this does not have to be the end of their property dreams.
Home loans are relatively widespread and simple to obtain in India. These have low interest rates, convenient EMI alternatives, and long payment durations. While this is an enticing and fairly safe choice, it is still important to have a full knowledge of home loans before asking for one. When it comes to long-term payments, the interest rate on your house loan is the decisive factor. This makes it critical for everyone to be aware of the variables that may have a positive or negative impact on their housing loan interest rate in India.
The most prevalent factors that influence your home loan interest rate are listed below.
Home Loan Rates by Type
Because of the high property value, home loans normally have a higher principal amount. If you take out a house loan, you may have choices on how your interest is calculated. There seem to be two unsecured loans accessible: fixed-rate loans and floating-rate loans. Your interest rate is unaffected by market movements or macroeconomic factors once you have a fixed-rate mortgage. Floating rates, on the other hand, involve some risk because the interest rate may rise or fall depending on market circumstances. Fixed-rate loans, on the other hand, are slightly more expensive than their counterparts due to the added certainty.
In the event of a default, they also face prepayment penalties. You may benefit from a rapid repo rate decrease or a policy rate cut if you have a floating rate home loan. There have been no prepayment penalties for this loan type. So, before deciding on an interest-rate regime, investigate the market, grasp its trends, and choose the rate that ’s convenient.
CIBIL Score for Mortgage
The CIBIL score is a financial index that measures a person’s creditworthiness, or capability to repay the debt. When banks examine a loan applicant’s financial profile, this is an important factor. This score ranges from 300 to 900, with a CIBIL score of above 750 considered optimal for a home loan.
Improving your CIBIL score in the short term can help you secure a loan in the long run. Work on improving your credit score, repay short-term loans on time, making EMI payments, and minimizing your credit card use. A strong CIBIL score, combined with a financial stability indicator – government or reputable private jobs – are considered lucrative grounds for obtaining a declining housing loan interest rate.
The Property’s Value
The property for which the loan is being taken out is also taken into account when calculating the home loan in India interest rate. Your house will have excellent resale value if it is in a good neighborhood, is linked to nearby amenities, and is relatively new. On the other hand, homes in remote places or those that are slightly older have limited resale value. If compared to a property with a lower resale value, a property with a higher resale will have a cheaper interest rate.
Loan-to-Value Ratio (LTV) Ratio
The LTV Ratio is the percentage of the property’s value that is financed by the loan. The interest rate on your loan will be high if the loan amount is considerable. Paying a high down payment minimizes the level of credit that must be accrued, therefore lowering the interest rate. As a result, reducing your home loan EMI means obtaining a better interest rate. The term loan has a positive effect on the interest rate. A longer tenor typically attracts higher rates, but a shorter tenor may give a more accurate deal.
Rates of MCLR
The Marginal Cost of Fund-based Lending Rates, or MCLRs, are a type of lending rate that is based on the cost of Simply put, it’s the lowest interest rate a bank can charge. The bank assesses its MCLR rate on an annual basis, based on various other criteria such as the Cash Reserve Ratio (CRR) and the bank’s operational costs. This is also the time when the bank reviews the interest rates of existing borrowers. As a result, fluctuations in the MCLR rate can affect the interest rate on your home loan.
Home loans are significant financial investments that demand careful consideration and preparation. Understanding your housing loan eligibility criteria will help save money and have your loan paid off sooner. Learn about such factors of your home loan interest rate before you start your road to your dream home.
