Mortgage interest levels have a significant impact on the overall long-term cost of purchasing a home through financing. On the one hand, mortgage borrowers seek the cheapest possible mortgage rates of interest. On the other hand, mortgage lenders must manage their risk through the rates of interest they charge. The cheapest mortgage rates of interest are just available to borrowers with the most stellar credit histories.
While the financial health of borrowers influences the interest rate they will be offered on a home loan, monetary factors and government monetary policy affect the complete mortgage rate universe. You can find five major factors at play, and most of them reflect the usual rules of supply and demand in one form or another.
It is therefore important that possible borrowers be mindful of the factors that can influence home loan interest that they are now eligible for. Recognising these points and undertaking measures to build on them can enable you to secure a more reasonable rate. This can go a long way into easing the repayment burden since a good marginal reduction in interest rate can help you save lakhs.
An overview of the factors influencing your home loan interest rate
Location of the property
The location of the property you are planning to buy is a substantial determinant of iifl home loan rates. A house or a flat in an up-and-coming area with several amenities and ready usage of transportation facilities is probably going to invite lower rates.
On the other hand, lenders are more likely to charge a bigger interest rate for a house in a location with poor connectivity and fewer amenities since such a house will have a lesser resale value compared to the former one.
This factor reduces the risk a lender assumes by extending a mortgage. Hence, you have chances to secure lower interest levels if the property you are eying is within a prominent neighbourhood.
As such, availing loans for the purchase of such properties at attractive rates of interest becomes easier.
Loan quantum
Choosing the loan amount smartly is one of the ways of getting an improved 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 downpayment. The loan amount can impact the interest you are charged. A larger loan implies a more significant risk to the lender and vice versa.
Thus, if you want to secure lower home loan rates, it’s smart to make a lot more sizeable down payment.Reduced EMIs and other costs are also possible when the loan amount is moderate. You may want to consider saving up to make a substantial downpayment.
CIBIL score
Your credit score determines the house loan eligibility and the eye rate at that you will be servicing it. It denotes your creditworthiness and it is a way of measuring the risk the financial institution bears by disbursing the quantity. Thus, it’s essential to know the best credit score for a home loan and the way to improve yours. A low score can make the lender wary of your repayment capabilities, leading those to levy higher interest levels.
To put it in perspective, suppose a financial institution levies affinity for the range of 7%-15%. A person with a score of 750 may be offered financing at 7.5%-8%. If their score is in the number 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 incur interest levels in the number of 10%-15%. It’s a good idea to inquire about credit history requirements of a specific lending institution beforehand.
Type of interest rate
Financial institutions offer two types of interest rates, which are floating and fixed. The former varies based on changing base rates. As for the latter, it remains unchanged. The floating interest rate is usually between 1% and 2% lower than the fixed rate. Please note that floating rate revisions do not affect the amount of instalments, but they may affect the duration of the loan.
Alternatively, floating-rate allows you to benefit from base rate decrease and enjoy lower interest charges initially. You should use an online home loan EMI calculator to reckon which kind appealing rate you will find yourself more comfortable with.
Income stability
The cost of a housing loan is significant. During the tenor of 240 months, financial institutions will be looking for evidence you can service your instalments through the period sans hiccups. You need to ensure your earnings are stable to accomplish this goal.
On home loan interest rates, a lender is likely to charge a reduced interest rate to salaried individuals, especially those employed in anyone sector or reputed private companies.
People eligible for pre-approved loans may also enjoy some leniency in the rate of interest. The application process for these types of loans is also streamlined, and they can be applied to a range of financing options, such as a home loan and a loan against property. With just your name and mobile number, you can check your pre-approved offer.
Nonetheless, you shall be judicious regarding the repayment tenure besides ensuring low home loan interest rates. You could alleviate the instalment burden with a prolonged tenor but note that interest outgo will be significant if so. Thus, weigh your priorities before you obtain a mortgage.
