Important Factors That Affect Your Home Loan Interest Rate!

Interest rate is one of the vital factors that affect your home loan EMI. The higher the interest rate, the higher your EMI and vice versa. As a home loan involves a considerable quantum of money, even a slight difference in interest rates can go up to lakhs of rupees. Therefore, housing loan applicants strive to get a loan at low interest rates. However, lenders consider various factors to determine your interest rates. Knowing these aspects can help you get the lowest home loan interest rate.

Home Loan Interest Rate

Factors Affecting Home Loan Interest Rates

  • Credit score

Your credit score is a vital determinant of home loan interest rates. A credit score of 700 or above is considered ideal for a home loan. A healthy credit score assures lenders of your creditworthiness and repayment capacity.

On the other hand, an applicant with a lower credit score is a risky borrower because of which they may be charged a high interest rate to make up for the risk the lender has to bear to lend the loan.

Therefore, you must check your credit score periodically. If you find that your credit report has discrepancies or your credit score is low, you must take steps to improve it.

  • Loan amount

If you avail of a high-value loan, it can be a significant risk for the lender, due to which they may levy a higher interest rate. Therefore, it is suggested to pay a higher down payment so that you have to borrow a lesser amount of loan. A higher down payment also denotes that you have ample funds to repay the loan.

  • Type of interest

Your choice of interest type will also affect your interest rate. If you choose a floating interest, your EMI could fluctuate, but you could get a lower interest rate as fixed interest rate home loans are 1.5-2% higher than the floating rate. On the other hand, lenders usually charge a higher fixed interest rate with higher risk exposure.

  • Location of property

Your property has a significant impact on your interest rate and loan value. If the property is old or in a remote location where it would be challenging to sell it, lenders can levy a higher interest rate. This is done to make up for the cost of selling the property. However, if your house property is new and in a posh locality with state-of-the-art facilities and connectivity, you can expect a lower interest rate.

  • Job profile

Applicants who have a stable job profile and steady source of income are more likely to repay the loan timely. Such applicants are considered low-risk by the lender and, hence, lower interest rates. Therefore, applicants like salaried professionals, government employees, and people working in private sector firms are more likely to be levied with lower interest rates.

Apart from the above factors, your LTV ratio, loan tenure, and benchmark rate also affect your interest rate. Knowing these factors can help you apply for a home loan with competitive interest rates.

John R. Wright
Social media ninja. Freelance web trailblazer. Extreme problem solver. Music fanatic. Spent several months marketing pubic lice in the financial sector. Spent 2002-2008 supervising the production of ice cream in Africa. Had some great experience developing robotic shrimp in the aftermarket. Spent several years getting my feet wet with puppets in Miami, FL. Was quite successful at supervising the production of corncob pipes worldwide. What gets me going now is working with electric trains in Mexico.