Home loans from Kotak home loan, HDFC bank, Bank of Baroda Home Loan, etc. can exceptionally affect your financial health and even your standard of living over the long term. The lending terms and conditions you agree to will dictate how comfortable and distressed you are financially and for the time to come. Finding the correct EMI constituent is feasible and ensures swift repayment. Among the various parameters that determine the lending terms, the home loan interest rate is of the most importance. While other parameters like inflation, economic condition, and your income are not in your control, the interest rate is something you can work on to some degree. Here are some of the important parameters that can impact your home loan rate of interest. Ensure to keep these in mind for affordable repayment.
Home loan rate of interest type
To avoid all rates of interest fluctuation, you can take a fixed-interest rate home loan. The benefit here is that your interest rate will not be impacted by the market and economic condition, and you can plan out repayment with a good deal of certainty. But the fixed rate of interest is usually a notch higher as compared to the floating interest rates and prepayments.
Floating interest rate loans, on the contrary, assist you to benefit from repo rate cuts, and if you are looking for the policy interest rates to fall, you must side with a floating rate of interest. Additionally, prepayment penalties get waived for a floating rate of interest. However, the downside is that your home loan rate of interest can increase and there’s some level of uncertainty even involved.
Rate of interest regime
A floating interest rate home loan is pegged to either an external or internal benchmark, with the former ensuring better transmission of policy interest rate changes. Many older loans depend on lenders’ MCLRs, while other newer loans are dependent on the Reserve Bank of India’s repo rate. As compared, RLLR (Repo Linked Lending Rate) based loan bear more resemblance to repo rate as MCLR (Marginal Cost of Funds Lending Rate) is dependent on the lender’s internal mechanism.
If you hold an RLLR loan, you may expect faster and more transparent transmission of the repo rate cuts. But your home loan rate can even become more volatile, and you can have a massively reverse impact in a rising rate scenario. With both regimes, note that the actual rate of interest you get is basically subject to margin and at times, a risk premium also.
Your financial profile
Lenders are allowed to add in a home loan rate, a risk premium or a spread as per your risk profile. In simpler words, the riskier you are, the more lender might require charging to offset lending risk. Major ways to lower the lending risk are –
Keeping a high CIBIL score –
The credit score ranges from 300 to 900, and you must strive for the one above 750, which shows that you are credible and hold a reliable past background of debt payments. This metric may tilt the scales in your favour, so ensure you check your credit score and ameliorate it by paying your present EMIs on time, restricting your CUR (credit utilisation ratio) to 30 per cent, fixing errors in the credit report and others.
Maintaining income stability –
A home loan is a crucial financial commitment, one that usually spans decades. You require financial wherewithal to service your loan EMIs for, say, 240 months, in case you take a 20-year loan. Thus, financial stability becomes an important parameter and apart from mitigating the minimal income need listed, you must also consider other home loan eligibility parameters. Those with government posts or employed at a reputed corporate establishment are looked upon as low risk. Accountancy and medicine are even professions that may attract a favourable rate of interest.
The loan amount and repayment tenure
Higher loan amounts come with higher lending risk and thus, higher rates of interest. The solution is to make a bigger down payment. Going for a bigger down payment and thus, a lower LTV (loan to value), endows the lender an additional comfort and might assist you in securing a better interest rate.
Similarly, be careful with the repayment tenure you select. A higher repayment tenure might assist you to make your EMIs budget-friendly. However, a shorter tenure can assist you to secure a lower interest rate and lower your home loan interest constituent. It is because your financial profile is likely to stay constant over the short term.
Property’s resale value
Home loan rates of interest differ according to your property’s location, condition, amenities, and other parameters like connectivity. Newer properties, with a higher resale value, may probably levy a low rate of interest. High-value properties may be redeemed simply in the occasion of non-payment of home loan and invite better rates of interest as they lower the lending risk.
Now that you are aware of some of the key parameters that impact your home loan rate of interest, take the correct measures to take a cost-effective home loan. Here, you may be assured of a few attractive rates of interest for considerable loan proceeds. You can repay the loan over a time horizon of as high as 30 years and get the advantage from the PMAY interest subsidy. To get cost-effective funding, ensure to apply online.
Purchasing your first house can mean distinct things to distinct people. On the contrary, it can be one of the emotional investments for a few and for others, it might represent climbing the success ladder for others. However, one thing that stays constant is it is a considerable financial commitment. For making your job simpler, you can place an application for a home loan online to unlock the happiness door. However, if you fret about the high rate of interest on a home loan, then this is the best blog for you. Continue reading to learn about how you can get a home loan approval.