In India, housing loan interest rates offered by different reputed financial companies vary, depending on several factors. Mostly, this variation occurs due to the change in the financial institution’s policy, revision of the repo rate by the Reserve Bank of India or a borrower’s credit history.
In this context, the primary factor affecting home loan interest rates has been discussed below.
What are the Factors that Affect the Housing Loan Interest Rates?
Here are the significant factors to keeps in mind that has direct impact on the housing loan interest rates in 2022:
- Credit Score
The overall financial status of a borrower affects the housing loan interest rates up to a significant extent. A credit score, in general, helps assess the borrower’s creditworthiness. This parameter helps financial companies determine that a borrower’s past borrowing history was positive.
Generally, financial institutions evaluate credit history based on past payment history and financial liabilities of borrowers, including existing debts. Moreover, a healthy credit history increases the chances of loan sanctioning at comparatively lower interest rates. Besides this, it is pivotal to consider how credit score can determine home loan EMIs.
- Type of Interest Rates
As interest rates of home loans come in different types – fixed, floating and mixed-each of these affects the amount payable as interest to a great extent. For instance, if a home loan follows fixed interest rates, then one interest rate will be applied throughout the tenor.
Simultaneously, if home loan rates are floating in nature, the interest rates fluctuate according to economic changes. And mixed interest rates remain fixed for a period before changing to floating rate. Therefore, out of the three types of interest rates, in the case of a floating rate of interest, borrowers can enjoy a reduction in interest payment under a favourable situation.
- Income and Occupation
The monthly income and the nature of the job performed by an individual play an essential role in setting the home loan interest. The income earned per month allows the lending institution to understand a borrower’s repayment capacity.
- Value of the House
One of the pivotal factors that affect housing loan interest rates is the value of a property and its location. For example, if a property is located in a low-profile area that consists of poor facilities, the resale value of this property will be less. In this case, a lending institution may charge a high-interest rate on loan.
In addition to this, while setting the home loan rates of interest; a financial company considers a plethora of factors like age and Loan-To-Value (LTV). If LTV is higher, it is highly possible that a reputed financial company can sanction a loan at lower interest rates.
In addition to this, various recognised lending partners offer pre-approved loan offers to borrowers on secured loans like home loans and loans against property, which constitute effortless documentation, fast disbursal of loans and comparatively lower interest rates. To check their pre-approved loan offers, individuals must enter their name and contact information.
Interest rates of home loans affect repayment amount, which is directly proportional to financial burden of a borrower. Generally, home loan balance transfer occurs because of the availability of lower interest rates with different lending institutions.
Thus, housing loan interest rates are one of pivotal factors that affect the repayment amount as well as the financial management strategy of a borrower.