As the RBI lowered the repo rate to 4% in 2020, several financial institutions also reflected a similar change in their home loan interest rates to encourage borrowing. Presently, the attractive phase of low-interest rate on home loans is a lucrative opportunity for enthusiastic homebuyers to fulfil their dream of purchasing properties.
Borrowers looking for the best home loan interest rate need to undertake thorough market research and compare the interest rates among several financial institutions.
Moreover, after a thorough comparison of home loan rates, borrowers must take active steps to improve their own eligibility. Doing so would allow them to avail of loans at the most favourable terms, ensuring hassle-free repayment.
Important factors affecting home loan interest rate
- Healthy credit score-
Financial institutions consider credit score as one of the crucial factors to determine home loan eligibility. Applicants possessing a credit score of 750 are considered creditworthy and have higher chances of loan approval. On the other hand, borrowers with a relatively low credit score experience hiked home loan interest rate while applying.
Maintaining a healthy credit mix and repaying existing dues on time are some of the ways to keep your credit score over 750. Remember that this rating is one of the essential factors that can affect your home loan eligibility.
- Home value and LTV-
The location of a home plays a pivotal part in deciding the value of your home. For instance, a home with good facilities in the neighbourhood is likely to have a higher value compared to a home with minimal amenities. Thus, having poor amenities in the neighbourhood reduces the house’s resale value in the lender’s eyes, which results in higher interest charges.
Moreover, a larger loan quantum attracts a higher interest rate because while calculating the LTV ratio, financial lenders measure the risk factor when extending a long-term credit. In this scenario, borrowers can choose to down pay more, which can further reduce the loan quantum, thereby reducing the interest rates as well.
Thus, if you plan to avail of a home loan, pay special heed to the location and resale value of the property.
- Loan tenor-
Generally, shorter-term loans are affordable and carry lower home loan interest rates but comparatively higher EMIs. Since monthly instalments depend on the loan tenor as well as interest rates, borrowers can use an online home loan EMI calculator to determine the best loan tenor and EMI for them.
Alternatively, borrowers can use the home loan eligibility calculator available on any financial lender’s website before applying for a loan to avoid all these hassles and confusion. This beneficial online tool demands an applicant’s age, credit history, monthly income status, monthly financial obligations etc. Using this calculator is quite feasible as it will allow borrowers to determine their eligibility before applying for a home loan.
- Balance transfer-
One of the most common reasons to choose a home loan balance transfer is to avail lower interest rate. If you are paying higher EMIs and interest rates, you can choose to shift your remaining home loan principal to some other financial lender offering a better interest rate. In this way, your EMIs and financial burden will be reduced.
Therefore, borrowers can choose to use a home loan calculator before approaching any financial lender with a loan application. This calculator will consider certain factors and assist you in determining how much EMI you can afford.
Moreover, to make the loan application hassle-free and quick, reputed financial institutions extend pre-approved offers. One can also enjoy these offers on a home loan, loan against property, etc. All you need to do is to enter your name and contact details to check your pre-approved offer.
Now that borrowers know the important factors to consider for availing lower interest rates, one must take the right steps to enjoy cost-effective financing.