Taking a Home loan is a wise step, especially for people currently living on rent. It saves you from the painstaking expense and makes you a proud owner of a massive investment opportunity and your own sweet home. When considering a Home Loan, the first thought that strikes a layman is the interest rate offered by various financial institutions. This is the primary criterion of comparison, and borrowers prefer financial institutions that offer the lowest House Loan interest rate. The interest rate is the ratio of the principal amount charged to the Home Loan borrower.
But how do Home Loan providers reach a consensus on the interest rate offered to consumers? What are the factors that affect the interest-fixing decision of various financial institutions? On what criteria is a Home loan interest rate offered to you?
In this post, we will find answers to the above-mentioned questions regarding Home Loan interest rates.
How are Home Loan Interest Rates Fixed?
Let’s understand the factors that aid financial institutions to determine the interest rates they charge for Home Loans:
This is the interest rate loan providers must pay to the Reserve Bank of India (RBI) for obtaining funds from them. If this rate is low, financial institutions can also charge a lower interest rate to their customers.
Reverse Repo Rate
This is the opposite of the repo rate. The higher this interest quotient, the lower will be your Home Loan interest rate. The reverse repo rate is the rate at which lenders provide money to the RBI.
To know whether you are eligible for getting a Home Loan, lenders will definitely check your credit score. It will help them determine if you are a high-risk borrower or not. If your credit score is higher, the House Loan interest rate charged to you can be lower. Your credit score is assessed by several factors like your payment history and total debt, etc.
Benchmark Prime Lending Rate (BPLR)
This is the interest rate financial institutions charge to their most creditworthy customers. If an individual has a good credit profile, the lender can charge a lower interest rate on their loans.
Factors Considered While Offering Individual Home Loan Interest Rates
Here are the considerations taken by a financial institution when they offer Home Loans.
One of the most critical Home Loan requirements financial institutions consider is your credit rating, repayment capacity, and credibility. If you have been a responsible borrower, made payments on time, and never misused credit opportunities, you are likely to get a lucrative Home Loan interest rate offered.
Employment and Income
Your monthly income, capacity to pay, stability of employment or business, and sources of income are integral deciding factors lenders consider when offering Home Loan interest rates. This depicts your financial strength and your potential to pay Equated Monthly Instalments (EMIs).
If you make a higher down payment towards your loan, you can get a lower interest rate.
Loan Amount and Loan Tenure
The higher your loan amount and loan tenure, the more will be your interest rate. If you want to get the advantage of a lower interest, you must use a Home Loan EMI calculator and reduce the Home Loan amount, increase the down payment, or reduce the loan duration.
Everyone wishes to get their dream home, and getting a Home Loan at the most affordable interest rate is a win-win situation for homebuyers.
Home Loans can be a great financing option as they can provide you funds instantly to buy your desired house. Make sure you research and compare different House Loan interest rates before making the final call. A slight difference in the interest rate can help you save money over a loan tenure. This can help you in planning and managing your finances effectively and make informed decisions that align with your financial goals and needs.