Most individuals need to rely on home loans when it comes to buying property. This is because of the fact that property prices can get expensive, and your savings might not be enough to take on such a financial burden. The good thing is that there are many home loans out there to accommodate borrowers of all financial backgrounds.
Now, before applying for a home loan, most borrowers are worried about the housing loan interest rate. This is quite understandable since home loan rates have a significant influence on the monthly instalments of the loan. If the interest rate of a home loan is very high, borrowers might face problems with repaying their home loan EMIs. However, this can easily be avoided by being aware of how financial institutions set home loan interest rates.
So, take a look at a few factors that lenders consider while setting home loan interest rates:
- Repayment tenure
Choosing a particular repayment tenure can also play a hand in determining the interest rate of your home loan. If you choose a shorter tenure to repay the loan, you can actually save money on the interest since it adds up with each monthly instalment. Choosing the longest tenure available would mean that the interest would be higher. Ultimately, it is better to choose a repayment tenure that suits your budget.
- Credit score
When it comes to home loans, financial institutions are very particular about a borrower’s credit score. A good CIBIL record is an indication of timely payments of previous bills and loans. It is advisable for any borrower to maintain a credit score of 750 or above, as lenders offer their best rates to those with good credit scores.
- LTV ratio
For those who are unaware of the LTV (Loan to Value) ratio, it refers to the property value that can be covered by the home loan. The outstanding amount has to be covered by your savings. A high LTV ratio would mean a low down payment. However, do keep in mind that the lender could increase the home loan interest rate in this case. To get a lower interest rate, try to increase your down payment.
- Type of interest rate
When borrowers apply for home loan plans, they need to choose between fixed and floating interest rates. While a fixed interest rate would remain fixed throughout the tenure of the course, a floating interest rate can keep changing throughout the tenure as per market conditions. Do keep in mind that floating interest rates are usually slightly lower than fixed interest rates.
- Employment profile
No financial institution would prefer an applicant with an unsteady employment record. This is because it would increase the risk of untimely repayment of the home loan. While evaluating a loan application, lenders check the applicant’s employment record and bank statements to make sure they are getting a steady monthly income.
Therefore, these are some factors that lenders take into account while setting the home loan interest rate. Make sure to calculate the loan’s monthly instalments to ensure that the home loan rate is suitable.