Home loan interest rates are usually around or below 10% p.a. for all major financial institutions. These rates differ based on customer type, loan amount, etc.
Even though home loan rates are comparatively low, borrowers should try to avail the most competitive rates available. This will reduce the total payable interest and cost of loan, which can otherwise become significant even with a 0.5% higher rate. Some of the factors that determine the interest rates of a home loan are as follows –
Down payment amount
If possible, make a larger down payment while purchasing the property. A larger down payment means a reduced home loan amount, which reduces the lender’s risks. Hence, they can offer reduced interest rates.
Type of interest rate
One can opt for two types of housing loan rates –
Fixed interest rates – The interest rate remains the same throughout the repayment period. Since borrowers will be paying the interest at the same rate throughout, they will be better able to plan their finances. They will also be safeguarded against the fluctuations in interest rates.
Floating interest rates – These rates will vary as per the market trend. The floating interest rate is linked to the MCLR. If the MCLR changes, the housing loan interest rates will also vary. Advantage of opting for a floating interest rate on a home loan is that, if the interest rate reduces, the interest component in EMI will reduce.
Some HFCs also allow borrowers to switch from fixed to floating interest rates or vice versa. Accordingly, you should know how to choose between floating and fixed interest rates.
The borrower’s credit or CIBIL score also affects the home loan interest rates. The CIBIL score is indicative of an individual’s creditworthiness. Accordingly, high CIBIL score suggests that a borrower can handle credit responsibly and is less likely to default. A lender may provide home loan at a reduced interest rate to a low-risk borrower. Besides, if you have a high CIBIL score for home loan, you can also negotiate with your lender to reduce the interest rates on your home loan.
On the other hand, a poor CIBIL score translates to the lender that the borrower is bad at handling credit. According to the lending institution, he or she is a risky borrower, and they will charge a high interest rate on home loans.
Apart from these factors, individuals should also go through the eligibility criteria specified by a lending institution before applying for a home loan.
Home Loan Eligibility Criteria
Even though the home loan eligibility requirements may vary slightly from lender to lender, there are a few essential criteria that a borrower must meet. For instance, borrowers need to have a CIBIL score of 750 or above.
Other requirements are as follows –
Salaried individual –
Age of the applicant should be between 23 – 62 years.
Minimum income of a salaried applicant should be Rs.25,000.
Should be employed for a minimum of 3 years.
Should be within the age of 25 – 70 years.
Should have a business that is running for a minimum of 5 years.
Individuals should know about these factors that can affect their home loan interest rate and take adequate steps. Additionally, they should also have an idea about the income tax benefits that they can avail, which will lower the financial burden.