5 Factors That Influence the Interest Rate of Your Housing Loan

by Atish Nair Consultant, writer

Do you know why two people taking a home loan can be offered the same at different interest rates? While the difference can be minimal, given the large loan amount, this small difference can also mean lakhs of rupees.

The reason is that the lenders offer home loan at an interest rate that is higher than the base rate set forth by the RBI. So, the lenders have some room for adjusting the interest rate based on many factors related to the borrower. What are these factors? Five of the most important ones are-

1. Your Credit Score

Your CIBIL score or credit score is one of the most important considerations for the lenders. It helps them know how responsible you have been with credit in the past. If your credit score is 700 or above, it is easier to get a better deal.

If your score is 600 or lower, it is better to first try and improve the score before applying for the loan.

2. Cost and Location of Property

The location of the property you are planning to buy plays an essential role in determining its value. For lenders, a property that has excellent amenities is of more value as it probably won't be difficult for the buyer to re-sell the property if required.

Similarly, lenders give more preference to borrowers who are purchasing a home in a new housing project as such projects have more demand as compared to older properties. So, if you are planning to buy a house with excellent amenities in a new project, you can get a better interest rate.

3. Down Payment

The down payment also plays a role in determining the house loan interest rate. In general, a more substantial down payment can get you a slightly lower interest rate. This is because the lender is required to carry a reduced amount of risk as you will be having a higher stake in the property.

Rather than just paying the minimum amount as down payment, it is better to wait for some time, save more, and go for a higher down payment to get a better deal.

4. Your Income

The lender will also lay significant emphasis on your current monthly income. If the EMI of the loan is considerably lower than what you earn every month, you can negotiate a better deal.

This again proves less risky for the lender as a higher income would mean lesser chances of EMI default. Your employer, employment history, type of employment, and existing loans will also be taken into consideration.

5. Marital Status

If you are married and your spouse is working too, this can work in your favour when taking a housing loan. The lender will also consider the income of your spouse for calculating your repayment capacity.

Moreover, some of the lenders also offer a reduced interest rate if the house is purchased on a woman's name. You can also take advantage of the PMAY scheme if you are buying a home for the first time.

Finding the Right Lender

For a hassle-free experience, prefer reputed lenders that are known for the quick approval and excellent customer service. As home loans generally last for 20 years or even more, it is imperative to choose a lender very carefully to experience a mutually-rewarding relationship.

While applying, do consider the factors discussed in this post as they can help you negotiate a better deal.

 

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Created on Feb 22nd 2019 06:29. Viewed 650 times.

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