Applying for a home loan is a significant financial decision that requires careful consideration of various factors. One of the most important factors is the interest rate. It can significantly impact the cost of the loan and the amount you will end up paying over the tenure of the loan.
Here, we will discuss why understanding your home loan interest rate is essential and how it can affect your finances in the long run. If you’re planning to apply for a home loan, read on to find out more.
How Are Home Loan Interest Rates Calculated?
Before applying for a home loan, it is essential to understand the factors that determine the home loan interest rate in India.
- In India, the benchmark rate set by the Reserve Bank of India (RBI), called the repo rate, is a primary factor influencing the home loan interest rate. Banks charge an additional rate on top of the repo rate to calculate the interest rate. Most banks use the repo rate as the benchmark for home loan interest rates.
- Your credit score is also crucial in determining the interest rate you are eligible for. Banks assess your creditworthiness by reviewing your credit score, which is based on your payment history, credit length, the total level of debt, and other factors. A higher credit score can help you secure a better interest rate.
- When applying for a home loan, you can choose a fixed or floating interest rate. While a fixed interest rate remains constant throughout the loan tenure, a floating interest rate changes with market adjustments, which can increase or decrease your EMI. However, banks tend to offer lower rates in the case of a floating interest rate.
- The loan tenure is also a factor that impacts the home loan interest rate. Typically, longer loan tenures tend to have lower interest rates than shorter tenures. However, this may not always be the case.
Besides these primary factors, your relationship with your bank can also influence your interest rate. Banks often offer discounted rates for customers of different categories. You can use an online home loan calculator to estimate the interest rate you are eligible for based on essential details. This can help you plan your home-buying budget and finances.
Practices To Get The Best Interest Rates In India
The following factors impact the interest rate you are eligible for:
- Having a property in a good location or an approved society increases your chances of getting a loan of up to 75-90% of the property value. .
- A good credit score of 750 or above can also improve your chances.
- Applying for a home loan at your existing bank can be beneficial. A good relationship with the bank can help you secure a higher loan amount at a competitive interest rate without hassle.
- A high income also increases your chances of getting a lower rate and higher loan amount.
- It’s essential to maintain and keep all the property-related documents with you, as they help the lender identify the property’s worth and trust your profile.
- Having income proof or a salary slip is essential, as some lenders may reject your loan application without it.
- Applying for a home loan for women at a young age, particularly in your late 20s or early 30s, can make you more eligible for a higher loan amount, as you have fewer financial liabilities.
- Transferring your home loan to a lender offering a lower rate on your home loan can save you money in the long run.
- Opt for a home loan for women as you can get home loans at attractive interest rates from various providers, starting from just 6.95% per annum.
Conclusion
Understanding your home loan interest rates is a crucial aspect to consider before applying for a home loan. The interest rate charged by the lender can significantly impact the cost of the loan and the amount you will end up paying over the tenure of the loan. By considering these factors and following the best practices, you can make an informed decision about your home loan and save money in the long run.
