Those availing home loans in India can testify how expensive it may get to fund your dream home. In such a scenario, every little price cut or reduction in the interest rate can mean a huge respite in the cost of borrowing. However, the interest rate charged to you is a result of many crucial factors that you must consider when you are applying for a loan. Your interest rates are dependent on various internal and external factors. Knowing them can help you get the most affordable rates. So here are 5 major factors that determine your housing loan rates in India.
- Credit score
The credit score is an indication of your creditworthiness and repayment capacity. A good credit score speaks a thousand words for your reliability and positive payment history. Lenders consider your credit score to determine your interest rates. If you have a low credit score, it means you can default on repayments. For applicants with low credit scores, typically, lenders charge a higher interest rate to cover the risk. On the other hand, if your credit score is high, you can get lower interest rates and higher loan amounts.
- Loan amount
When you apply for a higher loan amount, the risk for the lender is higher too. To avoid that, lenders charge a higher interest rate. Similarly, if you are availing a lower loan amount, you could get affordable rates if you meet other eligibility criteria. However, you can still get a lower interest rate on a high loan amount if you can accumulate a higher down payment or margin contribution. A joint home loan can also help you get lower interest rates.
- Interest rates type
Lenders offer three types of interest rates. Fixed interest rates, which remain unchanged throughout the tenure. Floating interest rates, which can change with external and internal factors, and hybrid interest, which is pre-set to be fixed for a couple of years and can be converted to floating interest rates.
Fixed interest rates, though consistent throughout, are higher compared to floating interest rate types.
- Job profile
Your job profile indirectly reflects your repayment capacity and credibility. If you have a stable job profile and are earning a steady source of income, you are deemed to be in a better position to repay the loan. Similarly, often salaried individuals are charged a lower interest rate compared to self-employed applicants due to higher income certainty. Moreover, being employed in a PSU, MNC or government job can help you get lower interest rates.
- Loan to value (LTV) ratio
LTV ratio is the percentage of property value that can be financed via loan amount. The remaining value has to be paid upfront as a down payment. If your LTV ratio is higher, lenders charge you higher housing loan interest rates to reduce their risk. Experts advise that borrowers should have a lower LTV ratio. Your interest rates also depend on the lender you chose. Compare different lenders and choose the one that offers the most affordable interest rates. Also, it could help to apply for a housing loan with a lender with whom you have a banking relationship.
