Since October 2019, housing loans in India are linked to an external benchmark, repo rate of RBI for most lenders. While the policy rate stands at 4% in October 2020, the biggest benefit for borrowers has been interest rate transparency. They can now enjoy the lowest home loan interest rates available linked to the repo rate by tallying different lenders.
A drop in repo rate proves beneficial for floating interest rates. However, there are few other factors which can affect interests adversely and make a housing loan costlier.
Top lesser-known facts affecting interest rates
Along with an applicant’s financial health, other government’s financial policies and large economic factors can always impact interest rates of home loans in India.
- Inclusion of risk premium
The Reserve Bank of India has allowed lenders to include credit risk premium over their external benchmark as part of the margin. They can take the call to increase this premium depending on a borrower’s risk factor. Some financing companies have already raised the risk premium anticipating an increased number of loan defaults, which further shoots up home loan interests.
As a borrower, you need to be extra cautious about your credit profile now. Ensure to make timely payments of EMIs, clear off smaller debts faster and maintain a credit utilisation ratio below 50%. Know the best CIBIL score for housing loan and how to improve yours.
- LTV and larger down payment
Usually, HFCs offer an LTV or Loan-to-Value ratio of up to 80% on properties. It signifies the percentage of the lending amount with respect to the property value. However, if borrowers can make a larger down payment, the quantum of loan decreases along with the rate of interest. Similarly, a higher loan amount leads to a higher rate as the risk factor increases. Try to pay a significant amount of down payment and factor in other charges to evaluate your overall cost of borrowing.
- Property location
Lenders consider the property’s location in determining the rates of home loan.
- Residential properties located in posh areas with top-notch amenities have higher resale value.
- Houses located in remote or less desired areas may come at cheaper prices. However, their resale values are lower.
- New residential properties also come with more resale value.
Those properties having a high resale value appear more attractive to lending organisations. You may avail the lowest home loan interest rate on such houses.
- Job profile of applicants
A strong job profile assures lenders about the applicant’s repayment capability. Having a stable income can qualify you for exclusive interest rates on housing loans. If you undergo a salary hike in the future, you always have the opportunity to negotiate for better rates with the HFC.
Usually, salaried individuals working in MNCs, government offices or private firms are considered low-risk borrowers. Self-employed applicants having a business vintage of a minimum of 5 years can also qualify for better rates. It is recommended to know how to calculate home loan eligibility before applying.
- Loan repayment tenure
Repayment tenures are directly proportional to interest rates. If you choose a longer tenure, the EMIs may be smaller, but the rate of interest is higher. This also increases the total cost of borrowing significantly. On the contrary, a shorter tenure means bigger EMIs but a lower rate of interest. Here, total payment also remains within the budget. Try to settle for a shorter repayment schedule to avail the lowest home loan interest rate.
Go for precise evaluation prior to applying
As various factors affect the rates, a thorough evaluation always keeps one on the profitable side. Opt for an easy-to-use loan EMI calculator online that computes total payment, interest payable and Equated Monthly Instalments instantly. For this, you need to provide your preferred credit amount, applicable interest rate and loan tenure. The tool allows you to adjust with varying details and choose the best suitable deal as per your financial capability. Knowing the monetary outflows beforehand enables you to plan the finances effectively.
Top HFCs in India bring pre-approved offers on a variety of financial products, including home loans, loans against property and more. Pre-approved offers ease the process of availing credit and saves time considerably. You can check your pre-approved offers by providing some essential details online.
The bottom line is that a combination of all these factors contributes to determining and availing the lowest home loan interest rate. While some of these are beyond your control, others like CIBIL score, tenure, etc. must be considered to make a profitable pick. Compare the options available, undertake market research, select a prime location for property and avail the most affordable housing loan in India.