Most homebuyers take the help of home loans when it comes to property purchases. Now, the first thing that most borrowers look at while they apply for home loan plans is the interest rate that the lender is offering them. This is quite understandable as the interest rate of a home loan can have a significant impact on the overall cost of the loan. It will also influence your home loan EMIs, which is why it is so important to make sure that the interest rate that the lender offers is affordable.
Now, not every lender charges the same interest rate. The housing loan interest rate is based on numerous factors, and it is important to be aware of them in order to understand how to get offered a good rate. So, take a look at the factors that influence home loan interest rates:
- Credit score
Notice how every financial advisor stresses on the importance of a good credit record? Well, they are right! Any lender that you come across is going to check your credit score before approving your loan application. By doing this, they get an idea of your financial planning and responsibility. To get a good interest rate on your home loan, it is essential to maintain a credit score of 750 or more.
- Down payment
Lenders cannot fund 100% of the property price. They can provide a home loan that covers 75%-90% of the property price, depending on the loan amount. Now, if you were willing to put down a higher down payment, this would decrease the lender’s risk. Doing this can help you get a better home loan interest rate.
- Location of the property
The location of the property can play a big role in the interest rate that the lender offers you. If the house is in a great locality, has good connectivity, and offers top-notch amenities, it is bound to have a good resale value. This decreases the risk that the lender takes. If the property you are buying is not so great and has a low resale value, the lender can charge a high interest rate.
- Type of interest rate
The type of interest will also have an influence on your home loan EMIs. There are two types of interest rates, a fixed interest rate and a floating one. With a fixed interest rate, the rate remains constant throughout the tenure. However, a floating interest rate can keep fluctuating during the repayment tenure based on market conditions. Floating interest rates are usually 1-2% lower than fixed interest rates.
Keep these factors in mind while applying for a home loan interest rate. If you are unsure about whether a particular interest rate is an affordable option, using a home loan EMI calculator can help. This home loan calculator will display the home loan’s monthly instalments, which will help you decide whether the interest rate being offered is suitable.