7 Factors That can Affect Your Home Loan Interest Rate

Convenient government initiatives along with numerous features from financial institutions have led to an increased application for housing loans. With numerous individuals still unable to afford brick and mortar houses, customers must learn in detail the numerous factors which can affect these housing loan interest rates.

Consequently, with knowledge for further reduction in interest rates, individuals who could not afford such home loan schemes before can also make their own houses.

Numerous factors contribute to the approval of a loan application by a financial institution. While it is crucial to learn the factors affecting the rate of interest, customers must also concentrate on the features of a home loan in order to buy a home with a low down payment.

The underneath, however, mainly focuses on the factors affecting the interest rates of a housing loan scheme.

Factors which can affect your home loan interest rates –

  1. Credit score: While a credit score around 750 is considered ideal for the approval of any loan, it also decides the rate of interest offered by the NBFCs. Credit scores denote the risk factor involved in an individual’s borrowing habits, and consequently, high credit scores ensure low rates of interest on the home loan.
  1. Amount of financing: Typically, with higher loan amount applications the interest rate also rises. With factors like income and tenor also influencing the rate of interest, customers should use a loan EMI calculator to calculate the exact rate of interest that will be levied on their loan.
  1. The income of the applicant: This is a crucial factor in deciding the rate of interest offered to an individual. Typically, salaried individuals are able to avail of more convenient rates since their income is more stable in comparison to self-employed applicants. Note that lenders always offer the easiest interest rates to individuals with the highest income grades and most stable employment history.
  1. Type of interest rate: Fixed and floating rates are the two types of interest rates that levied on home loans. While the former is not subject to market changes, the latter is influenced by market conditions. Consequently, the latter can go from economical to expensive and vice versa.
  1. Gender of the applicant: Many women are opting to go for financing options to build their first house. While there can be numerous expert tips for a single woman buying her first home, one of them is to apply for lenders who admissibly offer lower rates of interest for female applicants.
  1. Value of the property: The geographical location of a property is a vital factor that decides its value. A lender will consider a borrower aiming to purchase a property in an urban zone as a less risky prospect than in a semi-urban or rural zone.
  1. Down payment: A high amount down payment while availing a home loan can help borrowers decrease the interest rates applicable. A higher down payment reduces the total loan amount the borrower will avail and lead to lender lowering the interest rates applicable accordingly as well.

Other than lower interest rates, a borrower should also make the best of home loan interest tax benefits to help reduce their total financial burden. Sections 80C and 24b of the Income Tax Act allow income tax exemptions on the interest and principal repaid by up to Rs. 1.5 Lakh and 2 Lakh per annum.

With easy application procedures, it is crucial for every applicant to look up all the detailed features and home loans before applying for them. Consequently, individuals must also concentrate on the above-discussed factors which impact the home loan interest rates. Customers who already have an existing home loan can also consider a home loan balance transfer to a lender offering a lower rate of interest.

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