In February 2021, the RBI decided to keep the current repo rate unchanged, i.e. at 4%. This accommodative stance was adopted to boost economic activity in the country. As a result, the home loan interest rate offered by top financial institutions continues to be at its all-time low in the last 15 years.
While this is enough to entice first-time homebuyers to avail a loan to finance their purchase, financial experts recommend comparing lending rates offered by top 10 financial institutions. Generally, lenders tend to charge a spread-over repo to account for their cost of operation. This is why comparing the rates come in handy for selecting the lowest home loan interest rates. However, intending borrowers must note that interest levied on loans depends on several factors.
Factors Influencing Home Loan Interest Rates
Here are a few factors that tend to influence home loan interest rates –
- Interest type
Fixed and floating are the most popular types of interest rates. While a loan with a fixed interest rate remains the same throughout the tenor, credit options with floating interest types react to the change in repo rates.
- Applicant’s credit history
A spotless credit profile and a high CIBIL score for home loans influence the interest rate positively. For instance, applicants with a credit score of above 750 and a track record of timely repayment are more likely to secure a loan at lower interest than applicants who have a track of late repayment or default. Hence, one can say that improving overall creditworthiness is the ultimate guide to get a better home loan interest rate.
- Loan-to-Value (LTV) ratio
The percentage of down payment while purchasing a house also influences the loan rates largely. Generally, financial institutions require borrowers to pay at least 20% of the property’s value from their pocket. However, making higher down payment individuals lower the required quantum of money and attract a lower home loan rate of interest.
- Loan tenor
Financial institutions consider loans with longer loan tenure to be more prone to default than the ones with a shorter repayment period. As a precautionary measure, financial institutions levy a higher loan interest rate on them. Intending borrowers may consider using an EMI calculator for a home loan to understand how their choice of loan tenor can influence their repayment capability.
- Applicant’s financial standing
Applicants with a regular income and a stable job are considered to have a robust financial standing. In other words, financial stability is a crucial factor when it comes to determining the best loan interest rates for different applicants.
- Property location
The property’s location in question also helps determine the home loan eligibility of an applicant and, in turn, influences the interest rate he/she will secure. Generally, properties located in prime areas with better connectivity and amenities have a high resale value. This, in turn, helps loan borrowers to secure credit at better terms of repayment.
While it is normal for individuals to incline towards the lowest loan interest rate, individuals should also factor in the additional charge. Generally, leading HFCs are transparent about levying additional charges and provide borrowers full details on it.
They also provide pre-approved offers to customers that simplify the repayment process. The said offer is available on financial products like home loans and loans against property. You can check your pre-approved offer online in a few steps with your name and contact number.
Individuals may check the loan interest rates offered by the top 10 financial institutions to pick the most competitive one. However, homebuyers should also factor in the features offered by the HBFCs and their terms of service to make an informed decision.
Furthermore, before applying for a certain loan amount, individuals may consider using a home loan interest rate calculator to determine their repayment capability.