Five Important Factors that Influence the interest rate on your home loan

Home loans have a significant impact on your financial well-being and life quality over the long term. The terms of the loan you sign will affect the degree of financial stability or stress you’ll be in the years. Deciding on the best EMI amount that is affordable and guarantees timely repayment is essential to borrow smartly. In the many aspects that determine the lending terms, the rate of home loan interest is of the utmost importance. Although other elements like the economic situation and inflation, and income are not under your control, the interest rate is something that you can control to some extent.

Five factors can impact the mortgage rate

Be aware of these factors to make sure your loan repayment is as cost-effective as you can. You can borrow money for immediate use at OakParkFinancial.

The interest rate on home loans kind

To keep from any fluctuations in interest rates, you can opt for a fixed-rate mortgage for your home. The rate you pay won’t be affected by the economic or market conditions. You can plan your repayment with a high degree of certainty. However, fixed rates tend to be a bit higher than floating rates, and the prepayment of a loan under certain conditions is subject to penalties for prepayment.

On the other hand, floating-rate loans let you get the benefit of repo rate reductions and, if you’re anticipating policy rates to decrease shortly, you should opt for flexible interest rates. In addition, penalties for early repayment are not a problem for floating-rate loans. However, the drawback here is that your mortgage interest rate may increase, and there’s a degree of uncertainty.

A regime for interest rates

Floating-rate home loans are tied to an internal or external reference point, and the former guarantee better transmission of rate fluctuations. The majority of loans from the past are made up of MCLRs from lenders; however, a large portion of newer loans are built on the repo rate set by the RBI. In comparison, loans based on RLLR have more similarity to repo rates since the MCLR relies on the internal mechanism of the lender.

If you’re a holder of an RLLR loan, you could anticipate faster and more transparent repo rate reductions. However, the interest rate on your home loan rate may also be more unstable and could result in a reverse effect when you are in a rising rate situation. In both of these situations, keep in mind that the interest rate you receive is subject to a margin and, occasionally, a risk cost.

Your financial profile

Lenders can include in the interest rate the risk premium or spread to consider their risk-taking profile. In other words, the riskier the borrower, the more interest lenders might have to charge to offset the lending risk. Two methods of reducing the risk of lending are:

1. Maintaining a good CIBIL score 

It is a score that ranges from 300 to 900. you should aim for one over 750, which means that you’re trustworthy and have a good payment history. This metric could tip the balance in your favor, and you should review the CIBIL score and increase it by making sure you pay your EMIs in time, restricting the use of credit cards to 30 percent, repairing mistakes on your credit report, and so on.

2. Stability of income 

A mortgage is a substantial financial commitment and usually lasts for several decades. You’ll need financial resources to cover your EMIs for up to 240 months, for instance, for an interest-only loan of 20 years. Thus, financial stability is an essential element and meeting the minimum income requirement outlined in the criteria for home loans and having an excellent job. People who hold government positions or are employed in reputable private institutions are considered low risk. Accounting and medicine are two occupations that could be eligible for favorable interest rates.

The amount of the loan and the Tenor

Larger loans carry greater lending risk and, consequently, higher interest rates. The best solution is to pay an enormous amount for the down payment. Making a more significant down-payment and thus a lower loan-to-value (LTV) is a way to give the lender more security and could help you get the best interest rate.

Also, be cautious with the tenor you select. A longer tenor can aid in making your EMIs affordable. However, shorter tenors can assist you in getting the lowest rate and lower the net interest payments. This is because your financial situation is more likely to be stable in the short term.

The property’s resale price

The rate of interest on home loans is determined depending on the location of the property and the condition, amenities, and other aspects, including connectivity. Properties that are newer and have more resales value will likely be eligible for a lower interest rate. Properties with a high value can be quickly sold when there is no mortgage and, as such, can attract lower interest rates because they decrease the risk of lending.

If you know the most critical factors that impact your interest rate on your home loan, take the appropriate steps to get the most cost-effective loan available like that offered by the Bajaj Housing Finance Limited Home Loan. You can be sure of one of the highest interest rates on a substantial loan amount with this loan. You can repay your loan over 30 years and gain a PMAY interest-free loan and a first-time homeowner who is eligible. For a cost-effective loan, Apply online now!