Home loans have steadily become a vital element of the home-buying process during the previous two decades. Due to simplified house financing processes and property verifications, buyers may now own their desired home. Currently, a number of lenders are offering house loans to customers at various interest rates. The interest rate on a home loan is affected by a variety of factors, one of which is the lending institution chosen. The EMI amount and the applicant’s ability to repay the loan are ultimately determined by interest rates. While certain factors that influence interest rates are stable, others are variable and might have an impact on the home loan interest rate and EMI amount.
Factors influencing Home Loan Interest Rate in India
For home loans in India, there are two types of interest rates: fixed and variable. As the name implies, if you pick a fixed interest rate, the rate of interest on your home loan will remain constant during the length of the loan. If you select a floating interest rate, it will fluctuate over time. When evaluating the value of each sort of house loan rate, several elements are taken into account.
Any new change in RBI policy will result in a change in the interest rate on your home loan. Due to the recent installation of the MCLR (Marginal Cost of Funds based Lending Rate) system, you can now specify a date (usually every 6 months or one year) when your interest rate will be changed. The MCLR is the lowest interest rate a bank can charge on a home loan. The MCLR on the reset date remains valid until the next year’s reset date, even if the MCLR changes between the reset date and the next year’s reset date. This allows you to take advantage of a decline in interest rates immediately.
Your credit score reflects your trustworthiness, payback history, and financial discipline or habits. If you have a strong credit score, you will be considered creditworthy and may be eligible for a cheaper interest rate on a house loan. If your credit score is low, you are deemed high-risk, and you may be requested to pay a higher home loan interest rate in order to apply for the loan.
Individuals with a consistent source of income are classified as low-risk, whilst those with an inconsistent source of income are classified as high-risk. Government personnel, salaried professionals, PSU employees, and those working in significant private firms, for example, are offered cheaper interest rates. Doctors and chartered accountants are considered low-risk self-employed professionals.
Gender of the Applicant
Women’s house loans are available from some banks at low interest rates. SBI, for example, charges female borrowers 0.05 percent less than male borrowers for housing loans.
Bank’s Benchmark Rate
From October 1, 2019, all new floating rate house loans granted by banks will be linked to four external benchmarks: repo rate, three-month and six-month treasury bill rates, and any other benchmark market rate published by FBIL, according to RBI (Financial Benchmarks India Private Ltd.). Because each of these standards produces different results, your home loan rate of interest may vary depending on the external benchmark your bank chooses.
While the RBI has given banks the ability to set their own spreads above the external benchmark rate, the credit risk premium will only alter if the borrower’s credit risk profile changes dramatically. As a result, any significant deterioration in a borrower’s credit profile could result in a considerable increase in the home loan interest rate.
Before applying for a home loan in India, it is advisable to compare all the available options and then select the best one. Apart from the interest rate there are other factors as well that an applicant needs to compare before applying for a housing loan. Moreover, to calculate the home loan interest rate in India, you can use the home loan interest rate calculator from that bank’s website. All you need to do is, enter your information and the calculator will tell you your interest rate.