Purchasing a home requires an individual to invest a substantial amount of funds, which one can acquire by availing a home loan. A report stated that the home loan market in India is expected to grow at a CAGR of 22% between2021 and 2026.

The reason behind this change is predicted to be urbanization and easy access to such forms of credit. Potential borrowers should know that the Indian market has diverged into floating and fixed rates in terms of home loan interest rates. The majority prefer a floating interest rate due to multiple advantages and features as compared to a fixed interest rate.

Though a home loan seems tempting misinformation or misconception about home loan rates and EMI can push a borrower into excessive debt. Here are ten tips to safeguard a smart home loan applicant from unfavorable monetary troubles.

8 Factors to keep in mind regarding home loan interest rate

1.Type of interest rate- One of the important things you must know before taking a home loan is to understand the types of interest available. Ideally, lenders offer two variants of a house loan that is floating and a fixed rate of interest. With floating rates, the monthly instalments change as per the market conditions.

Moreover, these rates are reliant on a lending institution’s base rate, which keeps on modifying. Floating rates are preferred as EMIs can reduce in the course of the tenure. However, with market changes, EMIs can increase as well. Whereas in fixed rates, the monthly installments remain fixed and equal throughout the repayment tenure.

2.Credit score- An individual’s credit score plays an essential role in determining the home loan interest rate. A home loan applicant having a CIBIL score above 750 is considered trustworthy in terms of creditworthiness. Repaying the outstanding balance on time and maintaining a financial discipline increases the chances of home loan approval at a lower interest rate.

3.Loan amount-The interest rate on a home loan depends on the different slabs set by a financial institution. Home loan interest rates also change with changes in the loan amount. Interest increases when the principal amount is high, and vice versa.

4.Borrower’s income-An applicant’s income is a significant factor that is checked by a lender before sanctioning a loan. Applicants need to have a stable income source to avail the best terms on their housing credit.

5.Lending benchmark (external and internal)-Marginal Cost of Funds based Lending Rate or MCLR is the threshold fixed by RBI, which directs that the floating home loan rates can be based on four external benchmarks. These Are the repo rate, the benchmark set by Financial Benchmarks India Private Ltd and three months and six months treasury bill rates. One must also remember that change in MCLR directly affects the home loan interest rate, which is why financial institutions set up their interest rates accordingly.

6.LTV ratio-The Loan-to-Value ratio is the proportion of property price, which is financed via loan proceeds to the actual price of the same. With a lower LTV ratio, the down payment increases, consequently, lowering the home loan interest rate as well.

7.Applicant’s gender- Gender plays a vital role in determining the rate of interest. A female home loan applicant enjoys the exclusive features on her outstanding balance and receives concession on the interest rate. Usually, women borrow to get around a 0.5% reduction over the current rate of interest.

8.Favorable terms for government employees- There are benefits of home loans for government employees owing to their job security.
Based on your eligibility and credit history, reputed financial institutions also provide pre-approved offers to ease loan approval. These offers are valid on products like loans against property and home loans. You can check your pre-approved offer online by providing details like name and contact number now.

One can limit liabilities from his/her housing credit by understanding the factors mentioned above. Increased knowledge and awareness should ease repayment considerably.