Five Major Factors that Influence the Home Loan Interest Rate

When an individual considers applying for a home loan, multiple factors come into play regarding the home loan interest rate. In this regard, most lenders decide the interest rate based on the individual’s credit score and history, age, income, and other pointers.

Hence, knowing these factors beforehand can significantly help borrowers settle for an affordable interest rate. 

5 most important factors that influence the home loan interest rate 

The pointers that fetch an affordable interest rate for the home loan applicants are listed below.

1. Age – 

Financial institutions consider age one of the most crucial factors for interest rates. Younger applicants are much preferred by them, as they are more likely to repay a loan than an older applicant. Because of this, lenders often disburse the loan amount at a lower interest rate to younger applicants than their older counterparts. 

2. Policy rate – 

The home loan interest rate also depends on the policy rate. With the alteration of RBI policy rates, these interest rates will also increase and decrease. For example, the current Repo rate set by RBI is 4.25%; hence most lenders are providing interest rates depending on this. Now, if this repo rate changes, this will affect the interest on home loan deduction.  

3. Credit score – 

This is by far an essential factor to consider before availing of a home loan. A high credit score of a candidate establishes a borrower’s creditworthiness and displays a lesser risk of credit defaulting. In comparison, a prospective borrower with a lower CIBIL score portrays a higher risk for a lending institution to disburse the loan, as it proves a poor history of credit payment.

Experts advise keeping a CIBIL score for home loans more than 750 as this is considered a standard benchmark by most financial institutions. A higher CIBIL score like 750 enhances an applicant’s trustworthiness and lets lenders disburse a loan faster with a lower interest rate.  

4. Income – 

Income comes into consideration when financial institutions decide the home loan interest rate. Individuals with a higher income source gain trust from borrowers as they are more likely to repay a loan without credit defaulting than individuals with lower income. 

Applying with co-applicants in a home loan application process is also essential. This will allow applicants to fetch a lower interest rate as the application will be considered based on the total income of two applicants. Also, it is advisable to link all income sources in an application to gain the trust of the lender.      

5. Tenor – 

If the interest rate is concerned, the tenor is one of the critical deciding factors. Tenor decides EMI amount of borrower’s and the chances of loan disbursal. A longer tenor will fetch a lower EMI and vice versa. Hence, before availing of a loan, candidates can check ways to reduce home loan tenor and EMI. 

Before settling for a loan, it is important to check EMIs beforehand to ease financial calculations. A home loan interest rate calculator allows prospective borrowers to get an amortization schedule that displays a total breakup of financial calculations. Also, this online tool is free to use and provides correct monetary details for the EMI amount.  

Leading NBFCs also offer pre-approved offers that simplify and expedite loan processing. Such offers are available on various financial products like loans against property, home loans, etc. Individuals can enter their name and contact number to check their pre-approved offers. 

Hence, all these factors, in unison, affect the home loan interest rate. So, before availing of a home loan, it is advisable to check all these pointers to settle for an affordable one.