Factors That Determine Home Loan Interest Rates

Home loans are the most preferred form of borrowing when it comes to purchasing a house. The home loan eligibility and interest rate on housing loans can vary from time to time, and it is important to be aware of the latest home loan interest rates to make an informed decision.

Latest Home Loan Interest Rate

The interest rate on a home loan is determined by various factors. Some of the factors that determine the latest home loan interest rate include the loan amount, loan tenure, credit score, income, property value, and location. In India, home loan interest rates have been on a declining trend in recent years, thanks to the Reserve Bank of India's efforts to keep the economy afloat during the pandemic. The latest home loan interest rate in India ranges from 6.70% to 8.50%, depending on the lender and the borrower's eligibility.

Main Factors That Affect Housing Loan Interest Rates:

1.Credit Score

A credit score is a three-digit number that ranges from 300 to 900. It is an indicator of your creditworthiness and financial health. A higher credit score means a lower risk for the lender, and hence, the borrower can negotiate a lower interest rate. A credit score of 750 or above is considered good, and borrowers with such a score are likely to get the best home loan interest rates.

2.Loan Amount

The loan amount is another factor that affects the home loan interest rate. Lenders are more willing to offer a lower interest rate for a higher loan amount as it reduces their risk. However, borrowers must remember that they should only borrow what they can afford to repay, even if it means a higher interest rate.

3.Loan Tenure

The loan tenure is the period for which the borrower will have to repay the loan. A longer loan tenure means lower EMI payments but higher interest payments over the loan tenure. Lenders are more willing to offer a lower interest rate for a shorter loan tenure as it reduces their risk.

4.Income

The income of the borrower is a crucial factor that determines the home loan interest rate. A higher income means a lower risk for the lender, and hence, the borrower can negotiate a lower interest rate. However, lenders also consider the stability and consistency of the borrower's income before offering a lower interest rate.

5.Property Value

The property value is the market value of the property being purchased or mortgaged. A higher property value means a lower risk for the lender, and hence, the borrower can negotiate a lower interest rate.  However, when you take housing loan, you will have to pay interest on the amount borrowed. Lenders also consider the location of the property and the future prospects of the area before deciding on the interest rate.

How to Get the Best Home Loan Interest Rate?

1.Maintain a Good Credit Score

The first and foremost thing to do to get the best home loan interest rate is to maintain a good credit score. A credit score of 750 or above is considered good, and borrowers with such a score are likely to get the best home loan interest rates. If your credit score is not up to the mark, you can improve it by paying your bills on time, reducing your credit utilization ratio, and correcting any errors in your credit report.

2.Compare Lenders

Before applying for a home loan, it is essential to compare the interest rates offered by different lenders. You can use online home loan calculators to compare the interest rates and calculate the EMI payable for different loan amounts and tenures.

3.Negotiate with Lenders

Once you have shortlisted the lenders with the best interest rates, it is time to negotiate with them. If you have a good credit score and a stable income, you can negotiate a lower interest rate with the lender. You can also negotiate for other benefits like a waiver of processing fees or prepayment charges.

Final Thoughts

Apart from these factors, the latest home loan interest rate is also influenced by the economic environment. Lenders typically adjust their interest rates in response to changes in the repo rate, which is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks. The RBI uses the repo rate as a tool to control inflation and regulate the money supply in the economy. If the RBI reduces the repo rate, commercial banks will have access to cheaper funds, which will encourage them to lend more to customers. This, in turn, will lead to a decrease in the interest rates offered by banks. Conversely, if the RBI increases the repo rate, commercial banks will have to pay a higher interest rate to borrow money from the RBI, which will lead to an increase in the interest rates offered by banks.