Home loan interest rate is dynamic and depends on multiple factors, including the borrower's eligibility. The following are the top five factors that affect the interest rate of the home loans borrowers apply for in India.
Loan Type
Fixed and floating are the two broad types of home loan interest rates. The interest rate on a fixed-rate loan is typically 2% higher than the prevailing floating rate.
Benchmark Rate
Indian lenders generally consider the RBI-set REPO rate as their benchmark for calculating home loan interest rates. This is why the benchmark rate is known as the Repo Rate Linked Lending Rate, or RRLLR.
Lenders determine the RRLLR by adding a margin to the REPO rate.
Loan to Value
Indian lenders generally approve a home loan equivalent to 90% of the property's value. Also, the borrower has to make a mandatory down payment of 10% of the loan amount.
However, you may reduce the effective interest rate by increasing the down payment amount.
The Borrower's Financial Profile
A borrower's financial profile includes their monthly income after deductions and credit score. You may apply for a low-interest home loan if your monthly income is above the income criteria your lender sets.
Also, getting the best rate is possible if your credit score is more than 800.
Tenure
Home loan repayment tenure can be between five and thirty years. If you choose a long-term loan, the effective rate of interest will be slightly higher than a short-term loan.
Besides the five factors discussed here, the property's location and the lender's reputation also play key roles in determining the interest rates of home loans. Use a free home loan interest calculator to check the EMI before you apply for a home loan.
