In 2020, the housing loan interest rates fell below 8% for the first time in one and half decade, courtesy of repo cuts and several other considerations. This change was received well by intending home buyers looking to finance the purchase with a home loan.

Though the current home loan interest rate has been at an all-time low in the past few months of 2021, the virtue of comparison can further help borrowers make the most of the situation. Comparing loan rates can prove beneficial in more than one way and help make an informed decision that favors borrowers’ repaying capability.

Immediate benefits of comparing housing loan rates

By comparing loan rates, individuals may benefit in these ways –

  • Helps choose the most competitive interest rates that match their repayment capability.
  • Allows comparing credit options provided by leading financiers.
  • Helps to lower the overall loan burden by opting for a financier who extends a loan at competitive rates and reasonable charges.

However, individuals must note that home loan interest rate depends on several factors, and a thorough comparison can only be possible after these are considered.

Factors influencing home loan interest rates

These factors impact loan interest rates significantly –

  • Interest type

The choice of interest type between fixed and floating rate impacts the housing rates significantly. Borrowers who had availed loans with floating interest rate may witness an increase or decrease in the same, based on RBI’s decision to increase or decrease the current home loan interest rates. On the other hand, borrowers who had availed credits at fixed rates have to pay the same interest amount throughout the loan tenor.

  • Credit score

Typically, a high credit score of, say, over 750 helps attract a lower rate of interest as it indicates strong creditworthiness. Conversely, a lower CIBIL score often exposes borrowers to higher interest rates and stringent repayment terms. Individuals may calculate their home loan eligibility beforehand to ascertain their creditworthiness and enhance the same accordingly if required.

  • Loan-to-value

A substantial loan value attracts a higher home loan interest rate due to the risk level it attracts. However, by making a higher down payment of over 20%, individuals can successfully bring down the loan quantum and the applicable interest rate.

  • Property location

The location of the property also influences the rate of interest to a great extent. Typically, properties located in areas specified by the financiers or, in general, having decent connectivity and amenities are more likely to attract the lowest home loan interest rate. In other words, properties with high resale value are likely to help individuals secure a loan at lower interest rates.

  • Loan tenor

Generally, a longer tenor is subject to a higher rate of interest, as lenders consider them to accompany a greater risk of default. With the help of an EMI calculator for home loan, individuals can gain clear insight into how loan tenor may influence their monthly installments.

  • Job and income stability

In most cases, applicants with a stable source of income are preferred over those without any job stability. It is because financiers consider a stable income source as a parameter of a borrower’s repayment capacity. Hence, the ones with regular income flow are more likely to obtain a loan at lower rates.

Individuals should also note that there are several ways through which they can lower their loan interest rate successfully. For instance, by applying for a joint home loan and maintaining a spotless credit profile, they may increase their chances of getting credit approved at lower rates.

Nonetheless, one should not choose a loan option simply because of the current home loan interest rates. Other factors like repayment terms, additional charges, and facilities like loan balance transfer and top-up loans should also be weighed.