Are you dreaming of becoming a homeowner but lack sufficient funds? Don’t worry, you can still purchase a home in India by availing a Housing Loan. However, securing a loan may require a good credit history and a steady income.
Several factors can impact the interest rates on a Housing Loan, which, in turn, can affect the EMI amount. Thus, to make informed decisions, understanding these factors is essential. This post will give you an overview of the factors that can affect not only Housing Loan interest rates and EMIs but your financial planning too.
One of the most critical factors that can impact Housing Loan rates is the borrower’s creditworthiness. This refers to an individual’s ability to repay the loan based on their credit score and income.
Lenders use credit scores to assess an applicant’s creditworthiness. Those with good credit scores are more likely to receive a Housing Loan at a lower interest than those with poor credit scores. A poor credit score indicates a higher risk of default, which can make lenders reject the loan application.
– Location and market value of the property
The location and market value of the purchased property also plays a crucial role in determining the Housing Loan interest rate. Lenders will typically evaluate the property’s location and market value before deciding on the loan amount and interest rate.
Lenders will prefer properties in posh areas with high resale value as they are less risky investments. This can result in lower interest rates and EMIs for the borrower. On the other hand, properties in remote or less popular areas may have lower resale values and may lead to higher interest rates and EMIs for the borrower.
– Income and job stability
Before approving a Housing loan, lenders assess the credit risk associated with each applicant. Although an online Home Loan Interest Calculator can give you an idea of the interest rate you may be offered, lenders may adjust the rate after considering your income and job stability. Those with a low income or a history of changing jobs frequently may be perceived as financially unstable, which increases the credit risk for the lenders. To reduce the risk, lenders tend to increase the interest rate for such applicants.
– Housing Loan term
The repayment period of a Housing Loan directly affects the interest rate. A longer loan tenure includes a lower monthly payment but a higher interest cost overall. Thus, Housing Loan providers often increase the interest rate for extended repayment periods. Similarly, borrowers may receive lower interest rates for Housing Loans with shorter repayment periods.
While a longer tenure may result in lower EMIs, it also leads to higher overall interest charges. Conversely, a shorter loan tenure may result in higher EMIs, but the borrower pays less interest overall. To determine the overall interest charges for a Housing Loan, use an online Home Loan Interest Calculator.
– Current Marginal Cost of Funds-based Lending Rate
The MCLR (Marginal Cost of Funds-based Lending Rate) is decided by the RBI and represents the lowest interest rate lenders can offer in India. If the MCLR decreases, then Housing loan interests may also decrease.
Some lenders offer Fixed and Floating interest rates for Housing Loans. With a Floating interest rate, the interest rate will change according to market rates, causing the EMIs to fluctuate. On the other hand, a Fixed interest rate will allow the borrower to know the EMI amount beforehand to make the necessary payments.
Understanding the factors that affect Housing Loan interest rates and EMIs is crucial for borrowers. The interest rate plays a significant role in determining the affordability of a Housing Loan. Thus, borrowers should know the factors impacting Housing Loan interest rates and the resulting EMI amounts.
You can use an EMI Calculator to monitor your loan EMIs and pay them early to avoid any charges that could affect your credit score.
Also, Check: Sanction Vs Disbursement in Loan