Understanding How Home Loan Interest Rates Work in India?

By SiliconIndia   |   Friday, April 20, 2018
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The interest rate on your Home Loan is based on the prevailing economic conditions of the country as well as your personal credit history and income. You will also need to choose a fixed or floating interest rate on your Home Loan wisely. Since the interest plays a huge role in defining how affordable your Home Loan is for you, knowing everything about it can be very helpful.

These are the considerations related to Home Loan interest rates in India that you must keep in mind.

How home loan interest rates work in India

Interest Rates Vary Based on Your Eligibility

When you apply for a loan, the first thing a lender checks is your credit score. A credit score of 750 and more attests to good credit behaviour when it comes to your repayment history. So, if you have a good credit score, chances are that you Home Loan interest is more nominal that one offered to someone with a low credit score.

Other than that, your income and professional growth also affects the interest you are offered. For example, if you are a medical professional with your own practice or a salaried professional working in a reputed firm, you may be offered a more competitive interest rate.

Thirdly, if you are young you may get a more nominal interest compared to those in their 50s because your earning potential is higher than someone close to retirement. Lenders compare eligibility criteria like credit score, current and future income, job stability and age to analyse your loan repaying capacity. Having a co-applicant with equally good eligibility increases your chances of getting a quick Home Loan sanction at a low interest.

Interest Rates are rooted in Economic Conditions

The demand for urban housing is increasing every day with India also becoming a real estate investment hub for NRIs. This heavy demand pull has increased real estate prices and India today ranks 9 th among 55 International cities on the growing residential property price chart. This overpowering demand is one factor that leads to lenders regulating the interest rate on your Home Loan.

Apart from this, factors such as inflation, money supply, and global economic factors are considered in unison to regulate the Interest rate on your Home Loan. The Reserve Bank of India considers various tools like the Repo Rate, Statutory Liquidity Ratio, and Cash Reserve Ratio to moderate interest rates. Factors that the government encouraging home purchase also affects interest rates. Currently, interest rates on Home Loan are lower than they were a decade ago, so this may be a good time to become a homeowner.

Choose between Fixed and Floating Rates by Considering Their Pros and Cons

While availing a Home Loan, check if your sanction gives you access to funds on a fixed rate of interest. In that case you will have to repay EMIs of the same amount all through the tenor without any alteration up to a few years, after which you fixed interest converts into a floating rate. Choosing fixed interest on your loan sanction is good if you are able to avail the loan on very low interest rate from the beginning itself.

However, floating rate of interest from a lender will allow accessing a sanction on maybe a high interest rate, but you can be sure that with altering market conditions this rate will get reset. So, you may be paying lower interest when the RBI lowers its interest. Going with a low floating interest rate also means that fluctuations can increase the interest rate through readjustment. Though it is beneficial to negotiate the best interest rate from the beginning no matter what you choose, being clear about these two types of Home Loan interests can help you make the right decision.

A Home Loan Balance Transfer can bring Down Your Interest Rate

An efficient way of reducing the interest rate on your existing Home Loan is by refinancing the Home Loan with a lender offering a low interest. The Bajaj Finserv Home Loan Balance Transfer is a good option in this case. Along with getting the same done via minimal documentation, you can also get access to a top-up loan of a good amount on low interest to meet with your varied needs such as home remodeling, appliance purchase, and other personals goals. However, carrying out a balance transfer in the early tenor of your Home Loan can help you save more, as it is during this time that you pay more towards your interest and less towards repaying the principal.

Now that you are aware of factors that affect your Home Loan interest, act quickly and wisely to get the right Home Loan and enjoy becoming a home owner.

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