Top Factors That Influence Home Loan Interest Rates in India

Buying a house is undoubtedly one of the biggest milestones in one’s life. This is one of those purchases that not only has great sentimental value but also involves a major financial commitment. Due to constantly rising property prices, it can be slightly difficult to make the payment up front. But the concept of home loans has made things a lot easier these days. This financing option allows you to arrange the requisite funds for your purchase. Currently, a large number of lending institutions are offering quick and hassle-free home loans.

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• Key Factors That Impact Home Loan Interest Rates

While choosing a home loan scheme, the applicable interest rate is one of the most important considerations. This not only determines the total cost of borrowing but also influences the affordability of your home loan.

Key Factors That Impact Home Loan Interest Rates

Here are a few important factors that have a direct impact on the rate of interest of your home loan:

Loan Amount

The amount you wish to borrow is one of the key determinants of your rate of interest. Usually, lenders offer lower interest rates if the loan amount falls within a specific range. Higher loan amounts, on the other hand, often result in slightly higher rates of interest, due to the amount of risk involved.

Loan Tenure

Tenure is the duration for which you obtain a loan, and it is another factor that impacts the interest rate. Shorter loan tenures usually have lower interest rates, while longer tenures come with slightly higher rates. However, the total borrowing cost is lower in shorter loan tenures, as the total interest outgo is lower, and you pay more interest if your tenure is longer.

Suggested Read: 8 Tips to Reduce Home Loan Interest Rates

Credit Score

Having a good credit score is one of the most basic eligibility requirements for availing a home loan. This will also have a significant impact on the final interest rate on your home loan, as it reflects your creditworthiness. Generally, applicants with a high credit score (typically above 750) are more likely to secure the lowest rate of interest with more favourable borrowing terms. Similarly, a low credit score indicates a poor credit history and might lead to higher interest rates.

Type of Interest Rate

Home loans in India typically offer two types of interest rates: fixed and floating. Each one of these options comes with its own advantages. If you opt for a fixed rate, this means that your interest rate will remain constant throughout the loan tenure. But if you avail your home loan on a floating interest rate, it will change from time to time on the basis of market fluctuations or repo rate changes. Usually, floating rates are lower than fixed ones, but they can vary over time.

Property Location and Condition

While availing a home loan, the property you’re purchasing serves as the collateral. To minimise the risk involved with the loan, lending institutions often check the location and condition of the property. So, this is one of the major factors that influence the interest rates of your home loan. Generally, properties in prime locations and with better resale value help you get a lower rate of interest. The simple reason behind this is that they are considered low-risk.

Monthly Income

Every lending institution performs a comprehensive background check before sanctioning a loan. This involves gauging the repayment capacity of the applicant through their employment type (salaried or self-employed) and monthly income. Those with a steady source of income are more likely to get better borrowing terms and a lower rate of interest.

Loan-to-Value (LTV) Ratio

A loan-to-value (LTV) ratio in a home loan is the percentage of the property value that you can borrow. This ratio can vary from one lending institution to another. A higher LTV ratio often translates into a higher loan amount and can also lead to higher interest rates.

Suggested Read: How is Loan to Value beneficial for you?

If you’re also planning to purchase a house and want to avail a home loan, it is crucial to understand the key factors that affect applicable interest rates. This not only helps you secure a loan scheme with favourable borrowing terms but is also useful for better financial planning. To make an informed decision, you can use an online home loan interest rate calculator.

At Muthoot Finance, we offer several housing financing schemes with simplified application procedures and highly competitive interest rates. You can explore all the options and make a choice. For more information, you can either reach out to us online or visit the nearest Muthoot Finance branch.