Having a house of your own certainly gives you a sense of financial security. But with the surging price of real estate, achieving this dream often becomes challenging. While a home loan does make it affordable, one should know that different lending institutions and banks offer housing loans at different interest rates. If you want to bag the best home loan deals, you must be aware of the current rates and the various factors affecting your housing loan interest rate.
Different Types of Housing Loan Interest Rate
Lenders usually offer two types of housing loan rates – Fixed Rate of Interest and Floating Rate of Interest.
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Fixed Housing Loan Interest
For housing loan rates, the interest charged remains constant throughout the loan tenor. Therefore, the EMI for such loans remains the same, allowing the borrower to pre-plan the loan repayment. One should ideally go for a fixed rate if there is a possibility of the market rates going up in the future. On the contrary, if the mark rates go down, you could still be paying a higher rate of interest, resulting in a greater EMI obligation.
Fixed interest rates are ideal when you expect market rates to go up in the future. However, if the market interest regime goes down, you may have to pay higher interest, resulting in a higher EMI obligation. Interest rates may be fixed for a part of the tenor or throughout, based on the type of loan as per the lender’s policy.
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Floating Housing Loan Interest
For floating housing loan rates, the interest charged tends to change with varying market conditions over the loan tenor. A rise in the floating rates consequently increases the repayment amount and vice versa.
Factors Affecting Housing Loan Interest Rate
Although the current home loan interest typically offered by lenders ranges from 8.25% to 15%, there are some crucial factors influencing your housing loan interest in 2022. These are explained as follows.
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Current Income
One of the prime factors that could be affecting the interest rate on your housing loan is your current income. A handsome monthly salary automatically increases the likelihood of paying a hefty EMI, thus reducing the interest burden. Therefore, the higher the income, the better are your chances of getting an affordable housing loan rate. However, this also depends largely on the lender’s perceived risk. A stable income implies financial security.
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Credit Score
A credit score or CIBIL score is used to assess the borrower’s creditworthiness and overall financial health. It is an important factor not only for determining the housing loan interest rate but also for deciding whether or not the loan should be approved. Credit scores usually range between 300 and 900 but most lenders consider 725+ a good score, as it fosters trust between the lender and the borrower, thus ensuring higher chances of loan approval at affordable rates.
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Outstanding Debts
The lender takes into account any outstanding debts to calculate the housing loan interest rate. Someone with a massive debt may be perceived as a risky borrower in the eyes of the lender. This certainly affects one’s possibility of attaining affordable rates. On the other hand, a borrower with minimal obligations and liabilities has a good chance of securing competitive interest rates.
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Poor Repayment History
When approving home loan applications, lenders also look into the borrower’s profile to assess if there has been any default in payment in the past. The interest charged is then based on your track record. A borrower with no history of default has a higher chance of getting a better housing loan interest.
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Lender-Borrower Relationship
The relationship shared between the borrower and the lender also contributes to the home loan interest rate. A well-established, reliable relationship between the two can help negotiate better loan terms and interest rates.
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Repo Rate
The current repo rate at which RBI (Reserve Bank of India) lends funds to commercial banks plays a vital role in determining the rate of interest on your home loan. A drop in the repo rate can get you cheaper, affordable interest.
Being aware of the factors mentioned above can help borrowers make an informed decision. Furthermore, one can also use a housing loan EMI calculator to evaluate housing loan interest rate based on the monthly EMIs.
Why Use a Housing Loan EMI Calculator?
Most reputable financial institutions with a great online presence have their own housing loan EMI calculators that allow easy calculation of monthly installments and a detailed breakdown of the payable interest. One such easy-to-use online calculator is the one offered by Bajaj Housing Finance Limited. All you need to do is access the calculator and enter the values for the chosen loan amount, rate of interest and tenor. The housing loan interest calculator will instantly show you accurate results.
When in search of a home loan, one should look for the lowest housing loan interest rate in 2022, zero or nominal charges, and ease of availability. It is important to do thorough research and discuss all terms and conditions with the lender before finalizing the loan amount.
