Top Factors Influencing the Interest Rates on Home Loan

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Interest Rates on Home Loan

Acquiring a home loan will pave the way for you to build the house of your dreams. Even though building a home can be an emotional investment, it can also represent climbing the ladder of success.

The affordability of home loans entirely depends on the EMIs that you need to pay. EMIs eventually help you pay back the principal and interest amount by adding zero additional stress to your monthly budget. However, it involves a great deal on home loan rates.

There are a wide variety of factors that deliberately influence the rate of interest. In this article, we will discuss a few variables and fixed factors that affect the interest rate on home loans. Please keep reading until the end of the article to know more. Let’s find out.

● Credit Score

If you’ve acquired a loan earlier, then you will know that your credit score reflects your creditworthiness to your lender. This enables your lender to determine whether you are a responsible borrower and make an informed decision.

When you have a good credit score, it will efficiently help you fetch lower home loan rates. It’s mainly because you get a chance to negotiate with your lender on the basis of your creditworthiness. Besides, you will become a lower credit-risk individual, which will make the lenders ready to offer lower interest rates.

So, before applying for a home loan, ensure you have a healthy credit score. You can seamlessly elevate your credit score by making timely repayments and closely monitoring your outstanding debts.

● Interest Type

While opting for a home loan, you can easily choose between fixed, floating, or mixed home loan rates. While the fixed interest rate remains the same throughout your loan tenure, floating rates typically alter.

On the other hand, loans with mixed interest rates usually start off with a fixed interest rate. And after a specific time, you can consider switching to a floating interest rate.

● Property Location

Please note that the location of your desired property also plays a pivotal role in the home loan rates. Those homes with excellent connectivity and amenities will likely have higher resale value. And those which are located in a less desired neighbourhood will have a much lower resale value.

Newer properties have greater resale value in comparison to older ones. As properties with good resale value are lucrative, the lenders also charge lower interest rates. Alternatively, the interest rates are comparatively higher for those properties with a lower resale value.

● Loan Tenure

Loans with a shorter tenure usually attract a lower interest rate, and vice versa. So, to determine the best tenure of your home loan, you can use an online EMI calculator.

● Loan-to-Value (LTV) Ratio

LTV refers to the percentage of the property value you can finance through the loan. Remember, a larger quantum of loans always attracts a higher interest rate for a higher credit risk.

So when you put down a larger down payment, it will automatically bring down the quantum of the loan. And in return, this will essentially reduce the rates of interest.

To Conclude

That’s all, folks! These above-mentioned factors majorly influence home loan rates. While some of these factors remain within your control, most of them are influenced by the economy. Once you keep all of these factors in mind, you can seamlessly pick out a home loan that suits you best.

You can also log on to the website of Bank of Baroda and skim through their home loan offerings. They will help you get the best value loan that fits your budget and requirements perfectly.