The interest rate of a home loan plays a crucial role in determining its affordability. As the monthly instalments depend on the interest rate levied, most borrowers look for lenders that offer lower home loan interest rate. It ascertains the timely repayment of their advance.
Nonetheless, it is first necessary to learn about the factors that affect interest rates.
1. Credit score
It plays a determining factor in deciding the interest rates of a home loan. For instance, individuals with a higher credit score can negotiate for a low-interest rate compared to those with a less than desirable score.
Preferably try to maintain a credit score of 750 and above to enjoy the lowest home loan interest rate.
2. MCLR
Since April 1st, 2016, RBI has mandated all financial institutions to set their lending rates based on Marginal Cost Lending Rate. It has brought a much-needed transparency in the lending segment as financial institutions cannot lend at a lower price than the MCLR prescribed by RBI.
3. Tenure
Home loan interest rate directly depends on the tenure opted for. For example, the interest rate increases when one chooses a longer tenure. Besides, it also increases the overall cost of servicing a home loan.
4. Down payment
The interest rate of a home loan also heavily depends on the amount made out as down payment. More the down payment amount, lower the interest rate and vice-versa. Thus, those looking for a lower interest rate and affordable EMIs can opt for a bigger down payment to reduce their repayment liabilities.
Being mindful of these factors can be extremely helpful in availing the best interest rates against a home loan.
Additional Read: Most Important Factors for your Home Loan Interest Rates
