A Comprehensive Guide to the Housing Loan Rate of Interest

Owning a home is a dream of many individuals and this dream can be easily achieved by applying for a housing loan. These loans offer competitive interest rates and flexible payment tenures. When one compares different lenders they get to understand their terms which helps in making a better decision regarding which one to choose. The reason for their changes is fluctuations in interest rates based on the type of loan, lender, borrower credit, and market conditions.

This article discusses types of housing loan rate of interest and factors affecting home loan interest rates.

Types of Home Loan Interest Rates

When deciding to take a home loan, an interest rate is the most important factor to consider. This is because it affects the interest payments one would need to make while repaying the loan. Anyone would like to repay the loan with lower interest. Hence, understanding the different types of interest rates is crucial. Here are the two types of home loan interest rates.

Fixed Interest Rates

A fixed interest rate on a home loan is a rate that remains constant throughout the tenure of the loan. This means the interest that would be charged on your home loan would be the same till the time you repay the loan.

Benefits of Fixed Interest Rates

Fixed interest rates home loans are preferred by borrowers because they remain unchanged throughout the tenure. Apart from this, various benefits make these interest rates attractive for first-time home buyers.

• Shield: This rate of interest safeguards you from fluctuations in market conditions.
• Stability: It also helps to make consistent payments throughout the tenure of the loan.
• Predictability – Another benefit is that the monthly payments generated from a fixed interest rate will be fixed, helping you to plan these payments.

Variable Interest Rates

Variable interest rates are the rates that keep on changing with changes in the ongoing market conditions. Usually, this rate is applied to the remaining or balance loan amount. It may fluctuate based on market changes.

Benefits of Variable Interest Rates

Some borrowers prefer variable interest rates because of the benefits they offer. These benefits include the following.

• Interest Reduction – One can make lower payments if market rates go down.
• Flexibility – Provides upfront financial benefits and the possibility of reduced rates over time.

Factors Affecting Home Loan Interest Rates

A home loan enables immediate ownership of your desired property. The loan’s affordability is determined by the Equated Monthly Installments (EMI), which cover both principal and interest without straining your budget. Interest rates, which vary among lenders, significantly impact EMIs. These rates are influenced by both fixed factors (like RBI’s repo rate or the bank’s MCLR) and variable elements.

MCLR Rates

These are the minimum rates at which the bank can lend to the borrowers. This rate is decided based on the operating cost, the marginal cost of funds, and the cash reserve ratio. These rates can be easily found on a trusted home loan app.

Loan-to-Value Ratio

Loan to value ratio means the percentage of property value that can be financed through a loan. A larger down payment can help bring down the amount of the remaining loan which will eventually reduce interest rate as well.

Credit Score

A credit score indicates your repayment ability in the past. A low credit score means you’ll tend to default on repayment, whereas a higher score indicates that you are capable of repaying the loan on time.

Location of Property

The location of your property is an essential factor in determining home loan interest rates. A well-established location will have lower rates because of its high resale value. Similarly, a sub-optimal location will have high rates because of its lower resale value.

Job Profile

The job profile is another crucial factor in determining the interest rate for a home loan. This is because a person with a stable job will have a stable income and is less likely to default. Whereas, a person with an unstable job will be charged higher.

Tenure of Loan

Loans with longer tenures include higher interest rates and loans with shorter tenures have lower interest rates. This is because shorter ones are quickly paid for and longer ones even after small interest payments need to be paid in the long term.

Conclusion

Home loan interest rate is one of those crucial factors that help borrowers understand the repayment amount of a loan. This is why it’s essential to research various reputed lenders like Tata Capital offering competitive interest rates. Apart from this, one must know that these rates are of two types, namely fixed and variable. Fixed remains unchanged throughout the tenure of the loan and the variable keeps changing as per market conditions. One must also consider the factors that can affect these interest rates. This helps choose choose a suitable housing loan based on your needs.