Everybody likes to have a place they can call their own. While some like staying in rented apartments, most prefer to have a house of their own.
A home loan allows you to buy a house when you don’t have enough to pay at once. It is the driving force for not only home buyers, but real estate developers as well. Home loans are not just for the purpose of buying a house; you could buy property and construct your own house or even take a loan to reconstruct your home.
7 important factors that affect home loan interest rates in India
We all know the basics of taking a loan; you borrow some amount from the bank which you pay back in a set amount of time with interest. The rate of interest depends on many factors and generally lies in between 8% to 14%. Here is a list of factors that influence the interest rates in India:
The banks and financial companies providing the loan need to ensure that you are capable of returning the amount. The easiest way to confirm this is through your annual income. If you have a steady and good income, the interest rates will usually be lower because the banks and financial companies will know that you are capable of returning the amount.
- Credit Score
A credit score is a three-digit number that constitutes an individual’s credit history and credit rating. A credit score has a range of 300-900, 900 being the best. A good credit history is one that is anything above 750. The higher your credit score, higher the chances there are for your loan to be approved. Also, the interest rates will vary according to your credit score. The interest rates may be lower if you have a high credit score.
- Location of property
The area where your property is plays a major role in deciding your interest rate. If the property is in a prime location, or a well known builder is securing it, the chances are that the rate of interest will be lower. This is done so that there is some form of security to the bank or the finance company who is loaning you the money.
- The amount you borrow
The amount you borrow has a direct impact on the interest you pay. If the amount being borrowed is high, there are chances that the rate of interest is low.
- Tenure of the Loan
Usually, the tenure of the loan impacts the rate of interest. Lower rates of interest are issued for loans with longer tenure. This is because the interest outgo is high and the banks ultimately gain a lot more by doing this than by keeping a higher rate for a shorter duration.
The aim is for people to take the loan and most people think that by increasing their tenure they get a good deal in the rate of interest. This is profitable for the banks because the compound interest at the end of the tenure is very high.
- Type of rate of interest
The purpose of loan has an impact on the home loan as well. As mentioned earlier, home loans are for procuring a property to build a house on or for the renovation of an already existing house as well. The rate of interest on standard loans for buying a house will have lower interests in comparison to the interest on loans for home improvisation. Fixed rate loans have higher interest rates as the rates cannot be changed during the on-going tenure.
- Type of employment
Along with your income, the stability of your job is also an important factor taken into consideration by the banks while giving you the loan. The people who are salaried often get a lower rate of interest than the self-employed individuals’. This is because there is a risk involved in providing loans to a person who does not have a fixed inflow of money.
The above-mentioned points are the primary factors on which your home loans will depend on.