Interest rates on home loans usually depend on the risk factor that an individual poses while applying for such loans from a lending institution or a housing finance company (HFC.) Lenders disburse home loans only to those applicants who generate the faith of repayment of the entire loan amount to the lender after a stipulated tenor.
Apart from this primary condition, lenders charge various rates on their housing loan interest on the basis of different income, employment, and creditworthiness backgrounds of their potential customers. Individuals should however be acquainted with the crucial factors that have an impact on the interest rates to choose most suitable home loans to finance the purchase or construction of their residential property.
Factors affecting home loan interest rates
Several housing finance companies take into account several measures related to the financial capability of an individual before approving and disbursing home loan amounts. Since housing loans are long-term financial commitments distributed over prolonged tenors, lenders extend financial assistance to those individuals who are creditworthy as per their CIBIL score.
The fundamental factors that actively affect the home loan interest rates charged on applicants are as follows –
The credit rating of the applicant
Financial institutions approve home loans only in case individuals have considerable creditworthiness as analyzed by established credit rating agencies such as CRISIL and ICRA. Individuals with CIBIL scores for home loans around or above 750 are eligible to negotiate with lenders for more favorable rates of interest by leveraging enhanced creditworthiness.
Individuals with CIBIL scores lower than 750 can be deemed as high-risk borrowers and housing finance companies may charge higher housing loan rates to counter the risk weightage of disbursing the loan amount to them.
Employment status of an applicant
Applicants who are currently employed under central and state governments as well as with Multinational Companies (MNCs) have the home loan eligibility to avail of more attractive interest rates. It is the stability associated with their job profiles that a lender considers as a guarantee of repayment. Additionally, individuals with stable and consistent employment history also show the promise of repayment and thus benefit from competitive rates of interest.
Individuals who, on the other hand, shift their jobs frequently are considered as risky borrowers due to professional inconsistency and are liable to pay increased rates of interest on home loans.
Down payment amounts
Individuals who contribute higher down payments towards their home loan amounts typically have to pay reduced rates of interest. Since greater investment in down payments on residential properties decreases the loan amount availed, affordable interest rates are charged on the individuals.
Location of the property and other amenities
Housing finance companies charge higher interest rates when the residential property to be financed with a home loan offers is located in an area with a higher rate of delinquencies. Note that the application may even be rejected based on this pointer. In case a housing property is associated with exclusive amenities, applicants may have to pay higher rates of interest on their home loans.
Properties that are located in suburban areas with limited amenities and connectivity can be funded with home loans at lower rates of interest.
Refer to leading lenders and consider the property you are about to purchase as well to avail of a home loan at the most beneficial terms and interest rates.