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Important Factors that Affect Your Home Loan Interest Rate

In: Home Improvement

Taking out a home loan can have significant impacts on your financial health and even your quality of life. How financially comfortable you are or how distressed you are will depend on what lending terms you agree to in the years to come. It’s important to find the right EMI amount which is feasible and which will ensure early repayment when borrowing small amounts rtly. Among all the factors that affect lending terms, home loan interest rates are among the most important. Other factors, such as the economic climate, inflation, and your salary, are beyond your control, but the rate of interest is something you can influence to a degree.

Factors impact your lic home loan interest rate. In order for repayment to be affordable, keep these factors in mind.

Types of home loan interest rates You can take a fixed-rate mortgage to avoid any interest-rate fluctuations. The advantage is that your rates won’t be affected by economic cycles, and you can plan your repayment with a great deal of certainty. Fixed interest rates, however, tend to be a bit higher than floating rates, and prepayments under certain conditions are subject to prepayment penalties.

Floating-rate loans, on the other hand, give you the chance to benefit from repo rate cuts. If you anticipate rates to fall, you should side with floating interest rates. Prepayment penalties for floating-rate loans are waived as well. On the other hand, the downside is that your loan interest rate might increase, and there will be a certain amount of uncertainty involved.

Interest rate regime There are two types of floating-rate home loans: internal or external, the latter ensuring a fairer transmission of policy rate changes. Most older loans are based on lenders’ MCLRs, while many newer loans are based on the RBI’s repo rate. In comparison, RLLR-based loans are more similar to repo rates, since the MCLR is determined by the lender’s internal mechanism.

Rate cuts on RLLR loans are transmitted more quickly and transparently. It is also possible for the home loan interest rate to become more volatile, with a reverse effect in an increasing rate scenario. Remember that interest rates are subject to a margin and sometimes a risk premium too.

Maintaining income stability: A financial commitment such as a mortgage can last for decades. A 20-year loan requires that you be able to service your EMIs for 240 months. As a result, financial stability becomes vital, and you must have a good job. In addition to meeting the income requirement aligned with the home loan eligibility criteria, you must have a good job. Government employees and those working for reputed private companies are considered low-risk. Medicine and accountancy are professions with favorable interest rates.

Amount and term of the loan Larger loans carry more lending risk, so their interest rates are higher. Make a larger down payment as a solution. Getting a low loan-to-value (LTV) and a larger down-payment can give the lender more comfort and may help you secure a better interest rate.

Be careful to choose a tenor that suits your voice. You may find that a longer tenor lowers your EMIs, but a shorter tenor is likely to give you a lower rate and lower your net home loan interest payment. Your financial profile is more likely to remain stable in the short term.

Value of the property at resale It varies based on factors such as a property’s location, amenities, condition, and connectivity. Low-interest rates are more likely to be offered to new properties that have a higher resale value. Besides being easy to liquidate in case of non-payment, high-value property can also be eligible for better interest rates as they reduce the lending risk.

Now that you know the key factors that determine your home loan interest rate, take the appropriate steps to secure a cost-effective loan, such as the Bajaj Housing Finance Limited Home Loan. Obtaining a sizeable loan amount at attractive rates is guaranteed here.

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