The housing finance sector has witnessed a remarkable decline in its interest rate levies for several reasons spanning policy changes and lender discretions. All the factors combined have brought home loan interest rates to a historic low today. It can thus be safely assumed that it is the right time to avail a home loan today for completing your house ownership aspirations.
Nevertheless, interest rates on home loans are arrived at after considering several factors. Let’s check out some crucial ones and understand how you can keep a check on your home loan rates for maximised affordability.
Important things to know about housing finance rates
Getting better home loan interest rates is dependent on several crucial factors that you must know about before borrowing the advance.
- Fixed and floating rate levy system
Home loans and other financial products in general, come with an option of fixed and floating interest rate levy system selection. A borrower is thus allowed to select between the two based on his/her suitability of the advance.
Under the fixed-rate system, the home loan interest rate is charged at a fixed percentage throughout the tenor. The total loan liability is thus initially determined accurately with no changes whatsoever. The floating rate system allows interest rates on home loans and other advances to change based on the market rates. Fixed rates are almost always set a notch higher than floating rates, making them a little costlier. However, with floating rates, the risk of rising or falling market rates impacting the housing loan rates comes along.
When choosing between floating and fixed interest rates, one must practice discretion and choose an interest levy type that best suits his/her financial standing based on market volatility predictions.
- The concept of RLLR and MCLR-based lending
Under the floating rate levy, interest is determined as per the base rate system that the lender follows. The two primary types of base rate systems followed are MCLR and RLLR, with the former applicable to levies on previously availed loans only. Thus, the most closely followed and relatable lending basis for understanding is RLLR or the Repo-linked Lending Rate system.
Under RLLR, repo rate is the base rate following based on which the ultimate levied rate is determined. As for housing loans being long-term advances, recent cuts in repo rates have benefitted borrowers significantly, bringing down the overall home loan interest rate in the market.
- Interest rate dependency on repo rate
As already mentioned, home loans are closely dependent on repo rate and any changes thereto. It is the rate at which the central bank of India, the RBI, extends loans to commercial financial institutions. The recent cuts in the repo rate brought it down to a historic low of 4%.
The direct impact of this rate cut was seen in the home loan market, with interest rates coming down significantly as home loans are mostly RLLR-based advances. This rate cut has thus prompted many aspiring individuals to avail home loans due to enhanced affordability and reduced overall loan repayment liability, which helps with easy accommodation of EMIs payable. One can further use the home loan calculator to assess how much to borrow for easy advance approval.
Provided by reputed financial institutions for free, these financial tools help with an elaborate assessment of your borrowing decisions, so you avail the loan affordably both in short and the long run.
When you apply for home loan with these lenders, you can check out the pre-approved offers that simplify the entire process of financing and save time. These offers are available on home loans and loans against property along with several other financial products. You can check your pre-approved offer only with your name and contact number.
- Borrower’s financial profile
Another crucial factor that impacts interest rate levy is the borrower’s financial profile. It includes several financial aspects, primarily including one’s monthly income, existing liabilities, credit dependency, age, and remaining years of service.
Based on these aspects, the lender assesses the risk associated with your borrowing profile and determines the home loan interest rate to levy. Your eligibility criteria fulfilment is, to a great extent, an indicator of your risk profile as well. You must thus consider these aspects, check your financial profile for suitability, and use a home loan eligibility calculator before applying to secure the best rates.
- Other factors impacting home loan interest
Several other crucial factors impact your home loan interest rate as well as the interest accrual. Here’s a look.
- Tenor selected: A longer tenor always leads to higher interest accumulation than otherwise. It is thus ideal to choose a tenor as small as possible for home loan repayment.
- Current liabilities being serviced: The existing liabilities that you are servicing towards other loans and advances also impact your interest levy. A higher liability load on your income means reduced chances of easy repayment accommodation for a new loan along with enhanced risk of repayment default.
- PMAY benefits: In the present times, PMAY benefits are one of the most crucial factors that lead to low-interest-rate levy and reduced interest payment. You must be selected as a beneficiary under the government-led scheme to avail these benefits.
You can look out for several other ways to decrease your home loan interest, which shall bring down the overall loan liability.
When availing the advance, make sure to check other rates and charges along with the home loan interest rate. It allows a suitable assessment of your total loan liability and helps with reasonable affordability checks. Use the high points of your eligibility profile, such as a higher income, to negotiate for better rates with your financial institution.