If you want to purchase a home with the help of a home loan, you need to be aware that you need to pay the interest rate as well along with the principal in the EMIs.
Interest rates based amount along with the principal which a borrower needs to repay in the form of the EMI can make your home loan expensive. The load and payment of the home loan rate are one of the major reasons people don’t avail a home loan.
Pick between floating and fixed home loan rates
When it comes to the home loan interest rates, there are two types of rates that are offered such as floating interest rate and fixed interest rate.
A floating interest rate is impacted by the trends in the market and can affect your payment. Compared to the fixed rate, it is 1-2% inexpensive and is good for people with higher monthly income.
On the other hand, availing a fixed interest rate can help you pay only a pre-decided home loan EMI and is fit for people who are earning a decent salary per month.
Other than these two types of home loan rates, prospective home loan borrowers need to be aware that there are some other factors as well that can affect home loan rates.
Home loan rates: Elements that can increase or decrease it
- The CIBIL Score
Lenders analyses your creditworthiness by pulling out your CIBIL Score when you apply for home loan. If you have maintained your Credit Score well by paying off bills and existing EMIs on time, your lender will reward you with a lower interest rate. People not having a robust CIBIL Score reading 750+ or more may get their loan approved but will have to pay higher home loan rates. Thus, if you want to enjoy lower home loan rates, you now know what to do.
- The home that you want to buy
If the property that you want to purchase is located in a risk zone (such properties may not have a higher resale value) as per the areas notified by your lender, you will need to pay higher home loan rates. Thus, before you finalize your dream home, it would be better to buy a home that’s located in a safe area that could govern lower rates.
- Your down payment amount
Lenders won’t sanction a loan for the entire cost of your new home, the maximum that you can get is 80-85%, and you will need to arrange the left on your own. Thus, if you can put down a higher down payment amount, it will help you reduce the interest and vice versa.
- Home loan tenor
The home loan tenor is the duration that one can avail to pay off the home loan over. If you opt for a longer tenor, your home loan interest rate gets spread into more number of months and you pay smaller EMIs, but you also pay the compounding interest. On the other hand, opting for a shorter tenor not only helps you pay off the loan quickly but even asks for a higher share of your income. But, you are saved from paying compounding interest which you have to pay if you select a longer tenor.
The Bottom Line
You are now aware of the elements that can increase or decrease your home loan rates. If you are ready to apply for a home loan, you will now be in a comfortable position to increase or decrease your interest rate burden. Happy home loans!