You must have come across the fact that every borrower doesn’t get the same rate of interest for the home loan they take. Though the government & RBI declare a figure, but it changes when you take the loan, right? There are various factors that affect the housing loan interest, which we will discuss in this article. Home loan interest is the extra amount; the borrower pays to the lender on the home loan they take. The rate can vary from 8.35-12% per annum, depending on various determining factors of the interest rates.
There are basically two types of home loan interest rates: floating/adjustable rate of interest and fixed rate of interest. Some financers offer semi-fixed or combination of floating and fixed rate of interest.
The adjustable housing loan interest rate is floating in nature; it fluctuates with the changing government policies and market conditions and also the lenders’ policies. It is generally lower than the fixed rate of interest. Though it fluctuates, but most of the time the interest rate figures are reducing. It helps the borrower to save amount and repay the debt quickly.
On the other hand the fixed rate of interest is constant in nature; it is same throughout the loan tenure. Unlike the adjustable rate, it is unaffected by the government policies and market conditions. The fixed rate is higher than the floating rate, perfect for risk-averse borrowers who prefer stability over higher amount.
The semi-fixed or trufixed interest rate is combination of the fixed & floating rate of interest. The rate is locked for two to five years, after which the rates converts to floating interest rate automatically.
There are certain factors which affect the interest rates, some of them are listed below:
- The loan amount has a direct effect on the housing loan interest More the amount the more the rate of interest, depending on the loan slab.
- Nature of property on which the lender is investing the lump sum amount through you. The plot interest rates are higher than the prepared flat or under construction properties.
- The type of interest you choose for your home loan. Floating rates are lower than the fixed rate of interest.
- Location of your property also determines the figure of the interest rate.
- Borrowers’ credibility determined by the credit score and bank statement also decides the home loan interest.
- Women borrowers get lower interest rate compared to the male borrowers.
- The interest rate is determined by the base rate. The base rate is determined by the lender resulting in variation of figures from one lender to other.
- Your job profile also determines the interest rate.
The aforesaid factors are the reason for the variation of interest rates from one borrower to the other. For instance, if a women borrower takes the loan for buying a prepared flat will get .05% low interest compared to a male borrower from the same lender. Similarly if someone takes the loan for buying a plot, then he would pay higher rate of interest.
After going through, you must be wondering how lowering rates would increase your loan eligibility, right. We would try to give you the answer; earlier higher rates resulted into higher EMIs, which called for higher incomes to absorb the monthly EMIs. But when the rate of interest came down, the monthly EMIs were automatically affected. The lower rates when combined with the longer tenure, it resulted into affordable EMIs, which is easily accommodated in your monthly expenses.
Lower EMIs mean, borrowers with moderate income can also afford to pay off the debt comfortably. Hence proved, lowering interest rates can increase the loan eligibility.
Now all you need to put your financial profile in order, with a disciplined expenditure habit.
Hope this article has helped you to understand the basic reasons for variation in the housing loan interest rates.