Home loans in 2020 showed a 17% y-o-y growth in India, allowing individuals to afford their dream properties. The demand for home loan is further fuelled by the central government’s subsidies under its affordable housing scheme, known as PMAY.
If you are contemplating buying a home in the near future, you will find multiple options of housing loans available in the market. Before you proceed to avail one, it is essential to know about the rate of interest and the various factors that may lower home loan interest rate.
Few factors that affect your home loan interest rate
For a high-value loan having a longer tenor, a lower interest rate reduces the monthly outgo making loan repayment easier. Here are some of the factors that would enable you to reduce the home interest to a certain extent –
- Loan amount
With a higher loan amount, the lender’s risk increases. To offset such high risk, a higher interest rate is charged on a home loan. So, if you avail of a relatively low loan amount, limiting the interest rates become easier.
- Credit score
For a good credit score, i.e. 750 or above, applicants’ creditworthiness is held to be high, which translates to reduced risk for lenders. Such applicants can access lower home loan interest rate. However, a score below 650 is taken as poor. Individuals must take all the necessary measures to improve their credit score. A good CIBIL score comprises an essential component in the guide to getting a better home loan interest rate.
- Applicant’s income
Income of an individual is a primary factor in deciding the interest rate on a home loan. High income of applicants assures lenders of loan repayment. Stability of employment for salaried persons also impacts home loan interest rate. On the other hand, for self-employed individuals, business continuity has to be five years or more.
- Location of property
Reduced loan interest rate is charged if property location includes better amenities and infrastructure like banks, railways stations, hospitals, schools, shopping centres, etc. Such a location has a direct correlation with the value of a property. In the case of poor connectivity and fewer amenities, a property’s value is considered low. Thus, the resale of the property will not fetch substantial value for a lender.
- Government subsidy eligibility
Through its initiative of affordable housing by PMAY or Pradhan Mantri Awas Yojana, the Central government can help borrowers to avail a lower rate of interest. On meeting the eligibility criteria, an applicant stands to receive a subsidy on home loan interest rate. Additionally, the government has provided the scope for additional deduction under the Income Tax Act, 1961 for the paid interest on home loans for affordable housing under this scheme.
While the repayment burden may be significantly reduced by taking note of these factors, the application process is also facilitated by many financial institutions through pre-approved offers. Such offers are extended on secured credits like home loans, loans against property, and it involves minimal documentation. You can check your pre-approved offer by submitting a few basic details such as name and contact number.
Hence, one should consider the above-mentioned factors while opting for a housing loan and take advantage of a lower home loan interest rate. It would enable the borrower to save a considerable amount of money towards the cost of interest. Additionally, taking such steps would enable easier home loan repayment over the credit’s tenor.