When it comes to buying a house, most people need to apply for home loan plans for financial assistance. Buying properties is an expensive affair, which is why it is seldom possible to simply rely on savings when it comes to a property purchase. Thankfully, there are numerous home loan plans that lenders offer for borrowers looking to buy houses.
Now, before buying a house, you might be worried about certain aspects of applying for a home loan, one of which could be the loan interest rate. This is a very valid point to be worried about, as the interest rate of a home loan can have a significant impact on the loan’s monthly instalments. If the interest rate offered by a lender is too high, the loan’s EMIs could get expensive too, which could lead to repayment struggles.
But this can easily be avoided if you are aware of how lenders set housing loan interest rates. So, let’s take a look at a few factors that lenders take into consideration while determining your home loan interest rate:
- Credit history
Every financial institution checks the credit history of its applicants. This is because a credit record indicates all the details of previous payments and defaults, which indicates the applicant’s financial responsibility. It helps the lender understand whether the applicant will be able to repay the loan on time. Ideally, it is best to maintain a credit score of 750 or more. Lenders prefer borrowers with good credit scores, which is why they can also offer lower interest rates to those with decent credit records.
- Repayment tenure
Many people do not know this, but even the tenure that you choose to repay the loan can affect the interest rate of the home loan. Most people choose long repayment tenures since it is easier to pay off the loan EMIs. However, do note that the interest payments are higher in this case since the interest is added with each instalment. So, cutting down on the number of monthly instalments by choosing a short repayment tenure can help save on the interest you pay for the loan.
- Type of interest rate
Borrowers can either choose a fixed or floating home loan interest rate. While a fixed interest rate remains the same throughout the loan tenure, a floating interest rate can fluctuate based on market conditions. Now, a floating rate is usually slightly lower as compared to a fixed interest rate. Those who know their EMIs beforehand prefer a fixed interest rate, but if home loan rates are going to drop in the future, it can be beneficial to opt for a floating interest rate.
So, these a few factors play an important role in affecting the interest rate of your home loan. Do note that each financial institution’s terms and conditions would vary, which is why the interest rates they offer would differ from one another. Therefore, it is important to thoroughly research various home loan plans before settling for one.