Know Everything About Housing Loan Interest Rates

Home loans have high-value sanctions, affordable interest rates, and long repayment tenors. However, the RBI raised the repo rate to 5.9% in September 2022, which led to many financial institutions increasing their loan interest rates. Ergo, individuals planning to apply for a home loan must know everything about housing loan interest rates in 2023.

What are the types of home loan interest rates?

There are 2 types of home loan interest rates:

  • Fixed rates

These rates remain constant throughout the repayment tenor.

  • Floating rates

These vary according to market interest rates, conditions, and the RBI’s repo rates.

What are the factors that affect housing loan interest rates?

Here are 4 factors that affect home loan interest rates:

1. Benchmark lending rates

All financial organisations follow certain benchmark lending rates to determine their loan interest rates:

  • NBFCs follow the prime lending rate (PLR). 
  • Banks follow the RBI’s repo rate.

2. Credit score

Lenders impose lower housing interest rates on borrowers with higher credit scores since these borrowers are deemed reliable and trustworthy. Conversely, borrowers with lower credit scores have higher interest rates imposed on them.

3. Income and employment

Salaried individuals, having a steady income source, are likely to get lower interest rates than self-employed individuals.

4. Property characteristics

A higher property resale value equates to lower interest rates. Aspects that determine a property’s resale value include:

  • Age
  • Location
  • Amenities
  • Condition

How to increase home loan eligibility?

Here are 5 ways to increase home loan eligibility, thus, increasing maximum borrowable loan quantum:

  • Maintain credit profile

Applicants should maintain a credit score above 750, with a clean repayment history to avail of the maximum borrowable quantum.

  • Add a co-borrower

Adding a co-applicant while applying for home loans splits the repayment burden and considerably enhances loan eligibility since there are 2 applicants.

  • Choose longer repayment tenors

Longer repayment tenors directly translate to lower EMIs, thus, lower financial burden.

  • Clear outstanding debts

Individuals should ideally clear all existing loans and debts before availing of a home loan to boost eligibility.

  • Make larger down payments

Lending institutions typically offer a 75-90% LTV ratio on the property’s value. Thus, making larger down payments aid in reducing interest rates and EMIs.

Check how applicants can reduce home loan interest rates.

How to choose the best home loan?

Here are 4 essential factors to consider while applying for a home loan:

  • Interest rates

Since housing loan interest rates determine the EMI amount, individuals must choose lenders offering low-interest rates.

  • Maximum quantum

Financial institutions usually provide a 75-90% LTV ratio on the property’s value. Therefore, based on eligibility, applicants must review which lending organisation provides them with the maximum borrowable loan quantum.

  • Tax benefits

Under sections 24, 80(C), and 80(EE) of the Income Tax Act, there are tax benefits on home loan interest rates. Ensure that lending institutions are in line with these tax benefits.

  • Additional fees

Individuals should be wary of whether lending organisations charge processing and foreclosure fees.

  • Processing fee

Financial institutions levy this charge to process their borrowers’ loan applications.

  • Foreclosure fee

Lending institutions levy this charge when borrowers foreclose the loan before the repayment tenor is over.

What are the advantages of a home loan balance transfer?

Borrowers burdened with high-interest rates can transfer their outstanding balance from their existing lender to another offering lower interest rates. Here are 5 advantages of a home loan balance transfer:

  1. Low-interest rates
  2. High top-up
  3. Insurance provision
  4. No additional fees
  5. Online account management

Individuals can know more about balance transfer here.

Various lending institutions extend pre-approved offers on financial products, such as a home loan, loan against property, etc. Such offers expedite and ease loan application process. Applicants can check their pre-approved offers by providing the necessary details.

Individuals must conduct diligent research on several lending institutions before settling on one. Said research may include comparing loan deals and offers, housing loan interest rates, terms and conditions, etc.