Owning a home is significant. Regardless of what skeptics may say, becoming a homeowner brings a sense of accomplishment and relief. Homeowners know that even if life takes an unexpected term, their family will always have a roof over their heads. Additionally, given the massive returns that the Indian real estate market has delivered, real estate investments are a smart choice.
Smart investors always try to secure the lowest home loan interest rates to maximize return on investment. The connection between home loan interest rates and home loan EMIs is direct and there is an indirect connection between return on investment and the rate of interest one can avail of on a loan. A high home loan interest will lead to high home loan EMIs and a high cost of borrowing funds. This, in turn, will lead to a low return on investment. Alternatively, low home loan interest rates lead to low home loan EMIs, low cost of borrowing, and consequently, high return on investment. In this article, we explore home loan interest rates and what borrowers can do to secure a profitable home loan deal.
Home Loan Interest Rates: Everything You Must Know
- There are Different Interest Rate Types to Choose From: One of the first things that you must know is that home loans are sanctioned on three different types of interest rates: floating, fixed, and hybrid.
Floating interest rate loans depend on external market conditions and change with changing market rates. This causes fluctuations in EMIs as well. The interest rate on fixed interest rate loans remains the same until reset by the lender. However, floating interest rate home loans tend to be cheaper than fixed interest rate loans. Therefore, individuals focused on securing a low home loan interest rate must opt for floating home loan interest rates. Some banks and NBFCs also give borrowers the option of going with hybrid interest rates, which are fixed for the first few years but eventually change to the floating interest rate type. This is known as the hybrid interest rate type.
- Having a Good Credit Score is Important: A credit score is a three-digit number that reflects a loan applicant’s repayment capacity and intent to pay back the debt. A high credit score indicates excellent repayment capacity and creditworthiness. Therefore, a score in the range of 750 to 900 can make securing a low home loan interest rate easy and quick.
- A Stable Job and Income Help Too: Financial institutions do everything to eliminate those candidates from the housing loan process who are capable of defaulting on loan repayment. People with unstable jobs and income often default on loan repayment and come under the category of applicants who cannot be entirely trusted. Therefore, financial institutions offer the best housing loan deals to individuals with stable incomes and jobs.
- Ask What You Are Eligible For: When it comes to buying a home, it is common for people to want to splurge, sometimes even aim for a home that slightly exceeds their budget. Loan applicants must always use a home loan EMI calculator or housing loan calculator to decide what they can comfortably repay and what they are eligible for. Applying for a loan amount you qualify for will certainly help you secure a low home loan interest deal.
- Apply to a Financial Institution With Which You Have Had a Longstanding Relationship: Financial institutions also prefer to extend their best home loan deals to individuals who they have known for a long time. This can be attributed to the fact that with old clients, lenders already have all the information they need to assess their creditworthiness. Further, financial institutions also see this as a way to reward the loyalty of their old customers.
Other than the factors mentioned above, maintaining a low debt-to-income ratio, exhibiting low dependency on credit through a low credit utilization ratio, and having fewer hard inquiries will also help you secure a profitable deal. Lastly, try and apply for a home loan when the external benchmark rates are low.
