Since lenders take several factors into account when determining home loan interest rates, knowing those factors will help you find the best deal with the lowest interest rate.
One of the essential financial contributions we will make in our lives is a home loan. With a loan period of at least 15 years, even a slight change in the interest rate will result in a substantial difference in the loan’s total interest cost. Since lenders take a number of factors into account when determining home loan interest rates, knowing them helps you find the best deal.
Here are the significant factors that influence interest rates are:
Credit score
When assessing an application for a home loan, banks and HFCs look at the applicant’s credit score as one of the most significant considerations. Those with a credit score of 750 or higher are deemed creditworthy and receive the best deal with a lower home loan interest rate. Those with a better credit score, on the other hand, will have their loans accepted at higher interest rates.
As a result, pull your credit report at least six months before applying for a housing loan. It will allow you ample time to take corrective steps to increase your ranking. It also assists in identifying fraudulent transactions or mistakes, which, if corrected, will boost your credit score and, thereby, your home loan eligibility. Also, depending on your credit score and other eligibility requirements, checking your credit score regularly can result in pre-approved loan offers.
Type of interest rate
When it comes to home loan rate of interest, there are three types: floating, fixed, and mixed. Although the floating rate and fixed-rate home loans are self-explanatory, mixed rate home loans have fixed interest rates for a defined time before converting to the floating rate. Since fixed and mixed rate loan options come with higher risk exposure, lenders typically charge higher interest to compensate for the loss of interest income.
Job profile
Banks and HFCs tend to lend to people who have a steady job or income stream. As a result, lenders tend to provide specific consumer consumers with a lower interest rate for home loan. As opposed to self-employed professionals, salaried employees typically pay a lower rate of interest. Furthermore, PSU and government employees are the most favored, followed by those employed by significant private sector firms. Doctors and chartered accountants are typically considered having the least risks.
Loan tenure
When the bank agrees on the interest rate to be given to you, the loan tenure you select plays a part. If you can commit a lengthy period, the interest rate on home loan offered gets lowered.