Now that you have zeroed in on the residential property to purchase, the next step is arranging for the money. If you do not have enough funds to make an outright property purchase, you can always avail a Home Loan.
Currently, home loans are readily available for prospective home buyers with good credit profile. Being a high-ticket credit and that too for extended tenure up to 30 years, you must try and avail the lowest possible Home Loan Interest Rate. For, even a slight reduction in interest rates can translate into substantial savings.
The question that you must answer now is that how to unlock the best Home Loan offers available in the marketplace. Read on to know more.
Your credit score and financial discipline primarily help the lender gauge the applicable rate of interest for your loan application. However, as the interest rates fluctuate periodically, having an understanding of how do lenders determine the rate of interest will help you seal the better Home Loan deal.
Here are the various factors that can help you lock a lower Home Loan interest rate:
One of the sure-shot ways to get the Best Home Loan in India is to ensure that you have a good Credit Score. The lenders use your credit score for assessing your creditworthiness. An excellent credit score reduces the risk involved for lenders, and you are able to lock the lowest possible Home Loan interest rate. So, always observe healthy credit practices to ensure that your credit score always stays 750+. If your credit score is more than 750 mark, the chances of swift loan approval are significantly higher as compared to an application with lesser than 700 score.
The location of the property is also an important factor in determining the Home Loan interest rate. If the residential property you are buying is located in an upscale neighbourhood with all essential amenities nearby, the rate offer would be more competitive. But if the property is located in an isolated or under-developed locality, the Home Loan interest rate charged would be comparably higher.
Well, property located in an urban location is more saleable as well as has a higher potential of appreciation. So, you should try and select your new home in an expanding neighbourhood to get the best interest rate.
The amount of money required is also an important factor. Lower is the quantum of loan required; lower is the interest rate and vice versa. For instance, HDFC Home Loan for up to Rs. 30 Lakh is available at interest rates starting from 8.35% per annum. While the interest rate for the same above Rs. 75 Lakh starts from 8.70% per annum. You must, therefore, make as much down payment as your financials allow and bring down the loan amount and enjoy the benefits of lower interest rates.
If you have been working with your current employer since last two years and have received multiple promotions during the period, you can lock the lower interest rates for your Home Loan. Most lenders want borrowers who have a stable employment history as it reduces the risk of default on repayments. Whereas, if you change jobs frequently for no major reason, the lender will offer you a higher interest rate.
In case you are self-employed, your business must be a profit-making venture for at least three years to get the best interest rate.
This all-important financial ratio is a significant factor that decides your Home Loan rate. This ratio specifies the total part of your monthly income that goes for loan repayments. If you have multiple loans and Credit Card debts, then a major part of your income goes towards repayments, leaving you with a lesser amount for your monthly expenses. You must ensure that your debt-to-income ratio stays below 40% at all times, as it is the threshold followed by the lenders. If required, pay-off your Personal Loan or Credit Cards before Applying for a Home Loan to get the best interest rates.
Home Loans are available with two types of interest rate structures, fixed and floating rate. While the floating rate is linked to an external benchmark specified by RBI (usually the repo rate), the fixed-rate structure is determined by the lender by adding a spread over the repo rate. In order to get the lowest Home Loan interest rates, you must opt for a floating rate structure. As the lenders can change the floating rate as per the repo rate announced by RBI, the risk factor for them is reduced, and they are able to offer lower interest rates.
In the case of fixed-rate structure, the interest rate stays fixed for a specified duration. This situation is risky for the lenders, and they will charge a higher interest rate to cover the danger.
If you have been dealing with the lender previously as well and have a good relationship, then you can avail the benefit of lower interest rate against your Home Loan. As the lender is aware of your credit profile and repayment capacity, the risk involved reduces, and you are able to lock the lowest possible interest rate.
Now that you know the factors that can impact your Home Loan interest rates, you can successfully negotiate with the lender and get the best offer for your Home Loan requirement.
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