When taking huge loans for your house, you must consider your repaying options first. EMIs are the first option you can choose to repay your home loan. However, having high range EMIs can also become a headache. Therefore, you must look out for a lower home loan interest rate to obtain a lower EMI range.
Banks have fixed or floating home loan interest rates, so you should check out what kind of rate is more suitable for you. Also, these interest rates differ from lender to lender.
A home loan interest rate is subject to negotiation if you’ve some factors working in your favour. Credit Score is one of those factors which strengthens your home loan eligibility and can also help reduce Home Loan EMI.
To make sure you get a suitable home loan, you need to pay attention to the following factors which affect your home loan interest rate.
Your Credit Score is the first thing a bank checks out to assess your eligibility for a home loan. A credit score is the indicator of your ability to repay debt, it is your creditworthiness. It is expressed in numbers, and these numbers are based on your repayment history and other credit files.
So, if you have a good credit score, i.e., anywhere between 700 and 900, the lending bank would be positive regarding your loan repayment. And thus, they will reduce your home loan interest rate. On the contrary, if you have a poor credit score, the lender will choose higher interest rates for you.
Thus, if you ever plan to take a home loan, make sure that you maintain a good credit history as it will improve your credit score and thus help you negotiate your home loan interest rate accordingly.
Location of Your Property
So, if you plan to borrow a home loan for buying a new property, make sure that it is in good condition and location.
The reason being that the location plays a pivotal role in determining the value of your property. Suppose if your property is located in a well-connected area that has good amenities like parks, shopping malls, railway stations, hospitals, banks, and schools, then it is inevitable that your property will be valued higher. On the other hand, having a property at a not-so-good location would devalue your property as it will have a poor resale value.
Your home loan lender would assess the value of your property with respect to its location. If your location is sound, then you get the possibility of a reduced home loan interest rate. If not, then you will be charged with a higher interest rate.
General MCLR Rates
The Marginal Cost of Funds Based Lending Rate is abbreviated as MCLR. MCLR is the minimum rate of interest below which a loan cannot be lent to any person or entity (though exceptions can be made).
Earlier banks use to offer loans to some individuals on a base rate or below it, but they lent the same loan at different rates to other customers, therefore MCLR was introduced in 2016 to avoid undue favour and discrimination amongst customers.
Loan with MCLR come with a reset clause which means that the interest rate is revised at pre-determined intervals of 6-12 months. So, if the MCLR changes, then the interest rate also changes.
The presence of MCLR is advantageous because sometimes we’re not aware of the interest rates across banks. Or for any other reason we are saved from paying a fixed set high-interest rate.
Type of Interest Chosen
Banks have different types of rates, such as floating rate, fixed-rate, and mixed interest rate.
- The floating rate depends upon the changes made by the Reserve Bank of India (RBI). So, if the norms of RBI result in having lower interest rates, then the interest you are paying on your loan would also be lower, and so will your home loan EMIs.
- Fixed Interest loan rate need to be paid same rate of interest throughout the tenor.
- Mixed Interest rates come with the facility of switching over to a fixed rate for a particular period. Paying a floating interest rate for the rest tenor.
So, the kind of interest you’ve opted for will determine your home loan interest rate.
Ways to Reduce Home Loan EMI
Since your home loan extends to a lengthy tenor, you should seek out ways to reduce home loan EMI. You can reduce the same through the following ways:
- Shift your loan to another lender
- Opt for a floating rate of interest instead of a fixed rate
- Arrange maximum possible prepayment to reduce the burden of EMIs
- Extend your tenor to reduce your EMIs
Buying a home is a responsibility but it should not become a burden. Therefore before seeking out a home loan try your best to avail of the minimum home loan interest rate.