Have you ever sat with your parents or grandparents and listened to their stories about buying their first home? If you have, you probably know how much property prices have changed since their time. According to a study by the Centre for Social and Economic Progress (CSEP), property rates in India have grown annually at a rate of 9.3 per cent from 1991 to 2021.
Rising property prices have directly impacted the affordability and decision-making process for prospective homebuyers. This is where a home loan can be of great help. However, with time, the housing loan rate of interest has also gradually increased on the loans.
Understanding their dynamics is important, as it helps manage the financial aspect easily. Let us explore how these rates influence the housing market and why they are a key aspect to consider for buyers.
What is the Housing Loan Rate of Interest?
When you take out a home loan to purchase or build a house, a housing loan interest rate is applied to the loan amount. This rate, expressed as a percentage, is charged on the principal loan amount for the entire tenure.
Many lenders in India offer competitive home loan interest rates. Based on your eligibility, income, credit score, and other parameters, lenders can provide the best rates to meet your needs. Additionally, reputable lenders ensure transparency by clearly communicating all charges, including prepayment and processing fees.
Factors Affecting the Housing Loan Rate of Interest?
When applying for a housing loan, several key factors influence the interest rate you are offered. Understanding these factors helps you better prepare and secure a more favourable rate. Below are some of the primary elements that lenders consider:
1. CIBIL Score
Your CIBIL score represents your creditworthiness and repayment capability, significantly impacting the housing loan interest rate applied to your loan. The higher your CIBIL score, the more competitive your housing loan interest rate will be.
2. Job Profile
Your employment status and job profile also affect your housing loan rate of interest. A steady source of income, a secure job, and employment with a reliable employer assure the lender of your repayment capacity, helping you secure a lower interest rate.
3. Income
Besides your job profile, lenders consider your monthly income when evaluating your housing loan rate of interest. The greater your income, the better your home loan eligibility. Highlight any additional or part-time income when applying for a home loan. Applying with a co-applicant and pooling your income can also help you qualify for competitive rates.
4. Debt-to-income Ratio
Your debt-to-income ratio reflects your ability to manage additional debts. If your EMIs significantly drain your monthly income, you become a high-risk borrower, and lenders may charge you a higher housing loan rate of interest.
How to Calculate the Effective Housing Loan Rate of Interest?
The applicable interest rate on a housing loan consists of two components: the base rate and the markup rate. The combination of these two is what you pay as the housing loan rate of interest. The effective housing loan interest rate is calculated by adding the base rate and the markup rate.
- Base Rate: The base rate is the lender’s standard lending rate, applicable to all types of loans. This rate is subject to frequent changes based on multiple factors, including RBI guidelines.
- Markup Rate: The markup rate is a small percentage added to the base rate to calculate the effective interest rate (EIR).
To make the process easier, you can use a loan app to check the current base and markup rates, helping you determine the effective housing loan rate of interest for your home loan.
Get a home loan and buy your dreams house today!
Understanding the various factors that influence the housing loan rate of interest is crucial for prospective homebuyers. Calculating the effective housing loan interest rate involves combining the base rate and the markup rate.
Lenders strive to offer competitive rates and transparent fee structures, as proven by top NBFCs like Tata Capital. Using their loan app can streamline rate comparisons and empower borrowers to make informed decisions. By considering these factors, borrowers can secure favourable housing loan interest rates and navigate their home-buying journey with greater confidence.
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