Buying a house is a huge decision and one that most people can realise only with the help of a home loan. While such loans offer the financial assistance that homebuyers need, it is very important to first understand whether the interest rate of the loan is affordable. This is because the interest rate of a home loan can have a significant impact on the loan’s monthly instalments. Those who do not focus on getting a competitive home loan rate can face repayment problems.
However, this should not stop you from applying for a home loan and buying your dream house, especially when being stuck with a high interest rate can easily be avoided. For this, it is important to be aware of factors that can influence a housing loan interest rate. Now, most borrowers are aware of the common ones that influence a home loan rate such as the credit score, down payment, principal loan amount, and so on.
So, here are 4 uncommon factors that can affect a home loan interest rate:
- Repayment tenure of the loan
Financial institutions mostly offer borrowers 20 years to repay a home loan. While borrowers prefer to choose a long repayment tenure to ease their loan EMI payments, choosing a short repayment tenure can actually be helpful in saving on interest. Since the loan’s interest is added with each monthly instalment, cutting down the number of EMIs can actually help in bringing down interest payments.
- Resale value of the property
Many people are unaware of the fact that a home loan interest rate can also be influenced by a property’s resale value. Now, various factors affect a property’s resale value such as its amenities, current condition, location, connectivity, and so on. A new property with a high resale value is more likely to get a lower home loan interest rate.
- Borrower’s employment profile
Any lender would want their borrower to have a steady employment record and regular income. This is to ensure that the borrower can easily pay off the home loan without financial difficulties. If you are working for a reputed organisation drawing a decent monthly salary, the lender is more likely to offer a low interest rate on the home loan.
- Type of interest rate
Even the type of interest rate that is chosen for the home loan can have an effect on the rate offered by the lender. Borrowers can choose between a fixed interest rate and a floating interest rate. A fixed rate is where the interest rate remains constant throughout the loan tenure. On the other hand, a floating interest rate can keep fluctuating throughout the loan’s tenure. Usually, a floating interest rate is slightly lower than a fixed interest rate.
So, before applying for a home loan, make sure to remember the factors that can influence the loan’s interest rate. It is considered safer to first use a home loan EMI calculator, as this tool can display the loan’s monthly instalments beforehand. This way, it is easy to understand whether the loan’s interest rate is suited to your budget.