Since May 2020, the Reserve Bank of India kept its repo rate unchanged at 4%. Although the home loan rates are already substantially low, economists predict a further reduction of repo rate in the April-June quarter. Hence, it is the best time for individuals to finance property purchase with a home loan.
However, individuals need to choose an interest rate offered by lenders to ensure optimal benefits from this credit. The process starts with selecting the right interest type that eventually determines the borrowing cost.
Types of interest rates
One of the crucial factors that decide the interest accrual on a housing loan is the type of home loan interest rate. Primarily, there are two types of interest rates, as discussed below.
- Floating interest rate
Here, the interest rate depends on the prevalent market condition or/and RBI directives. Hence, home loan rates of this type vary or float for the life of this credit. Floating interest rate also involves a base rate and spread. Therefore, even the minor change in the base rate affects the interest rate.
One of the upsides of this rate is that it is more favourable than its counterpart, the fixed rate. It allows individuals to save on interest payable of their home loan. However, due to its varying nature, it limits the scope for making systematic financial planning.
- Fixed interest rate
On the other hand, in this type, the home loan rates remain unchanged for the entire home loan life. Since any change in market scenario does not impact this interest rate, borrowers can plan their finances better after calculating their monthly instalments.
However, by choosing this interest type, individuals cannot enjoy any reduction in the base rate. Thus, it becomes vital for them to use a home loan EMI calculator to determine the amount that goes towards repaying the loan.
Although the rate is comparatively higher than floating, it makes a perfect choice if the market trends hint at a rise in interest rate in the near future.
Hence, it is necessary for individuals to learn how to choose between floating and fixed interest rates.
Besides measures taken by RBI and other market conditions, individuals can also take charge of getting the best home loan rates making some positive changes in their financial habits.
Factors influence home loan interest rate
Following are some of the tips that individuals can consider to be eligible for low home loan rates.
- Credit score
The desired CIBIL score for home loan is at least 750. However, individuals would also need to meet or exceed other home loan eligibility criteria. Failure to fulfil credit rating requirements can cause lenders to charge a higher interest rate.
Borrowers can also negotiate for a better interest rate if they have a high income. In this case, they can mention all the sources of income.
HFCs also offer loans to eligible candidates with a substantial income.
They also extend pre-approved offers that make the credit availing process prompt and simpler. Moreover, such offers are also available on various financial products like loans against property, home loans and many more. All you have to do is enter your name and contact number to check your pre-approved offer instantly.
Besides following the best means to decrease home loan rates, individuals can further claim tax benefits under section 24(b) and save substantially on the interest payment. Hence, regardless of the market scenario, individuals can negotiate for a lower interest rate by following the tips mentioned above.