A house is probably the most expensive investment you are ever going to make. It is also a decision that will affect your finances for years to come, which means you would want to get the lowest home loan interest rates and save as much money as you can. But, how do lender determine your home loan rate of interest? Knowing the answer to this question will help you have confident conversations with lenders and make sure you get a good deal on home loan fees and charges.

So let’s take a look at the different factors that can affect your home loan interest rates:

  1. CIBIL Score

Your CIBIL score is calculated from your credit report, which contains details regarding your loans and credit cards as well as your payment history on each one. People who pay their loan EMIs and bills in a timely manner, and maintain relatively low balances on their credit cards tend to have good credit scores. On the contrary, if you tend to make late payments or miss them altogether, you probably have a lower credit score. Lenders use CIBIL scores to help predict how reliable you will be in paying off your home loan. A high CIBIL score shows you as a lower risk, while a low CIBIL score portrays you as a bigger risk.

Also Read : Things To Know About CIBIL Score

  1. The home you want to purchase

Home loan lenders classify properties into different risk levels based on the historical likelihood of loan default. Thus, the home you are looking to buy also impacts your home loan interest rates. If you are applying for a home loan to buy a property as a primary home, lenders will consider it as the lowest risk of default. On the contrary, homes purchased as vacation properties or second residences tend to have a higher default rate on home loans. If it’s a ‘riskier’ property you want to buy, lenders will probably charge you higher home loan interest rates as well as levy stricter underwriting terms.

  1. Home loan amount

Subtract your down payment from the price of the home you hope to buy. The answer you get is the amount you should be borrowing as a home loan. It is great if have started shopping for homes, and already have an idea of the price range of the home you want to purchase. Lenders generally charge you higher home loan interest rates if you are applying for an exceptionally small or particularly large home loan.

4. Size of the down payment

A larger down payment can also reduce your home loan interest rates. This is because when you make a higher down payment, it lowers the loan-to-value (LTV) ratio. Home loan lenders see a lower level of risk when you have more stake in a home. On the contrary, if you are putting down a smaller amount as down payment, it would result in a higher LTV ratio, and therefore causing the lender to charge you higher home loan interest rates. So if you are willing to put 20% or more down on the home loan, do it—you will probably get lower home loan interest rates.

5. Home loan tenure

The tenure of your home loan is the duration you have to repay the loan. Shorter-term home loans usually come with lower home loan interest rates and lower overall costs, but higher EMI payments.

6. Type of home loan interest rates

Home loan interest rates come in two basic types: fixed and floating. Fixed home loan interest rates do not change with market fluctuations. Floating home loan interest rates go up or down based on the market conditions. In general, floating rate home loans are cheaper than fixed home loan interest rates, but that rate might see a hike significantly later on. 

Bajaj Finserv offers home loans starting from Rs.30 lakh onwards at an interest rate of 8.60% (for limited period). You get benefits including zero foreclosure charges, part prepayment facility and top-up loans.

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