Today, buying a home is within reach for most of us as most banks and NBFCs are offering housing loans at attractive rates of interest. But why are home loan interest rates important? Home loan interest rates decide the EMI amount and how it will impact the borrower’s ability to repay the loan alongside taking care of regular expenses.
Things to Look into Before Availing of a Low-Interest Home Loan
If you have the option of availing of a low-interest home loan, here are some things you must do before accepting the loan offer.
- Market Research – Do thorough market research, analyse what each lender is offering and other costs involved before deciding to go with the lender offering the best home loan interest rates. Did you know that some banks offer special concessions in loan Interest rates to women borrowers? Follow your instinct and trust your own judgment while deciding on the lender for the home loan.
- Down Payment – Larger down payments can help to decrease the loan amount. Smaller loan amount means less interest to be paid. So, to keep EMI amounts smaller, it is always advisable to make as much down payment as possible while opting for a home loan. A home loan EMI calculator helps you here. A home loan EMI calculator is a tool that helps you calculate the right loan amount suitable for you. In other words, it helps you decide on an amount that you can pay comfortably.
- Eligibility Criteria for a Home Loan –We know that to qualify for a home loan, one must meet the eligibility criteria set for it by the banks/NBFCs. These factors, such as the age and income of the borrower also impact the home loan interest rates. A young, salaried person may get home loans at lower interest rates than a person who is nearing retirement or is self-employed with uncertain income. Therefore, to be able to avail of a home loan at a loan interest rate, try your best to make sure you are able to present yourself as someone reliable with a stable source of income.
- CIBIL Score – The CIBIL Score is a 3-digit number ranging between 300-900 denoting the credit worthiness of the loan applicant. It is important to have a score of 750 plus to get lower home loan interest rates. CIBIL data shows that 80% of the home loan approvals are given to customers who have a credit score of 750 plus. Thus, a good CIBIL Score shows the willingness of the borrower to repay the debt in time, thus enhancing their financial credibility. Before applying for a home loan, make sure you have a CIBIL score of 750 plus. If your CIBIL score is not good, wait and work on it before applying for the loan.
- Floating or Fixed Home Loan Interest Rates – Banks or lending institutions offer home loans to borrowers at either floating or fixed interest. The home loan floating interest rate goes up or down with the market. But, home loan fixed interest rates remain fixed throughout the loan tenor and are not affected by market changes. Floating rates are often cheaper than fixed rates in the long run but it is completely up to you to choose and decide.
- Home Loan Tenor – Every home loan has a tenor and the maximum tenor for a home loan is 20 years or the age of retirement for the borrower. Some banks may also offer a tenor of 30 years, it is for the borrower to decide on the suitable tenor as per his/her comfort. The home loan EMIs directly depend on the home loan tenor. A short repayment period or home loan tenor decreases the home loan interest burden. With a shorter tenor, the amount of your monthly instalments will increase but eventually, this will decrease your home loan cost. A longer tenor means a costlier loan in the long run. So, as a borrower one must try to find the right balance between the right tenor and right EMI for them.
- Home Loan Balance Transfer – A home loan can be transferred from one bank to another if you think another lender is offering lower home loan interest rates. This facility allows anyone with an existing home loan in one bank to transfer the remaining amount to another lender offering more favourable terms (lower interest rates). This is a great way to avail of a lower home loan interest in the middle of your loan tenor.
- Pre-closure and Other Charges – Some banks put a clause that you cannot pre-close your loan without paying additional charges for the interest lost by them for pre-closing the loan. There may also be other charges that a borrower must know before signing on the dotted lines. Just because a lender is offering you a loan at low interest rates, it does not mean you should immediately sign the papers. Always do your research and during your research, look for the clauses related to hidden fees and costs.
Buying a home is a big financial decision and availing a loan for it is an even bigger decision. It is best not to be hasty and one should always consider all details before availing of a loan. A top-up up loan on home loan may also help. Remember it is your home and financing it should be a smooth procedure and not a headache for you in the future.