Your home loan EMIs depend on three factors: the home loan value or the principal amount that you have opted for; the home loan tenor over which you have chosen to repay your home loan; and the housing loan interest rate your lender has offered you. Borrowers have the flexibility to choose the loan amount and tenor keeping in mind their repayment capacity and creditworthiness. However, lenders decide the housing loan interest rate to be offered to a loan applicant and they do so after taking into consideration many different factors. 

An important question here is: how does the housing loan interest rate affect one’s loan EMIs and the total interest payout on one’s home loan? Well, for example, an individual repaying a Rs.50 Lakh home loan to be repaid over 30 years at an interest rate of 8.50% per annum will need to pay Rs.38,446 in EMIs each year. 

On the other hand, if the same person has to repay the same loan at an interest rate of 9.50% per annum, their EMIs will be Rs.42,043. Further, the total interest they will need to pay over the tenor of their loan will be approximately Rs.1.1 Crore whereas in the previous case, it will only be about Rs.88 Lakh. 

In conclusion, the housing loan interest rate one gets offered is extremely important as it not only one’s home loan EMIs but also the total cost of borrowing. Borrowers should try to secure competitive housing loan interest rates. In this article, we discuss the latest home loan interest rates in India and trends so that you can secure the lowest housing loan interest rates.

Home Loan Interest Rates in India: Know About the Latest Trends to Secure the Lowest Interest Rates 

Your CIBIL Score is More Important Than You Think 

An individual’s CIBIL score provides an electronic representation of their repayment history, credit utilization ratio, and how dependent they are on credit. Individuals with CIBIL scores in the range of 750 to 900 are considered highly reliable individuals and therefore, such individuals can easily negotiate low interest rates and other beneficial loan terms and conditions. 

Lenders Will Look into Your FOIR 

FOIR refers to the fixed-obligation-to-income ratio. FOIR, also sometimes known as the debt-to-income ratio, is the ratio of the total amount the loan applicant is paying towards the repayment of their loan EMIs, credit card bills and other fixed obligations, to their total income. A high FOIR indicates that a considerable portion of one’s income is already going towards the repayment of debt and therefore, if the borrower borrows more, they may find it difficult to repay their loan. Therefore, people with high FOIR are charged a higher home loan interest rate on their home loans. 

Income and Job Stability Matters a Lot 

Income and job stability are crucial. Individuals who have a stable income and job are less likely to miss paying their EMIs or default on loan repayment. Therefore, such individuals are offered loans at low interest rates. On the other hand, individuals who switch jobs often or are involved in an unstable business, are offered the most lucrative home loan deals.

Floating Interest Rate Loans Are Cheaper Than Fixed Interest Rate Home Loans 

Fixed-interest-rate home loans are generally riskier than floating-interest-rate loans, from a lender’s perspective. If the interest rates go higher, the lender has to suffer major losses in the case of fixed-interest-rate home loans. Therefore, when a home loan applicant requests for housing finance to be sanctioned at fixed interest rates, lenders charge a higher home loan interest rate. On the other hand, when someone opts for a floating interest rate loan, the rate of interest charged is generally lower.

Prepayment and Foreclosure Penalties Vary Based on Your Interest Rate Type 

Individuals on floating interest rates can prepay or foreclose their loans at any time they want. Further, when they do so, they are not asked by lenders to pay any penalty. However, when individuals on fixed interest rates choose to foreclose or prepay their loan, they can do so only after they pay a penalty and this penalty can be as high as 4% of the remaining loan amount. It is thus that home loan balance transfers are recommended only to individuals who are repaying their home loan at floating interest rates. 

Final Words

Individuals who have availed themselves of housing finance or are planning to avail themselves of a home loan must constantly keep themselves updated about the latest home loan interest rates and other trends. This is the only way to ensure that you are enjoying all the benefits that are extended to you by the Reserve Bank of India from time to time.