Buying a house is most probably going to be the most significant financial investment of your life. Affording a place is no small feat, and most people rely on home loans to arrange the required funds. Now, while a housing loan does provide the necessary financial support for a property purchase, it is still essential to focus on getting a good loan plan from a lender. This is because there have been cases where borrowers have struggled in the past with the repayment of their loans. In many cases, this struggle is the high-interest rate they are paying.
To get a decent interest rate, you need to know about the factors that influence this rate. Most borrowers know about the obvious ones like credit scores and market rates. However, there are other factors that you might be unaware of that impact the housing loan interest rate. Home loan interest rates can have a significant influence over the loan’s monthly installments, which is why it is essential to get a rate that results in suitable loan EMIs.
Here are four uncommon factors that can influence your home loan rate:
1. Location of the property
If the house you are buying does not have a good neighborhood, is poorly constructed, or offers low-profile amenities, it is very likely to have a low resale value. Your lender will consider the location of the property to understand its importance. If the property value is low, the lender might levy a high-interest rate on the home loan.
2. Repayment tenure of the loan
Many people are not aware that even the repayment tenure that they choose can affect the home loan interest rates. The longer the term, the higher the risk for a lender, so the interest rate can be higher for longer tenures. Keep this in mind while choosing the repayment tenure of the loan.
3. Employment profile
Any lender would require the borrower to maintain a stable monthly income and a steady employment record. Without this, there is a risk of the borrower not paying back the loan, which is why lenders can charge a higher interest rate.
4. MCLR rate
The MCLR rate is considered the benchmark lending rate by financial institutions while giving out loans. This rate has four economic principles, including operating costs, the marginal cost of funds, CRR (Cash Reserve Ratio), and the premium. Since these factors differ for various financial institutions, they have different MCLRs. A low MCLR allows a lender to charge a low-interest rate for a home loan.
Before you apply for a home loan, it is essential to know about these factors since they can be instrumental in affecting the interest rate of your loan. It is best to use a home loan EMI calculator to understand whether the EMIs are affordable or whether you need to keep looking for a lender that offers a better interest rate.