Home Loan Interest Rates

Certain measures can definitely help you to effectively reduce your home loan interest rate. These measures are mentioned below:

• Set EMI Targets: Make sure that you pay more than the regular Emi amount every year. This will surely help you to clear the loan faster.
• Increase EMI: Boost your EMI payments whenever you get a hike in salary or have some extra income.
• Refinance the Home Loan: If you find a lender who offers lower rates of interest than the current lender, switch to the new lender. However, check for legal fees and prepayment penalties before you switch.
• Shorter Duration: A shorter tenure will increase the EMIs. But you will be paying a lesser amount of interest in the long run.

Factors To Follow While Applying for a Home Loan

There are many banks in India that offer amazing home loan schemes at affordable rates of interest. If you are confused and unable to decide which scheme you should apply for, then you must follow the rules mentioned below:

• Compare Interest Rates – If you find a home loan scheme with the lowest rate of interest, do not apply for it in a haste. Look at all the terms and conditions associated with the scheme and try to find out why the rate is so low compared to other house loans. Experts advise people to compare the interest rates of different house loan schemes before applying. There are many websites today that allow users to compare the home loans offered by different banks on one platform.
• Read Lender’s History – Before you borrow a home loan from a bank or any other lender, ensure that you are familiar with its history. Loans are a liability and can result in huge financial problems if you borrow money from an unknown or untrusted lender. Today, the internet has made it easy to find out the history of any lender. You have to look for news about the different lenders online, read up on their history and check out reviews of the services and products they offer. You can also contact mortgage brokers or experts to find out information about any lender.
• Make a Down Payment – While applying for a home loan, ensure that you make a down payment. Do not be attracted by schemes that do not require any down payment. If you apply for a home loan without paying any money upfront, then you might not realize and pay more interest. Also, the more money you pay as down payment, the lower your EMIs will be, which means that you will be able to repay your loan earlier.
• Read the Fine Print – It is very important that you read the fine print before you take a home loan. It may look long and you may be lazy, but reading it will save you from future shocks. The fine print document will contain all the information and term and conditions related to the loan you plan to apply for. If you are unable to understand the clauses mentioned in this document, then ask the help of a Chartered Accountant.
• Understand the Fees and Charges – There are many fees and charges associated with a home loan such as late payment fee, prepayment fee, processing fee, legal charges, documentation charge, etc. You should make yourself aware of all these fees and charges. Ask the lender to give you a list of all the fees in writing.

How to Calculate The Effective Home Loan Interest Rates:

The applicable interest rate on home loan consists of two components, the base rate and markup rate. The combination of two is what you will be paying on the loan. Let’s explore these components to give you a better understanding.

Base Rate: It is the standard lending rate of the bank, applicable for all retail loans. This rate is subject to frequent changes on the basis of multiple inputs. For example, the current base rate of Axis Bank is 9.45%. Base rate is published on the official website of the bank.

Markup: This component of a small percentage is added to the base rate to arrive at the EIR (Effective interest rate) for a specific type of home loan and varies from one type to another.

Effective Interest Rate (EIR) = Base Rate + Markup:

From April 2016 onwards, the Reserve Bank of India (RBI) has mandated a new method for computing lending rate to replace the base rate system. The Marginal Cost of Funds based Lending Rate (MCLR) is aimed at bringing more accountability and flexibility to the way rates are published by banks and financial institutions in India.

Factors That Determine Home Loan Interest Rates:

There are multiple factors driven by your background and income group which influence the rate bank offers you. Let’s look at some of leading factors to help you negotiate the best rate.

• Income: One of the most crucial factors considered by lenders to ascertain the interest rate to be offered on your home loan. The amount of salary drawn at the end or month or revenue figures if self-employed is of much interest to banks. The industry you work and your employer also has a say along with the income factor. A stable and high income, sufficient enough to afford the loan will be rewarded with a pleasing interest rate.
• Credit Score: Perhaps, the second most crucial determinant of the rates offered on your home loan. When you apply, the processing involves a thorough scrutiny of your credit report. It involves checks on your past and current credit. If you’re up to date with a good credit score, you’re likely to get a competitive rate. A good credit history also gives you the confidence to negotiate a good deal.
• Location of the Property: The location and vicinity has a bearing too. If the property is situated in a prime location or is being procured from a trusted builder/agency, you can look forward to an optimal charge on the interest rate front.
• Loan Amount: The proposed loan amount has the ability to influence the rate. The representatives are open to negotiate the rate if you’re willing to get a higher amount of loan. The thumb rule is, higher the loan amount, chances are that you will get a lower rate.
• Type of Loan: The rates offered also depends on the types of home loan you’re availing. Standard loans such as home purchasing will come at standard rates while its counterparts like home improvement can be charged a higher rate.
• Loan Tenure: The term opted for has a say when the bank decides the interest rate to be offered to you. Chances are that if you’re willing to opt for a longer term, the interest rate offered is lower. Make sure to check with the bank before signing up so that you can benefit from this practice.
• Type of Interest Rate: In furtherance to the content earlier in this write-up, the interest charges on your home loan is dependent on the “Fixed” or the “Floating” rate you opt for. The fixed rate is slightly higher than its counterpart.
• Employment Type: Salaried applicants are likely to get a slightly lower rate compared to the self-employed, owing to the risks involved. Banks’ maintain separate slabs for salaried and self-employed applicants.
• Ongoing Promo Offers: Scout for promo offers made by lenders on multiple fronts. Some of these offers are made locally and some at the national level. In their quest to come up with the most customer-centric schemes, lenders will tie up with multiple partners such as builders, aggregators to offer tailor-made deals which includes competitive rates.