Congratulations! So you’re on track to purchase a new home! If you plan to take a home loan to finance your home building project, it’s wise to do some serious homework well ahead of time. It’s important to select the best bank for home loan.
Benefits of Home Loans
Home loans are perhaps the easiest route to swift and smooth property ownership. You don’t need to source the entire amount upfront, because the repayment term could be a long one. You get immediate ownership of your dream home, and added wealth creation benefits. Investing in property is a smart move because it provides one of the best returns on investment available today.
Additionally, you can avail of tax benefits and shop around for the lowest interest rates across different lenders and select the best bank for home loans. Paying via EMI protects you against inflation when you choose a fixed interest rate and as a bonus, your credit score remains healthy when you make timely payments.
Home Loan Interest Rates: How They Work
Home loan interest rate represent the cost of borrowing, and it can differ widely across lenders. From the lender’s point of view, there is a risk involved in putting out a large sum. Borrowers may default, there are inflation factors to consider and lenders have their own overhead costs.
You can choose either a fixed or a floating (variable) interest rate, based on your personal capacity to bear risks and your financial outlook.
Let’s unpack some of the macro and micro factors that come into play in this field.
When the supply of available money in the markets and the system is high, interest rates are lower. The government has a big role to play here, and often changes the rates at which banks lend. The prevailing Repo Rate and reverse Repo Rate of the Reserve Bank of India can swing home loan interest rates up and down.
A crucial factor that impacts your interest rate is your personal credit score. What this means is that the bank conducts its own check on your credit worthiness, based on credit history, timely payments, types of credit that you have used and more. When you choose the best bank for home loans, this will certainly be a deciding factor. A high credit score means that you are considered to be a lower risk borrower, and hence you could be provided with lower interest rates.
Your age, income, employment history, stable connection with the bank you plan to borrow from are important pointers that can affect your interest rate. Younger borrowers, with a steady employment history and regular source of income from a reputed source are preferred for lower interest rates.
The bank has a fiduciary duty to check the details of the property you plan to take the loan on. The location, resale value, surroundings, neighborhood and commercial potential of the area can give you a more attractive interest rate.
It’s important to assess the tenure of your loan when you select it. Typically, lenders prefer to give shorter term loans as they represent less risk, and hence they come with lower interest rates. If you plan to make a significant down payment, you’re assured of better interest rates.
If you plan to take a large loan amount, you may have to pay higher home loan interest rates, while smaller loan amounts come with lower rates.
For lenders, the nature of your relationship with them plays a big role in how your interest rates are adjusted. A long term, stable and cordial relationship goes a long way in determining the nature of your loan. If you’ve had an account with a particular bank for a significant amount of time, and maintain a healthy deposit with them, this gives the lender more confidence in your financial stability.
In the final reckoning, it’s a smart move to do your research, talk to trusted sources and discuss your plans with your bank so that you get the best possible interest rate.
