If you are dreaming of buying a residential property, you, most likely, will be in need of a home loan. Your eligibility for a home loan and the home loan interest rate are determined by your occupation, income levels, lifestyle, age, diversity in investment portfolio, and of course your CIBIL score.
Do you know the 5 crucial factors that affect your home loan interest rate? Let us read them below:
- Your CIBIL score: This score is impacted by an individual’s debt and repayment history, delays and failures (if any), and general hygiene maintained in fulfilling debit transactions.
- Source of income and its level: This helps make future income projections and projections for the loan repayment.
- Investment and savings habits: Historical data related to your savings habits, timeliness observed in payment of credit card outstanding dues and also in EMIs on current or past loans, risk propensities in investments, also impact home loan eligibility.
- Your age at the time of loan application and the loan tenor: Your age at the time of loan application is important in ascertaining the home loan interest rate. Other factors assumed favourable, the younger an applicant, the better is the rate of interest on their home loan.
- The marketability of your chosen house: A housing loan for a property by a reputed builder vis a vis one by a non-reputed one affects one’s home loan application, eligibility, and interest rate.
Now that we know the factors which impact home loan eligibility and interest rate, let us understand how to use a housing loan EMI calculator and how to reduce home loan EMI:
- Maintain a CIBIL score of 700 and above to indicate a low risk profile to your home loan lender, which effectively means you are more likely to successfully repay your loan on time. You can attain this score by being punctual in your credit card payments (entire outstanding dues), and paying off EMIs on existing loans in a disciplined manner. This will help you negotiate a lower interest rate on your home loan in turn reducing your home loan EMI burden. The CIBIL score of the co-applicant of your home loan also impacts the interest rate on it. You need to be cognizant of this.
- Your occupation impacts your home loan interest rate. If you are employed in an MNC or in a government job, you are more likely to have a lower home loan interest rate as compared to a person with unstable fluctuating incomes, such as freelancers in the entertainment industry. The level of stability of your income in the past and its future projections and the nature and risks involved in your profession adversely impact your interest rate. Try to stabilise your income patterns for a while before applying for a home loan and to reduce the interest rate on it.
- If you have an investment portfolio skewed towards stable and less-risky choices, such as PPF, FD, government bonds and less towards equity, you can negotiate for a lower interest rate on your home loan. If you do invest in equity, buy large-cap and mid-cap shares instead of small-cap ones. This will help you get a lower home loan interest rate.
- Try to apply for a home loan early on in life once you have the above factors stabilized. The younger you are, the better will be your home loan interest rate. You will also be able to get a longer tenor for your loan, making your EMIs more affordable over a period of time.
- Choose a property developed by a well-known realtor with a reputation for finishing their projects in a timely manner. It will encourage your lender to feel more assured about the marketability of your property, should you fail to repay at any point in time. It will also facilitate the approval of your home loan application at a competitive rate. RERA-approved projects are most trustworthy and dependable in these times. Though such properties might be slightly more expensive than others due to their stronger reputation, they turn out to be a prudent decision for the long term.
Consider this case. A CIBIL score of 780, with an average monthly credit card dues of Rs.50,000, investments geared in favour of PPF, FD, and government instruments, a government or an MNC job, at 35 years of age, can fetch you a home loan of approximately Rs.1 crore at 6.5% RoI for 25 years. A person with a lower CIBIL score or higher age or heavier equity investments is likely to have a lower loan disbursal sum at a higher rate of interest! (The figures are indicative and used only to indicate trend).
While you keep the above crucial factors in mind when trying to fetch for yourself a lower home loan interest rate in India, a general habit of good financial discipline, sensible and restrained lifestyle, and long-term planning goes a long way in ensuring an attractive home loan interest rate.
