In this age and time, buying a home is not a piece of cake, and never it will be. However, thanks to home loans and competitive interest rates in the year 2022, availing of a home loan can make it possible to own your dream home. However, you should know that home loans can substantially impact your quality of life in the long run. The lending terms you agree to, that is, the interest rate you take a home loan on, will dictate how financially comfortable or distressed you will be for many years to come. To ensure your whole life doesn’t go into financial stress, it is important to find the right EMI amount, which not only is feasible but is crucial for you to borrow smartly. You can know your monthly outgo using EMI calculator tools such as ICICI Home Loan EMI Calculator and HDFC Home Loan EMI Calculator.
Among other several factors that decide lending terms, the home loan interest rate is what will decide your monthly outgo or EMI and is something that you can influence to a degree.
- Tenure of the loan: Do you know loans with a shorter tenure attract a lower interest rate of interest? It indeed comes with a higher amount of EMIs than loans with a longer tenure which will have lower EMIs but a higher interest rate. Use ICICI Home Loan EMI Calculator and HDFC Home Loan EMI Calculator to find out the best tenure of your loan.
- Type of interest rate you choose: If you don’t want your home loan interest rate to get affected by the market conditions, you can choose to take a fixed-rate housing loan which makes sure the interest rate on your home loan won’t be affected by economic and market conditions. It also gives you a breather to plan repayment with a great deal of certainty in mind. However, one thing to note here is under fixed interest rates, and prepayments are subject to prepayment penalties. If you choose floating rate loans, you can benefit from repo rate cuts. But, the downside of choosing this option is that your home loan interest rate could increase, which would put additional pressure on your budget. If you can deal with this uncertainty, this option is for you, and prepayment penalties are waived off under this option. HDFC Home Loan EMI Calculator or other EMI calculator tools will help you find out.
- Your current financial profile: Do you know lenders are allowed to include a risk premium for your profile? In short, the riskier you are as a borrower, the lenders will charge you to offset the lending risk. There are a few ways you can reduce the lending risk, which is: Keep your CIIBL score above 750, as it indicates you are creditworthy and have a reliable history of debt payments. Another way is to keep credit card utilization to 30%. Lenders carefully check how strong your income stability profile is. Those who are in government posts, medicine, and accountancy are considered low-risk and attract a favourable interest rate.
- Property’s resale value: You must know that the home loan interest rate varies as per the property’s location. Factors such as the condition of the house, connectivity, amenities, etc. Properties that are new and have a higher resale value will naturally attract a low-interest rate as they reduce the lending risk. It is because high-value properties can be easily liquidated in case the individual couldn’t be able to pay a home loan.
- Loan amount: Most banks charge a higher rate of interest for higher loan amounts. For example, SBI home loan interest rates of the amount up to Rs. 30 lakh begin from 7.90% p.a. onwards during the loan amount above Rs. 75 lakhs begins from 8.15% p.a. respectively. Hence, it is suggested to pay a higher down payment if you want to reduce your EMI outgo.
- MCLR rates: Marginal cost of funds-based lending rate, this interest rate is the minimum that a bank can lend at. The MCLR rate depends on other factors, too, such as the operating cost, the marginal cost of funds, and the cash reserve ratio (CRR). You should know there is an annual reset date for the MCLR during which banks review. This means that your interest rate can go down or increase based on the changes in the MCLR rate.
- Applying with a co-applicant: If you apply for a home loan with a co-applicant, it increases your chances of availing of a home loan at a lower interest rate. It is because having a co-applicant assures the bank or NBFC that one of the applicants will repay the loan, and due to this, they may agree to offer you a home loan at a lower interest rate than before. You can know the difference between applying with a co-applicant or without using HDFC Home Loan EMI Calculator or ICICI Home Loan EMI Calculator.
Whether availing of a home loan is a wise decision for you or not depends on the EMI you will be paying every month. You can find out the affordability of the loan through HDFC Home Loan EMI Calculator, ICICI Home Loan EMI Calculator, or any other EMI calculator available on the lender’s website. Doing this before applying for a loan helps you understand your monthly financial obligation. The right amount of EMIs helps you pay back the principal and interest amount in a way that doesn’t and shouldn’t stress your monthly budget, helps you save for emergencies, and at the same time fulfils your home loan obligation. However, how much you pay in the form of EMI depends a great deal on the interest rate. And many factors influence the interest rate, such as economic conditions and inflation, that are beyond your control. It is the rate of interest you can influence. Keep the above-mentioned points in mind to help you get the best value loan for your budget and requirements.