Historically, the home loan concept in India is a little over four decades old. HDFC gave the first loan to construct a house in 1978. Before, people used their savings and took small personal loans from friends, family members, or banks to build their houses. Only during the late 1990s did the Indian economy start growing, and the concept of giving a long-term loan by a bank to construct a home grew. The interest rates for such loans were pretty high during that time, and the financing was only around 50% of the house value. But that is not the case nowadays, as the market is full of competitive offers with the lowest interest rates for homes.
Home Loans Interest Rates and Their Types:
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Even money-lending institutes need to take care of their expenses and make a profit. For this purpose, these financial institutes charge you an annual interest rate on the amount they loan you to meet your needs. Getting the cheapest home loan with the lowest interest rate is everyone’s goal, as these loans last for an extended period. These days the regulation of the interest rate is based on the Repo Rate provided by the Reserve Bank of India. There are two types of interest options that financial institutes give for a loan for constructing or purchasing a property, namely:
1) Fixed Interest Rate:
Opting for the fixed interest rate is beneficial when there is a prediction that the interest rates will increase in the future. Since, as the name suggests, the interest rate is fixed, any increase in the market rate will not affect it, and the same interest will be applicable throughout the housing loan tenure.
2) Variable or Floating Interest Rate:
This type of interest rate gets decided as per the RBI repo rate, and it varies as and when this repo rate changes. When the prediction is that the market rate for loans will reduce, taking up a variable or floating interest rate will benefit you. However, you will pay more on interest if the repo rate increases.
What Affects Home Loan Interest Rates?
The interest rate on a loan for building or buying house matters on these factors:
1) Location of the Property:
The decision on the interest rate that will apply to you will change as per the property’s location. For example, if your property is in a prime location in the city, the interest rates will be lower as the property’s value is higher than an area on the outskirts of the town.
2) Your Income and Professional Profile:
This factor is one of the main considerations for determining the interest rate when you apply for a home loan with any financial institute. Your monthly income will help determine your repayment capability, the risk factor, and whether the interest rate should be low or high. In addition, your professional profile allows deciding whether or not you are a stable person with a steady job for an extended period.
3) The EMI Duration:
How long you want to take to pay the loan back also matters in deciding the interest rate money lending institutions offer. Usually, the more EMIs, the higher your interest rate is compared to shorter-duration EMIs.
4) Interest Rate Type You Choose:
The type of interest rate you select on the property loan will affect the overall cost of the loan. There are primarily two types of rates, fixed and floating interest rates, and you should decide which one to opt for after studying the market predictions before applying for a housing loan.
Steps to Ensure Cheapest Home Loan Interest Rates:
1) Research and Compare Interest Rates:
The first step before choosing a loan to buy or construct a house is to do your research & compare various interest rate offers. This way, you can ensure you know all the interest rates other banks offer and choose the cheapest one.
2) Maintain a Healthy CIBIL Score:
Before applying for a property loan, check your credit score and take steps to increase it above 750 if necessary. A high score with the credit bureaus gives the lenders confidence to provide you with lower interest rates as it reflects that you are good at paying back your dues.
3) Ensure You Disclose all Income Sources:
When you have many sources of income, it all adds up to show the best home loan lenders that you have a high income and a more robust capacity to repay the loan.
4) Arrange and Pay More Down Payment:
When you pay a more significant down payment, your loan amount and duration also reduce. With this consideration, financial institutes are in a position to offer cheaper loan interest rates.
5) Apply When You are Younger:
Applying for a property loan when you are younger helps you to get higher loan amounts, longer EMI durations, and lower interest rates. Therefore, it is better to apply in your late 20s or early 30s.
Check Some Cheapest Home Loan Interest Rates Today:
Some cheapest interest rates available on housing loans are:
- Navi Home Loan – starts at 7.89% per annum
- HDFC Home loans – start at 8.1% per annum
- Bajaj Finserv Home loan – starts at 7.7% per annum
- LIC Housing Finance – starts at 7.55% per annum
- State Bank of India – starts at 8.05% per annum
- Citibank – starts at 6.5% per annum
- Sundaram Housing Finance – starts at 6.95% per annum
- HSBC – starts at 6.45% per annum
Gathering information, comparing, understanding the subject, and applying the knowledge to arrive at a decision is the process you should follow before taking up any loan. And these steps are more relevant when taking a home loan as it lasts almost a lifetime. So, ensure that you take time with all aspects of such a loan that will significantly impact your financial status. You will be paying the EMI for many years, and a lot can happen over the years. Therefore, preparation and planning are the key to having a financially secure future and saving some money Read more