7 factors that affect the interest rate on your mortgage


While a home loan can help make your dream of owning a home come true, it is prudent to ask for one that won’t burden you disproportionately. Keeping this in mind will help you make the right decision, especially since mortgage repayment is a task that requires a financial commitment. To determine which lender interest rate is best for you, we recommend that you use a home loan EMI calculator.

The mortgage interest rate is an essential part of the terms and conditions of any mortgage loan. A reasonable interest rate makes the prospect of applying for a home loan less difficult. Some other factors influencing the type of home loan offer you are offered include the current state of the economy, the rate of inflation, and your financial condition. In this article, however, we focus on the mortgage interest rate and the seven factors that affect your mortgage interest rate.

What Are The Types Of Interest Rates For Home Loans?

Here is a brief explanation of the different types of mortgage interest rates available in the loan market.

  1. Fixed interest rate

A fixed home loan interest rate is the type that is not influenced by the changing economic situation of the country. This means that regardless of the performance of the economy, the interest rates applicable on your home loan remain unchanged. A significant disadvantage of the fixed interest rate is that it is higher to stay on top of economic changes. Additionally, in some cases, individual borrowers sometimes even face a prepayment penalty in the event of foreclosure.

  1. Floating interest rate

The floating interest rate is sensitive to the current economic situation. While some days there may be increases in the home loan interest rate, on others you may qualify for a lower interest rate on your home loan. The most notable advantage of the floating interest rate is that borrowers benefit from lower rate changes in policy. Individual borrowers may also be able to prepay their loans without any penalties.

A Factors That Affect Your Home Loan Interest Rate

Several factors influence the interest rate offered to you on your home loan. We have listed seven of these components.

  1. Internal and external benchmarks

Most lenders offer borrowers two types of interest rates for home loans to choose from: ???? one is linked to an external repository and the other is linked to an internal repository. Depending on the borrower’s choice, the interest rate parameters change.
Borrowers who choose to avail of a loan subject to the internal benchmark are dependent on the lender’s MCLR. It is determined by their operating costs, the marginal cost of funds, any negative carry-overs and the loan maturity premium. The MCLR undergoes a periodic reset, allowing lenders to assess the rate of their current borrowers. This process decides whether the interest rate on your home loan will increase or decrease.

In the case of interest rates which depend on other factors, the determining variable is the RBI repo rate. For these loans, the interest rate is determined by the repo rate set by the RBI. If the reverse repo rate is low, lenders can pass the benefit on to borrowers. Likewise, if the repo rate is high, then the interest rates offered are steeper.

  1. Type of interest

The type of interest rate you accept also determines the type of home loan offer you can get from your lender. A fixed interest rate eliminates the possibility of interest rate fluctuations but prevents you from taking advantage of low interest rates when floating interest rates are favorable. Your choice of interest rate should depend on the current economic scenario.

  1. Credit score

The credit score is a summary of your repayment history, your creditworthiness and your level of tax compliance. A high score increases your chances of being eligible for a low interest rate for a home loan. You need to know how to improve your CIBIL score to get a mortgage at the lowest interest rate.

  1. Loan to value ratio (LTV)

The LTV ratio is a measure that allows financial institutions to assess the risks involved in lending money to borrowers. The LTV is calculated by comparing the amount you request to the value of your assets. To determine the LTV ratio for home loans, financial institutions weigh the loan amount you requested against the value of your asset.
For example, if your loan application is for an amount equal to half of your assets, then your LTV ratio is 50%. Among other things, a high LTV ratio can impact your chances of getting a low-interest home loan.

  1. Property location

If your property is located in a popular locality with all the necessary amenities, you can expect a lower interest rate. However, if your property is in an area that does not have these amenities, the rate is likely to increase, due to the low expected resale value of your property.

  1. Nature of occupation

When you have a stable source of income, the lender is more comfortable offering a low interest rate because they are confident that you will repay the mortgage within the loan term risk-free. default of payment.

  1. Risk profile of the borrower

If you are someone whose credit profile is deemed “at risk,” lenders are less likely to offer you a low interest rate on a home loan and may instead charge you an additional risk premium to secure. a loan. A borrower’s profile is classified as risky if they have a low CIBIL score, have previously rejected loan applications, or have had problems with credit repayment and default. Know that if your profile is perceived as too risky, you risk being rejected for your mortgage applications.

Choose the right interest rate for your mortgage today

Apart from these seven factors, several other variables also determine your eligibility criteria for low interest home loans. Factors such as the length of the loan and the amount of your loan are subjective and differ from lender to lender, but could influence their decision to approve the loan.

Before applying for a home loan, we suggest that you explore all the options available. Determine what type of home loan interest rate is best for your finances and will serve you well in the long run. Prospective borrowers can also visit our website today to browse our competitive interest rates and home loan offerings.




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