Top 5 Factors That Shall Affect Home Loan Interest Rates This Year

Buying a home is considered to be a significant achievement. While doing so is indeed something to be immensely proud of, one also needs to keep in mind the financial commitment needed to buy a house. Most homebuyers rely on home loans to arrange for the funds required for property purchase. Now, while a home loan is an effective solution for most people, it is very important to understand whether applying for this loan is an affordable option.

If a home loan borrower is repaying their loan with a high home loan interest rate, it is quite possible for them to be struggling with the loan’s monthly instalments. To avoid facing such repayment problems, it is advisable to be aware of how lenders set their home loan interest rates. This would help a borrower in finding a rate that can be afforded.

Home Loan

So, take a look at the following factors that are influential in affecting a home loan’s interest rate:

1. Location of the property

A lot of people are unaware of the fact that even the property’s location can influence their home loan interest rate. If the property is located in a low-profile neighbourhood or has below-average amenities, its resale value would go down. This would result in the lender charging a high home loan rate. So, make sure to focus on the property’s location while deciding which one to go for.

2. Type of interest rate

A borrower can opt for a fixed interest rate or a floating interest rate while applying for a home loan. While a fixed interest rate remains constant throughout the home loan’s tenure, a floating interest rate can change based on market conditions. Do note that fixed interest rates are usually slightly higher than floating interest rates.

3. Applicant’s credit score

Before applying for any type of loan, an applicant needs to ensure that they have a healthy credit score. This is because any financial institution will evaluate applicants’ credit scores before approving their housing loan applications. Lenders also provide better deals to those with decent credit scores, such as lower home loan interest rates. For a home loan, it is advisable for borrowers to maintain a credit score of above 750.

4. Applicant’s job security

A loan application gets a boost when the applicant has a stable job and a steady income. If the applicant’s job is unstable, they would become a high risk for any lender. In this case, even if their home loan application gets approved, it is quite likely for lenders to charge a high home loan interest rate. So, make sure to be employed with a stable organisation with a regular income to improve the chances of getting a lower interest rate on the home loan.

5. Loan amount

Loaning a higher amount is naturally going to increase any lender’s risk, which means that they could charge a higher interest rate. This is why it is advisable to apply for only the minimum amount required for property purchase, as this would help in lowering the interest rate of the loan.

So, these are a few factors that can impact a housing loan interest rate. Make sure to consider various home loan plans to understand which lender is offering a good deal.