Buying a home is considered to be a significant achievement. While doing so is something to be immensely proud of, one must also keep in mind the financial commitment required to buy a house. Most homebuyers rely on loans to arrange the necessary funds for property purchases. 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, they can be struggling with the loan’s monthly installments. To avoid such repayment problems, it is advisable to know how lenders set their home loan interest rates. This would help a borrower in finding a rate that can be afforded.
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 neighborhood with below-average amenities, its resale value will decrease. This would result in the lender charging a high home loan rate. So, 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 or 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. Note that set interest rates are usually slightly higher than floating interest rates.
3. Applicant’s credit score
Before applying for any loan, an applicant needs to have a healthy credit score. 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, borrowers should maintain a credit score 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 position is unstable, they will become a high risk for any lender. In this case, even if their home loan application gets approved, lenders will likely charge a high home loan interest rate. So, make sure to be employed with a stable organization 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 will naturally increase any lender’s risk, which means 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 lower the loan’s interest rate.
So, these are a few factors that can impact a housing loan interest rate. Consider various home loan plans to understand which lender offers a good deal.