5 Factors Affecting Home Loan Interest Rates

Many first time borrowers are hastily impressed by the interest rates advertised in newspapers and television ads. However, most people don’t get their home loan at those advantageous rates. There are a few factors to bear in mind to get the ideal home loan rates possible for your brand new home.

• Credit history

This factor is all about financial standing. It allows the lenders to see your repayment ability, which is one of the most important factors. The smart thing to do before you apply for a home loan is to improve your credit history. Get rid of those credit card debts and personal loans. There are a number of things that you can do to show yourself as a reliable candidate for a home loan. Hence, you should take all the necessary steps to let these factors work in your favour.

• Nature of employment

Since your income is the means of repaying your EMIs, the nature of your employment is essential to your lenders. If you’re working in a smaller organization, you may come across as a less reliable candidate as compared to someone working for a public sector bank or a government job since their income is considered more consistent. Thus, your organization, years of experience and appraisals affect your credibility and repayment ability. If you compare a professional to a SME business owner with the same income, a professional is sometimes deemed more credible. You can certainly make this bias work in your favour. Today, most employees are job-hopping only for a 5 to 10 percent increment in salary. You can either choose to work with a more established organization or apply for a loan along with a co-applicant, who is working in a reputed organization.

• Your lender and home loan market

Many banks and housing finance companies are offering home loans today. There is a huge market and substantial competition. So it makes sense to apply to several organizations and let the competition work in your favour. If you get an approval from more than one organization, you are in a good position to negotiate and get the best possible housing loan interest rates .

• RBI

There are some factors that affect your home loan rates considerably; however, these factors are not under your control. The Reserve Bank of India has several rules and regulations that affect rates for all kinds of loans such as SLR (Statutory Liquidity Ratio) Rate, Repo Rate, Cash Reserve Ratio (CRR), etc., which you need to be aware of.

• Economy

The economy of India can also affect interest rates significantly. It is possible, though, to anticipate the possible changes to an extent and use them to your favour. So, make sure you use these factors where you can.

How To Negotiate For Better Home Loan Rates In India?

When looking for a loan, you should understand that you are the customer. You are what financial institutes want. They need to give you the loan. This is the right attitude to have when you begin considering home loan rates and various lenders. Most borrowers over-extend their time in research and application. Therefore, they end up in a situation, where they believe that they don’t have a choice but to sign on the dotted line. There are smart and strategic ways to get lower interest rates on housing loans, though. Understand your value and try implementing some the following ideas:

• Look around

When you plan to buy a new property, you need to contact a lot of lenders. Banks and housing finance companies should know that they are not your only option. Several lenders create customized house loan packages with the home loan interest rates that you will accept. Your acceptability is important to get you as a customer. If they understand that you are not desperate and are looking for a mortgage partner that is agreeable, they may offer the best home loan interest rates that they can and you will be in a position to accept or reject as you have multiple options. Both, interest rates and home loan companies in India, are very competitive. You should know how to use this fact to your advantage.

• Hire a broker

After you check out the market, you must approach select housing finance companies in India via a certified agent or broker. This establishes a stronger sense of competition. There are benefits and limits to this approach, though. Brokerage expenses get added to the list of potential expenses; however, it is well worth it if you are considering a sizable number of lenders for a housing loan. You will definitely get the lowest housing loan interest rates in India if you can leverage the relationship of the broker and the lender.

• Monetize your strengths

This seems generic. Yet, in this particular case, it implies that as borrowers, you have several points that can be used to your advantage. So, it is important that you know them to use them well. Here are some examples:

o Credit score: It is a trump card in the hands of right player. Use it well.

o History with the bank: Do you have a long standing account with the bank? It gives your bank a unique and trustworthy insight into your operations and credibility. It can be a great foundation for rewarding negotiations.

o Use your repayment track record well: This implies that you can ask for better home loan rates after signing on the dotted line. It is not impossible. It depends on your proposition and your way of asking.

Understand Your Expenses With Home Loan Calculations

Most expenses for a home loan seem small as compared to the principal amount, due to which people fail to take them into account and include them in the principal amount. Thus, it should come as no surprise when the final home loan calculations bring about EMIs that are shockingly huge to pay. It makes sense, thus, to include these minor expenses in your principal amount while calculating your EMIs with the home loan EMI calculators in India .

Processing fees:

It is a tiny percent of your principal amount and can even be waived off in certain cases. In most banks, it can be anywhere up to 1%. However, the final processing fee will be charged along with the requisite service tax.

Stamp duty:

This amount was earlier included in the principal loan; however, from mid-2012, this amount must be paid in its entirety separately. So, calculate the stamp duty and set aside sufficient funds for it like you would save up for the down payment. Since it costs up to 8% to 10% of the principal amount, you must include it in your home loan calculations carefully. As, you can’t pay it via EMIs, exclude it from the amount you enter in the home loan EMI calculators.

HLPP:

A home loan protection plan is a term insurance product for homes. You can pay it all at the start or you can pay it in monthly instalments. This choice mostly depends upon available funds after the down payment and stamp duty cost. If you plan to pay it on a monthly basis, you must include it accordingly in your EMI calculations.

Interest rate fluctuations:

These are really challenging to anticipate. Most people fail to include them in the home loan calculators in India . But, for floating and fixed interest rates, these fluctuations are very common. So it would be smart to make a few rough calculations to observe their impact on your EMIs. You should be in a position to pay off the EMIs in spite of the variations as they would occur eventually. Therefore, don’t plan your EMIs in such a way that there is no money left for these additional expenses.

It is imperative to foresee all these factors and understand their impact on your total expenses. A smart strategy would be to keep sufficient room in your monthly cash flow for these additional expenses. So, plan smart and choose well for your dream home.