Numerous factors are taken into consideration by lenders when they decide the home loan interest rate for their borrowers. Typically, borrowers have the option to choose between fixed and floating interest rates for home loans. While the former does not change with market fluctuations, the latter varies regularly.
Irrespective of the type of housing loan interest rate
chosen by a borrower, financial institutions decide the rate at which they want to provide them with a home loan.
Some of the factors that determine home loan interest rates include –
CIBIL score - CIBIL or credit score depicts the credit reliability of an individual. Financial institutions check this score to decide the risk factor involved while lending money to an individual, consequently deciding the interest rate too.
Loan value - The total amount of money required by a borrower affects the interest rate; financial institutions run a higher risk of loss with a rising loan amount. This is also affected by LTV (Loan to Value), which is the ratio of the loan amount to the property’s market value.
Loan tenor - Shorter tenor means the lesser risk for a financial institution since the loan is repaid faster. Subsequently, even though borrowers have the option to choose a tenor going up to 20 years, shorter tenors on their home loans can lead to lower interest rates.
Income and its source - The income of a borrower and reliability of its source is also taken into account by financial institutions while judging the risk and deciding their interest rate for home loans.