As the loan tenures for a home loan goes up to 30 years, even a small change in HDFC home loan interest rates or interest rates of other lenders can lead to a great difference in the overall interest cost of the home loan. As lenders factor in various factors when fixing the interest rates of home loans, having a proper understanding of particular factors can get you the best deal with the lowest interest cost.

Note that for a home buyer, there are numerous offers and deals in the market that one can get the benefit of. To begin with, if you are one of those who has already finalized their home and looking up for a home loan, there are few crucial things you require knowing that may be of assistance while you zero down on a home loan. With this, not just you are able you to avail the best rates but can even keep the entire interest cost low until the end of the loan tenure.

Here, we will mention few factors that decide your home loan interest rate:

Credit score

Many of the lenders have begun to factor in the credit scores of their home loan applicants when setting their rates. As those with an excellent credit score are thought to be highly creditworthy, HDFC Home Loan and other lenders try to attract them by offering lower rates on their home loans. Likewise, the ones with low credit scores of under 750 are generally thought to be the ones lacking credit discipline, and thus lenders try to make up for their higher credit risk by offering higher rates.

Thus, make sure to fetch your credit report for at least six months prior to submitting the HDFC home loan application or application with other lenders. Taking this step would allow you adequate time to undertake the necessary steps to ameliorate your credit score. Also, it would assist you in identifying incorrect info or clerical errors in your report, which may be responsible for pulling your score down. Once you report these errors or incorrect info to the concerned lender or bureau, the corrected credit report would automatically result in a higher credit score.

Loan amount

Higher loan amount results in higher credit risk for HDFC home loan lenders and other lenders. Thus, they charge higher rates for the home loan that includes higher loan amounts. For instance, the home loan’s rate for State Bank of India for loan amounts of up to Rs 30 lakh begins from 6.70% p.a. onwards, while their rates for amounts over Rs 30 lakh and Rs 75 lakh begins from 6.95% p.a. and 7.05% p.a. onwards, respectively. Thus, borrowers must try and repay higher down payment if doing this allows them to take up home loans at lower rates.

Interest rate type

Home loan interest rates are classified into 3 types – fixed, floating and fixed rates. The floating rate fluctuates according to the changes in the rate benchmark followed by the lender, while rates of fixed home loans stay constant in the course of the whole loan tenure. Rates of mixed rate home loans stay fixed for a particular period, generally for a period of two or three years, after which they change to floating interest rate home loans. As fixed and mixed rates have higher rate risk for lenders, HFCs and banks offer higher rates on them to make up for their loss in interest income owing to the drastic change, if any, in the interest rate regime.

LTV ratio

LTV ratio of a home loan refers to the proportion of the property value sanctioned in the form of a loan by lenders. The rest amount requires to be financed via your own funds as a down payment. As the lenders have to make a higher provision for home loans with a higher LTV ratio, they make up for such higher provisioning by offering higher rates for loans with a higher LTV ratio. Thus, borrowers must try and opt for the lower LTV ratio to lower their overall interest cost.

Job profile

Many of the HFCs and banks even factor in the income sources of their rates. Usually, salaried individuals get charged a lower rate in comparison to the self-employed experts owing to the higher income certainty of salaried individuals. Among the salaried applicants, PSUs and the government are even highly favoured because of their higher income and job certainty. They get followed by the ones working in large and reputed private sector companies or organizations, which are generally viewed as stable with higher potential to undergo economic downturns in comparison to other private sector units.

As the lender’s credit risk appetite and their parameters for fixing interest rates can differ widely, ensure to compare various loan options before you make the final application. Begin by approaching banks or other lenders with whom you already share an existing relation, as many lenders provide preferential rates to the ones who are their existing consumers. After this, visit online financial markets to compare rates provided by other lenders based on your income, credit score, job profile, LTV ratio and loan amount.

Conclusion

A home loan has made it thoroughly possible for you to own your dream home. The affordability of a home loan is basically dependent upon the EMI that you agree to repay. EMIs assist you to repay the principal and interest component in a manner that does not put any stress on your monthly budget. However, as your EMI calculation factors in interest rate, it is crucial for you to consider the interest rate of HDFC home loans or other lenders. Moreover, as risk evaluation procedures, as well as the cost of funds, differ widely across lenders, home loan’s interest rates can extremely vary for the same lender.

Thus, ensure to compare the home loan options provided by various lenders, including HDFC home loan, before finally submitting your home loan application. One of the best ways for doing so is to visit the online lending markets, which would endow you with different home loan options available to you based on your income, credit score and various other eligibility criteria. Also, doing so would avoid any negative effect on your credit score as credit report requests that are raised by the online financial markets are looked upon as soft inquiries and hence do not lower your score in any way.