Current Trends in Home Loan Interest Rates: What You Need to Know

People repaying a home loan or planning to avail themselves of one must understand the importance of home loan interest rates and how they affect every facet of one’s life, home loan repayment strategy as well as the total cost of borrowing funds. Lenders lend you the funds that you need to buy your dream home and become a homeowner. 

However, they also charge interest on this money in the form of home loan interest rates. There is no fixed interest rate at which lenders sanction home loans. The home loan interest rate to be extended to a loan borrower depends on the credit profile of the loan borrower, which takes into account several different factors. 

In this article, we talk about the current trends in home loan interest rates or the latest factors that lenders take into account while deciding your repayment capacity and your ability to repay your loan EMIs on time.

Current Trends in Home Loan Interest Rates 

If you are planning to avail yourself of a home loan, one of the most important things on your mind must be what you can do to ensure candidature for the lowest home loan interest rates. Here are a few simple things you can do. 

1. One of the first things you must understand is that an individual’s credit score provides a window into their creditworthiness and repayment capacity. Individuals with high credit scores are people who have rarely made any credit-related mistakes in the past. These are people who can be trusted with timely repayment of loan EMIs and therefore, such people are extended loans on the most favourable loan terms and conditions, including the lowest home loan interest rates one can get. A credit score between 750 and 900 is considered excellent and people with such a credit score are extended the best loan offer. So, one of the first things that you must do is apply for a home loan with an excellent credit score. Most lenders check the credit score assigned by TransUnion CIBIL and therefore, you must check your CIBIL score before initiating the home loan application process and make sure you have a CIBIL score of at least 750. 

 2. Lenders will also carefully take into consideration the LTV ratio you opt for. The LTV ratio is the ratio of the loan amount you have borrowed to the value of the property you have bought with the loan money. High LTV ratio loans involve higher loan amounts and are therefore considered riskier deals by lenders. Therefore, high LTV ratio loans often attract a higher rate of interest. On the other hand, when home loan applicants pay a higher down payment and borrow a low loan amount, lenders charge a low rate of interest. While the LTV ratio can reach up to 85% for home loans, borrowers should ideally pay as high a down payment as possible and keep the LTV ratio low. 

3. Lenders, these days, also study your debt-to-income ratio or fixed-obligations-to-income ratio while deciding the home loan interest rates to be offered. Individuals who are already paying a considerable portion of their monthly income to repayment of loan EMIs and credit card bills do not have very high repayment capacity and therefore, such borrowers are generally charged a higher home loan interest rate for these loan borrowers pose a higher level of risk to lenders. On the other hand, people with FOIR or debt-to-income ratio under 40% are sanctioned loans at a much lower rate of interest. 

4. These days, lenders also charge a higher rate of interest on fixed interest rate loans than floating interest rate home loans. If you are looking for a low-interest rate deal, opt for a floating-interest rate home loan. Further, floating interest rates are tied to an external benchmark and therefore, tracking changes in the case of these loans becomes much easier. 

5. Yet another important interest rate trend is that individuals who have chosen to repay their home loan at a floating interest rate can prepay their loan or even foreclose it without paying any penalty. This is not the case with fixed-interest rate home loans, which draw a penalty that can go as high as 4% of the remaining loan amount for prepayment and foreclosure. Borrowers on floating interest rates can take advantage of this new regulation and apply for a home loan balance transfer if they find another lender willing to refinance the same loan at better loan terms and conditions and save money in the long run. 

These are some of the important and latest home loan trends that you should know about if you are a home loan borrower or in the process of availing of housing finance.