Home Loan Interest Rate and EMI: What Are The Main Factors That Influence Them?

Summary: Housing loans come with interest rates applied by lenders. The interest rate for your housing loan will depend on your salary, job stability, credit score, property value, and other factors.

Are you looking to purchase a home but don’t have the required funds in your savings account? Luckily, you can apply for a housing loan and fulfil your dream of buying a house in India.

But before taking a home loan, you must consider a few factors which might influence your financial well-being. 

The interest rate is the first to consider when applying for a housing loan. It can directly affect the housing loan EMI amount in India. Therefore, you must choose the right lender with an affordable home loan interest rate today for the housing loan. 

Read on to learn more about the factors influencing the home loan interest rate and EMI. 

5 Factors That Influence Home Loan Interest Rates and EMI

Below are the five main factors that influence the interest rates and EMI of home loans.

CIBIL Score 

Your CIBIL or credit score will decide the interest rate for the housing loan. Your credit score represents creditworthiness, an essential factor for loan providers. Housing loan providers cannot give loans to applicants with poor credit scores.

When the credit score is low, it means the applicant hasn’t been paying attention to past EMIs. The same can happen with the housing loan, as the applicant might default on loan repayment.

To remove the credit risk, housing loan providers increase the interest rate for the housing loan. If your credit score is 700 or above, you can get a better interest rate for a housing loan.

Property’s Market Value 

When you apply for a housing loan, the lending party will analyse the house’s market value. When the property is in a prime/urban location, its resale value will be high.

On the other hand, the resale value of a property in a remote location might be low. For the same rationale, housing loan providers apply low interest when your property is in a good locality.

The lender will send representatives to calculate the accurate price of the property before giving you a housing loan.

Occupation and Income

Do you have a stable income or job in India? What is your in-hand monthly salary after all the deductions? These questions will be asked by the housing loan provider while processing your loan application.

If you don’t have a stable job or income, you might fail to pay housing loan EMIs timely. In such a case, the housing loan provider will apply a high interest to cover the associated credit risk.

Even if home loan interest rates today are low, you will have to pay more with an unstable job or income.

The Repayment Term of The Loan

While applying for a housing loan, you will be allowed to choose your repayment term.

Usually, lenders tend to apply low interest on a short repayment term for the housing loan. Since lenders will get their money back quickly with a shorter repayment tenure, they suspect a low credit risk.

However, lenders suspect a credit risk when the repayment term is longer. You can use the online EMI calculator for home loans to understand the dependence of EMI amount on the repayment tenure.

MCLR Decided by The RBI

The RBI determines MCLR (Marginal Cost of Funds-Based Lending Rate) for lenders in India. It is the lowest rate that can be used by lenders in the country for loans and was introduced in 2016 in order to improve the transmission of policy rate changes to the lending rates offered by lenders. 

So, if you have a stable income and a good credit score, you might get the lowest interest rate for a housing loan.

In a Nutshell

It is critical to assess the interest rates of different housing loan providers. When the interest rate is low, you will pay less amount to the lender. This will reduce the overall cost of borrowing funds and your EMIs and lessen the financial burden each month. 

Follow this guide and apply for a home loan with a low interest rate today!

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