Major Factors that Influence your Housing Loan Interest Rate & EMI


Since the housing sector is the 4th most significant contributor to the Indian GDP, more schemes, monetary policies and endeavours are being enforced to propagate its position in the market. The availability of affordable housing loans has also helped bolster the growth of the country’s real estate sector.

Now, with a tenor that can extend for more than 15 years, a home loan is one of the most significant investments of anyone’s life.

Moreover, with home loan EMI being considerable, even a slight change in the interest rates can make a huge difference in the overall loan’s cost. Many financial institutions offer competitive interest rates to boost their efforts in making housing loans more approachable to individuals. Hence, before availing a home loan, the prospective borrowers need to be mindful of the factors that can impact their housing loan interest rate and calculate home loan EMIs to eliminate the risk of defaults.

Factors influencing interest rate and EMI

Here are some factors that significantly influence home loan interest rate –

  • RBI’s monetary policy

As per RBI guidelines, all new floating home loan interest rates extended by financial institutions are to be linked with external benchmarks like the repo rate, 3-6 months treasury bill rate or such. All these benchmarks record different figures, and the home loan interest rate depends on these benchmarks. This means that the interest rate can change based on the RBI’s repo rate.

  • Property location

The location of a property plays a significant role in determining interest rates. Properties bought in a popular location with better amenities hold a much higher resale value. Also, any new property purchased in such locations has a better resale value than the older one. On the other hand, financial lenders charge higher interest rates for a property with poor connectivity and lesser amenities.

Apart from low interest rates, individuals can also look for pre-approved offers extended by HFCs to expedite the application process. These offers are applicable on financial products like home loans, loans against property, etc. Borrowers can check their pre-approved offer by submitting their essential contact details.

  • Loan amount

It is recommended to pay at least 20% of the property’s value as a down payment. This will allow individuals to apply for a lower loan amount. Availing a lower loan amount can influence the interest rate charged.

Thus, if a borrower wants to secure a lower interest rate, it is essential to make a substantial down payment. Moreover, before making the payment, borrowers can calculate a monthly EMI outgo using a home loan EMI calculator.

  • CIBIL score

A borrower’s credit score determines home loan eligibility and the amount of interest rate applied on the loan amount. It defines a borrower’s creditworthiness and is an important parameter to check by the financial lenders before disbursing the loan amount. Thus, it is essential to know the required credit score and how to improve your own. A borrower with a credit score of more than 750 will be offered a better interest rate than someone with a lower one.

Hence it is wise to know about a lender’s credit score requirements beforehand, along with other factors that impact home loan interest rate.

  • Loan tenor

The loan tenor is inversely proportional to housing loan interest rates. It means choosing a higher repayment period will also increase the overall interest pay-out and rate. If a borrower does not know how to calculate EMI before choosing the tenor period, it is recommended to use an EMI calculator for the same purpose.

Knowing the ways to reduce home loan tenor and EMI can aid in lowering the repayment liability.

Hence, if an individual is considering buying a home loan, he/she can look up to the offers extended by reputed financial institutions. Borrowers can also look for the balance transfer facility to reduce interest rates and save on home loan EMI repayment.


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