IDFC First Bank Home Loan

Factors Affecting Home Loan Interest Rates

When it comes to the home loan interest rates in India, there are several factors that affect the rates. Paying in EMI is the usual repayment option for a home loan, and it becomes affordable with a competitive interest rate. Before you proceed to apply, it is better to check the factors that have an influence on the home loan interest rate, which in turn affects the EMI payable. Some of the factors are:

MCLR or Benchmark Rate

The Marginal Cost of Funds-based Lending Rate or MCLR is the minimum interest rate at which a bank can lend home loans. The MCLR rate is fixed considering several factors such as the marginal cost of funds, operating cost, cash reserve ratio (CRR) and tenure. The banks review the rate for the borrowers during the annual reset date of the MCLR, where the duration may be 3, 6 or 12 months. The home loan interest calculation is done and charged based on the changes in the MCLR rate.

The rate at which banks borrow money from the RBI (Reserve Bank of India) for short-term financing is called the repo rate. When the RBI hikes the repo rate, banks must pay more interest to the RBI to borrow money from it. This further increases the interest rate of home loans. It is, hence, essential to consider a hike in repo rate by the RBI before taking a home loan.

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Type of Interest Rate

A home loan product is offered in three types of interest rates, and they are floating, fixed and mixed. A floating rate of interest changes depending on the RBI’s policy rate changes. For instance, if the repo rate is reduced, banks reduce the home loan interest rate and vice versa. IDFC FIRST Bank offers you home loans on a floating rate, offering the cheapest home loan rates.

The fixed rate will have the same rate of interest fixed at the time of the approval of the loan, and will continue until the end of the tenure. The mixed rate will have the fixed rate of interest first and later the floating one.

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Loan-to-Value (LTV) Ratio

The percentage of loan offered on the property is called LTV ratio. The higher percentage shows the maximum amount of loan the bank offers to the applicant. The bank home loan interest rate will be higher owing to the increased risk involved in lending. You can reduce the loan amount by making a large down payment, and have the lowest home loan interest rate.

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Loan Tenure

The tenure of the loan can increase or reduce the interest. For instance, the home loan interest for the tenure of 20 years is higher than that for 15 years. If you are looking for the cheapest home loan rates, check here on the IDFC FIRST Bank website.

Home loans with a longer tenure have a higher interest rate than those with a shorter term. You can use IDFC FIRST Bank's home loan EMI calculator to know the best tenure for your home loan.

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Location of the Property

The property located in a prime place with all the basic amenities has a higher resale value than the one in the outskirts of the city. Therefore, banks offer loans for the property, with higher resale value, at a lower rate of interest, and for the lower resale value they charge higher interest rate.

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Profile of the applicant

Any bank or financial institution considers applicants' job security before sanctioning their home loan request. If you have a stable job that establishes your ability to repay the home loan in time, you can benefit from lower home loan interest rates on a home loan.

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Relationship with the bank

Banks offer preferential interest rates for customers with a good credit history. If your credit score is close to 800, and if you have a good relationship with the bank, you might get a home loan at a lower interest rate.