How to Choose the Right Housing Loan Interest Rate for You

Homebuyers planning to buy a home through a home loan or housing finance must make it a point to secure the lowest housing loan interest rate. Lenders charge interest on the principal or the original amount sanctioned. Home loan EMIs constitute an interest component and a principal component. Low housing loan interest rates translate into low and affordable EMIs, along with low total interest payout, and make loan repayment stress-free. 

If you are planning to apply for a housing loan, you must read about the housing loan interest rate and do extensive research on how to choose the right one for you. 

Tips on How to Choose the Right Housing Loan Interest Rate for You 

1. Make Sure that the Financial Institution You Are Applying to Links Housing Loans to the Repo Rate 

Linking housing finance to the Repo Rate ensures complete transparency. Repo Rate is the interest rate at which the central bank lends money to banks and other financial institutions in exchange for government-accepted securities. An increase in the Repo Rate causes home loans to become expensive. On the contrary, a Repo Rate cut causes home loan interest rates to decrease. Home loans linked to the Repo Rate are easier to track. 

2. Select the Right Housing Loan Interest Rate for You 

Yet another thing that you must keep in mind is that housing loans are offered on three divergent types of interest rates: fixed, floating, and hybrid. Fixed interest rate loans do not change with changing market conditions and stay the same until reset by the lender. Thus, these loans guarantee predictability and precision planning for EMIs that do not respond to external market conditions for these loans. Floating interest rate loans respond to market conditions and therefore, the interest rates change with changing market conditions for these loans and consequently, also the EMIs. However, floating interest rates are always cheaper than fixed interest rate loans. Hybrid loans are a mix of fixed and floating. For hybrid home loans, the rate of interest remains fixed for the first few years and then automatically changes to the floating type. Borrowers should research the best home loan type for them and make a decision only after considering all the pros and cons. 

3. Select the Loan Tenor Carefully 

The housing loan tenor you choose will also impact your ability to repay your loan. For instance, let's assume that your credit profile does not make you eligible for a low housing loan interest rate. In this particular case, you can make loan repayment easy by opting for a long repayment tenor. While this will help you keep your home loan EMIs affordable, know that this will also increase your total interest payout and cost of borrowing the funds. To conclude, borrowers should carefully select their home loan interest rate to mitigate the impact of higher interest rates. Equally important is choosing the appropriate loan tenor, as it can significantly influence the overall cost and manageability of the loan.

4. Always Use the Home Loan Calculator

The home loan eligibility calculator is an online tool that lets you calculate the loan amount that you are eligible for based on your income, current debt situation, etc. Applying for a home loan amount that you are eligible for will increase your ability to secure a low housing loan interest rate. Other than this, ensuring and establishing a stable income and job, maintaining a low debt-to-income ratio, and a healthy mix of both secured and unsecured loans will also help you negotiate a low housing loan interest rate deal.

You must select the right interest rate type for you. Selecting the right interest rate will help you keep your home loan EMIs affordable and repay the loan comfortably.