Navigating Housing Loan Interest: A Borrower’s Guide

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In this brief home loan interest rate guide, we will first talk about the types of home loan interest rates offered by lenders and then share some quick tips on what borrowers can do to score the lowest home loan interest rates. 

Home Loan Interest Rates: Different Types

Lenders offer home loans on two different types of interest rates: fixed and floating. External market conditions have no impact on fixed interest rates and therefore, fixed home loan interest rates remain the same through the tenor of one’s loan. Floating interest rates, on the other hand, fluctuate with changing market conditions. When market interest rates increase, floating interest rate home loans become expensive and vice versa. 

There is a third home loan interest rate type: hybrid home loan interest rates. Here, the interest rate on a home loan stays constant for the first few years, after which the interest rate type automatically changes to a floating type. 

Now that we are familiar with home loan interest rate types, let us share some quick tips on how to avail of the lowest home loan interest rates. 

Simple Tip on How to Avail of the Lowest Interest Rates

  1. In your quest for a low home loan interest rate, an good credit score will be your best friend. Such a credit score is indicative of an individual who can be completely trusted with timely repayment of debt. Therefore, lenders do not think twice before extending the best loan offer they can make, including the lowest home loan interest rates possible, to such borrowers. 
  2. Keeping the LTV ratio low will also work in your favour. LTV ratio gives one the percentage of one’s home’s current market value that has been sanctioned as a loan. A low LTV ratio loan not only depicts a lower loan amount, which the lender will find easy to repay, but it also is indicative of the fact that the home loan borrower has a high stake in the property and thus, their commitment to repaying the loan on time and having the property transferred in their name will be more staunch. 
  3. Lenders prefer sanctioning loans at low interest rates to individuals who have a stable job and income as such individuals are less likely to default on loan repayment. So, if you are planning to apply for a home loan in the near future, do not switch jobs often. Furthermore, increase your chances of loan approval and getting your desired interest rate by disclosing all additional sources of income in your loan application. 
  4. Check your home loan eligibility beforehand. Use a home loan eligibility calculator, which is an online tool that lets borrowers calculate the home loan amount they are eligible for based on factors, such as current income, current debt-to-income ratio, etc. Apply for a loan amount lower or equal to what you are eligible for. This will increase your negotiating power and ability to ask for better interest rates. 
  5. Opting for a long repayment tenor may also work in your favour. A long repayment tenor translates into affordable home loan EMIs, which in turn, reduces the risk for the lender. Thus, lenders generally sanction long-tenor loans at lower rates of interest. 
  6. To reduce the effective interest rate on your loan, make prepayments whenever possible. Use a prepayment calculator to time your prepayments and save the maximum that you can. 

These are some of the simple tips that will help you avail of your home loan at the best possible interest rates. On an aside, here is another tip that will prove beneficial: while calculating the home loan amount one needs, buyers usually take into account only the cost of the home. They do not include stamp duty and registration charges in their calculations, which invariably turn out to be a hefty amount. So, use a stamp duty calculator and registration charges calculator beforehand. Also, take into account moving-in costs while calculating the loan amount you will need.