Home loans are a highly beneficial way of realising your dream of becoming a homeowner. It provides extensive financial support while providing many benefits. However, while it is the most preferred way for most homeowners, it is also a long-term responsibility and commitment. Moreover, the home loan rate of interest is an important aspect that determines whether the loan is an option for you.
How to Apply for a Home Loan?
Home loans are easy to apply for both online and offline. Regardless, you must provide appropriate documentation and financial records for the loan approval in both modes. For example, if you want to apply for a home loan online, apply with the following documents:
- Valid Identity proof
- Address Proof
- Employment Proof
- Income Proof of the last three months
- Income Tax Return Documents of the previous three years
What Affects the Home Loan Rate of Interest?
Your home loan rate of interest offered by the lender can vary depending on various factors.
- Minimum Interest Rate
Most lenders have a minimum interest rate applicable on home loans. The minimum interest rate can be as low as 6.65% for some banks. However, banks may sanction loans at the minimum interest rate or higher depending on other factors.
- Loan Tenure
ThereforeTypically, loan tenures significantly impact the home loan rate of interest. Home loans are available for a term of 2 years to up to 30 years. Longer loan tenures may be appealing because of the low repayment amount. However, the longer the loan tenure, the greater will be the interest rate.
- Credit Score
Your credit score signifies your financial reliability and level of risk. Therefore, lenders may offer you different interest rates depending on your credit score. For example, applicants with a credit score of 750 or above are considered low-risk. Therefore, the lender may offer a low-interest rate compared to high-risk applicants having a lower credit score.
- Loan to Value ratio
Another significant factor that affects your home loan interest rate is the loan-to-value ratio. The term loan-to-value ratio means the total amount borrowed against the valuation of the property. A lower loan-to-value ratio attracts a low-interest rate as lenders consider it a low-risk loan. However, applying for a lower home loan means you must finance the rest of the amount yourself or with the co-owner.
- Financial Stability
Having a stable financial record is a prerequisite for home loans. Moreover, lenders pay close attention to the job profile of the applicant to determine their repayment capacity. Therefore, applicants with a stable financial record may receive a home loan at a low-interest rate. Moreover, the lender may offer the best possible interest rate if there is a co-applicant for the home loan.
- Type of Loan
There are primarily three types of home loans with varying interest rates. Firstly, the fixed interest loan has the same interest rate throughout the loan tenure. Secondly, the floating interest loan may have a varying interest rate during the loan tenure. Lastly, the lender may offer a mixed interest rate. In the mixed interest loan, the lender may levy a fixed rate for a specific duration and then convert the remaining loan amount to a floating interest loan. If you are considering a lender offering a home loan online apply after checking the available interest types.
- Property Location and Age
Lenders levy interest rates after considering the location and age of the property. The location and age of the property determine the overall valuation of the property. Therefore, lenders may offer low-interest home loans if the property valuation is high.
- History of Loan Repayment
Even after checking your credit score, the lender will likely consider your past credit lines and loans. If you have a history of timely loan repayment, then the lender will probably offer you a low home loan rate of interest.
Conclusion
The factors mentioned above together have a significant impact on the home loan interest rate. Lower interest rates can increase your ability to repay a loan on time without causing worry or hassle. Therefore, consider all important factors when applying for a home loan online or offline.
