While planning to purchase your dream home in India, one of the most important factors to look into is the home loan interest rate. This rate determines how much extra money you have to pay back to the bank or lender over the years, let’s break down how these interest rates are set and what affects them.
What is The Home Loan Interest Rate?
A home loan interest rate is the percentage charged by the bank, lender, or financial institution on the total loan amount you borrow. It regulates your monthly installment which is also called EMI and the overall cost of your home loan. The lower the amount you borrow, the less you have to pay as interest.
How Banks Set Their Home Loan Percentage Rates?
Banks look at several things when setting their home loan lending rates:
- Banks consider their own cost of funds while ensuring that they are also making money, so they calculate how much it costs them to get the money they will lend you.
- Competition is also a key factor, if one bank offers lower interest rates than others might lower the home loan lending rate to stay competitive. This is why you might see the same rates across the different banks.
- One more thing that matters is what type of property you are buying. Ready-to-move-in properties might get better rates than under-construction ones because they are seen as less risky.
Types of Home Loan Interest Rate
There are mainly two types of home finance interest rates in India:
1. Fixed Interest Rate
In fixed interest rates, the interest rates remain constant throughout the loan tenure. You will pay the same EMI every month, this makes it easier to plan your finances. However, fixed interest rates are usually higher than floating rates.
2. Floating Interest Rate
Floating interest rates are dependent on the market conditions. It is linked to the RBI (Reserve Bank of India) repo rate and other external factors. If the RBI lowers the interest rate, your home loan lending rates will automatically decrease. Floating rates are generally lower than the fixed interest rate in the long run.
Why SBI Home Loan Interest Rates Matter?
State Bank of India (SBI), being the largest bank in India, often sets the trend for home finance interest rates. When SBI changes the interest rate, other banks usually follow its trend. That’s why people usually keep an eye on SBI home loan interest rates as a key factor.
How to Get the Best Interest Rate?
Your personal profile matters a lot when banks decide your home loan percentage rate. Here’s what helps:
- Your credit score is very crucial while applying for a home loan. If you have been good with paying with finances and other loans, banks are more likely to offer you the best home finance interest rates they have.
- Your income and job stability plays an important role. A steady income and job can help you negotiate better interest rates.
- The loan amount and the loan duration also affect your interest rate. Generally speaking, shorter loan periods might get you better rates because they are less risky for banks.
Factors That Determine Interest Rates
Several factors influence home finance interest rates in India. Here are some key factors:
1. RBI Monetary Policy
The RBI (Reserve Bank of India) plays a significant role in setting interest rates. The RBI controls the repo rate which is the rate at which various banks borrow money from RBI. If the repo rate increases for some reason, banks will raise their home lending rates. If the RBI lowers the repo rate, interest rates decrease.
2. Bank’s MCLR (Marginal Cost of Funds-Based Lending Rate)
Most of the banks regulate their home loan lending rates based on MCLR. The MCLR is the minimum rate below which a bank or lender cannot lend the money. Changes in MCLR impact interest rates directly.
3. Credit Score of the Borrower
A credit score of 750 and above helps in getting a lower interest rate on home loans. Banks consider a high credit score as a sign of responsible financial behavior. If your credit score is low or in a bad state, banks charge high interest rates as there is a higher risk of default.
4. Loan Amount and Tenure
The loan amount you take and its tenure also determines the interest rate. Higher loan amounts usually have lower interest rates compared to smaller loans. However, loans which have a long tenure may have a higher interest rate.
5. Type of Lender
Various banks and NBFCs offer different types of home loan lending rates. For example, public sector banks which are also called government banks like State Bank of India may offer lower interest rates compared to private banks. Checking the SBI interest rate of home loan and comparing it with other banks can help you get the best deals. However, you don’t have to go on various banks sites, you can easily compare the best deals and offers on BigMudra from various banks and NBFCs.
6. Employment and Income Stability
Banks estimate your income stability before approving a home loan. Salaried employees with a stable job and income usually get lower interest on home loans. Self-employed individuals or those with irregular incomes may get higher home finance interest rates.
7. Property Location and Condition
Location and condition is also an important factor that affects the interest rate. Properties in prime locations and good conditions are considered low risk, leading to lower interest rates. If the property is in a remote area or has legal issues, the lender may charge a high rate.
Conclusion
Before you finalize your home loan, always check the latest SBI home loan interest rates and compare it with other bans to find the best deal. A lower home loan interest rate can save you a compelling amount of money in the long run, making your dream home more affordable to your pocket.
