Home loans are repaid over a pre-agreed loan tenor. When a borrower avails of a home loan, they are required to pay interest on the principal loan amount. This home loan interest is spread evenly throughout the loan tenor to ensure ease of payment. A home loan EMI calculator is an online tool that lets you calculate the total interest you will pay on your home loan through your loan tenor.
One can use the home loan emi calculator to try different combinations of the loan value and tenor to deduce the most ideal combination that delivers affordable loan EMIs alongside low home loan interest payout.
In this article, we look at the factors that affect the home loan interest rates as an understanding of these different factors is crucial to ensure an affordable home loan and a stress-free home loan repayment journey.
Factors that Affect Home Loan Interest Rate Calculation
Financial institutions decide the home loan interest rate to be charged after taking into consideration several factors. Below we discuss the most important of these factors.
CIBIL Score: The CIBIL score is a three-digit number between 300 and 900 assigned to credit users by the most popular credit information agency in India, TransUnion CIBIL, based on five key factors: the loan borrower’s repayment history, their credit utilization ratio, dependency on credit, the age of their credit history, and the credit mix they have. A CIBIL score from 750 to 900 is considered excellent and can make one eligible for the most beneficial loan terms and conditions, including low home loan interest rates.
Those planning to secure a home loan must check their CIBIL score at least a few months before they are to apply for the loan and proceed with their loan application only if they have a very good CIBIL score. If your score is only satisfactory, it is best to apply for the loan after you have worked on your credit rating and improved it.
2. Interest Rate Type: The home loan interest rate type you select will also impact the final home loan interest rate you get offered. Fixed-interest rate home loans tend to be more expensive than floating-interest-rate loans. So, until and unless you are certain that home loan interest rates will go up in the future, it is best to opt for floating interest rate home loans.
3. External Market Factors: External market factors impact your home loan interest rates. If the inflation is high, the Repo Rate increases and other monetary policy rates to bring inflation under control. This will cause your home loan interest rates to go up. On the contrary, if the external benchmark rates are low, you will be able to secure your home loan at low home loan interest rates.
Summary
The home loan interest is calculated on the principal amount and the rate that an individual gets plays a key role in deciding the affordability of the loan. Having a thorough understanding of the factors that affect home loan interest rates will help you negotiate with your lender for a lucrative home loan offer.
