High Home Loan Demand Triggers Home Loan Interest Rate War

Home Loan Interest rate is the rate at which individual is getting the loan from different financial hubs.

Kinds of Interest Rates in Home Loan

There are basically two sorts of home advance financing costs charged by a large portion of the banks.

1. Fixed Interest Rate:

In this arrangement of calculation, the rate stays even all through the credit tenor. There will be no adjustment of the premium charges since the rate stays fixed. Contingent upon the offer, you might be permitted to switch over to the gliding rate framework subsequent to finishing a specific length into the credit residency.

2. Gliding Interest Rate:

The premium charges on your home credit is dependent upon the current most loaning paces of the bank. The rate is connected to the most recent distributed pace of the bank which thus relies upon various factors, for example, RBIs financial strategy and loaning rate updates, the bank’s reaction to the amendment and so on.

RBI’s latest decision, undertaken on 4th June 2021, to keep the repo rate unchanged at 4% has created quite a stir in the Indian lending market. It has allowed financial institutions to lower their interest rates and encourage more borrowers to avail funds.

The increase in liquidity and demand for housing credits has also prompted an interest rate war among lenders in the market. Competing lending institutions are now vying to offer the lowest home loan interest rates along with various facilities to attract the attention of potential home buyers.

But what were the events that led to the interest rate war among lending institutions? Take a look.

Home loan market trends between 2020 and 2021

The home loan segment has witnessed drastic changes in the past one year. RBI’s decision to lower the repo rate by 75-basis points on 27th March 2020 took this policy rate down to 4.4%, creating a favorable borrowing condition for prospective home buyers. 

But, the RBI did not stop there. It slashed repo rate by another 40 bps, bringing it down to 4% on 22nd May, 2020. Resultantly, the interest rates applicable on home loans hit an all-time low, and several financial institutions started extending housing credits at as low as 6.5% interest.

Prior to this repo rate cut, home loan interest rate were sailing well over 7-7.5%, but the situation changed almost overnight with this announcement. The home loan rates remained at their lowest for almost 10 months, allowing individuals to minimize their borrowing cost effectively.

However, with India well on its path of economic recovery, lending institutions have revised their interest rates since April 2021, even though the repo rate remains unchanged at 4%. Currently, home loan interest rates are ranging between 6.5% and 9.5%. 

Apart from the RBI’s policies, there are several other factors that can influence the interest rates applicable on a housing loan. Following is a look at a few of these factors.

Other factors that influence home loan interest rates

Following are factors influencing home loan interest rates that borrowers must be aware of before applying –

Credit profile of a borrower

Irrespective of the loan type, whether it is secured or an unsecured one, a borrower’s credit profile plays a massive role in his/her eligibility to avail the best interest rates. A borrower’s creditworthiness, which is represented by his/her past repayment behavior and present CIBIL score, are some of the factors that can impact home loan interest rates.

Selecting an appropriate tenor

The tenor of a housing loan can also have a say in its interest rate. In case a borrower opts for a loan offer with a 20-year tenor, he/she may end up with a higher interest rate than someone opting for a tenor of 10 years.

Since a longer tenor increases the chance of delinquencies, financial institutions often levy a higher rate of interest on credits. One should know how to choose between floating and fixed interest rates to make an informed decision.

Down payment amount

Another major point that influences the home loan interest rates is the amount deposited as down payment. Individuals can choose a make a higher down payment to ensure that they borrow a lower amount, reducing their risk of delinquency. This allows lending institutions to deem them as low-risk borrowers, and in turn, offer them lower interest rates.

Location of a property

The location of a property can also influence the interest rates applicable on home loan. If an individual decides to purchase a property that is at a prime location with great amenities and connectivity. It will have a higher resale value. Hence, it holds better prospects for a lender than a property at a remote location.

Apart from market conditions, these are a few factors that can make a difference in interest rates offered, and might even diminish a borrower’s chances of availing the loan at its best price. 

Along with competitive interest rates leading financial institutions are also offering pre-approved offers to increase the convenience of their customers. Offers like these streamline the loan application process and saves time. These offers are available on various financial products like home loan, loan against property, etc. Borrowers can now check their pre-approved offers online by providing their name and contact number.

Home loan interest rates are at one of the lowest points in recent years. This is the ideal time for potential home buyers to make the most of this opportunity and purchase a home that they want.