When it comes to purchasing a property, a housing loan comes in handy. Almost everyone needs to take out a housing loan to fulfill their dream of owning a home. Sometimes, buying a home can be one of the biggest investments you make in your life. A housing loan can help you achieve your goal of owning a home by providing financial assistance. However, before getting a housing loan, there are certain factors that need to be considered. One of the most important factors is the housing loan interest rate.
What Is Housing Loan Interest Rate?
When you apply for a housing loan, you’ll come across the term “housing loan interest rate.” It is the amount of money that you’ll pay in addition to the loan principal or the actual amount you borrowed. In other words, the housing loan interest rate is the cost of borrowing money.
Housing Loan Interest Rate Categories
Housing loan interest rates are divided into two main categories:
Fixed Interest Rate
This type of interest rate remains constant throughout the loan’s tenure, i.e., the rate won’t change over time. It assures borrowers that their EMI (Equated Monthly Installment) remains the same irrespective of fluctuations in market conditions or economic conditions.
Floating Interest Rate
Floating interest rates, on the other hand, fluctuate with market conditions and economic conditions, meaning that your EMI can increase or decrease depending on the current rate. This type of interest rate is determined by the central bank’s repo rate or the bank’s Marginal Cost of Funds-based Lending Rate (MCLR).
Factors Affecting Housing Loan Interest Rates
The housing loan interest rate depends on several factors, including:
Your credit score or CIBIL score plays a critical role in determining your housing loan interest rate. The higher your credit score, the more favorable interest rate you’ll receive. A low score can push the rate up and make it harder to secure a loan.
The loan amount also determines your housing loan interest rate. The larger the amount, the lower the rate you’ll receive.
Tenure of the loan
The loan’s tenure has a direct impact on the interest rate. If you opt for a longer tenure, the interest rate may be higher. However, with a shorter tenure, you may receive a lower interest rate.
Type of loan
The type of loan you choose also plays a role in determining the interest rate. For instance, a home construction loan may have a higher interest rate than a home purchase loan.
Market conditions also have an impact on housing loan interest rates. During an economic downturn, interest rates tend to be lower than during a boom.
Benefits of Housing Loan Interest Rates
Helps You Afford Your Dream Home
One of the significant benefits of housing loans is that they make homeownership affordable. With the help of a housing loan, you don’t have to wait for years to save enough money to buy a home. You can easily make the purchase and start building equity in your home by making monthly payments towards the loan.
Helps You Build Equity
A housing loan allows you to build equity in your home. Equity is the difference between the value of your home and the amount you owe on your mortgage. It’s an essential factor that can help you secure loans in the future if you need them.
The government incentivizes homeownership through tax benefits. You can claim deductions on the interest paid on your housing loan. Under Section 80C of the Income Tax Act, you can also claim a deduction of up to Rs. 1.5 lakh from your taxable income on principal repayment.
Investing in a property can be a good investment decision. It can provide long-term returns through rental income or appreciation in the property’s value. A housing loan can help you access this investment opportunity by making it easier to own property.
When you’re applying for a housing loan, it’s crucial to understand your EMI or Equated Monthly Installment. It’s the amount you’ll need to pay to your lender every month towards your housing loan. An EMI calculator helps you calculate the EMI based on the loan amount, tenure, and interest rate.
The home loan calculator is an online tool that can help you determine the EMI for your housing loan instantly. It’s easy to use and can help you plan your finances better. You can change the loan amount, tenure, and interest rate to find the most affordable option for you.
A housing loan is an investment in your future and a significant financial decision. The housing loan interest rate is an essential factor to consider before applying for a loan. It’s essential to know the different types of rates, what affects them, and how to calculate the EMI using an EMI calculator. By understanding the nuances of housing loans, you can make informed decisions that can help you secure your dream home and build a financially stable future.