2 min read
25 May 2021

The affordability of your home loan hinges on the interest rate, which varies from lender to lender. While some factors that decide the home loan interest rates are not in your control, others are.

Take a look at what affects your home loan interest rate:

Your credit score

Your credit score has a major impact on the interest rate that you pay. It is a measure of your creditworthiness and impacts the lender’s faith in your ability to repay a loan. While a poor score can cause the lender to charge you a higher rate of interest, a high score gives you better leverage to negotiate the interest rate.

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Prevailing MCLR rates

MCLR is a benchmark lending rate at which lenders give loans. Earlier, financial institutions relied on the base rate. These loans come with a reset clause at pre-determined intervals, which can be six or 12 months. During this period, any changes in the MCLR will change your interest rate. This means that your interest rate will marginally increase and decrease through the tenure. But, it ensures that you don’t end up overspending by adhering to a fixed, high rate of interest.

Additional read: All you need to know about MCLR-based home loans

The location and value of your home

The location of your home plays a major part in determining its value. For example, a house with good amenities in the vicinity like shopping centres, grocery stores, bus stops, railway stations, banks, hospitals and schools are likely to command a higher value than one with no amenities and connectivity. If you choose a home in a location with poor amenities, it reduces the value of the house in the lender’s eyes, since resale will be difficult.

The same applies to the age of the property. Newer properties are considered more stable and, therefore, more lucrative. So, if the property you are buying is old and not in an upcoming neighbourhood, you will have to pay a higher rate of interest.

Additional read: How to reduce home loan interest rate?

Focusing on these factors and conducting thorough research on lenders will help you choose a good property and get a more affordable home loan that you can repay comfortably.

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