While the interest rates on housing loans were kept at their historic lowest till March 2021, most lenders revised their rates to increase them by 25 basis points from April onwards.
Consequently, existing borrowers under the floating rate scheme and new applicants looking for a home loan will now have to bear a higher home loan EMI as per this new mandate. Nonetheless, apart from rate revisions implemented by lenders, several other reasons can increase an applicant’s home loan EMI.
Reasons that can increase your home loan EMI
Poor credit score
Credit score plays a very crucial role in determining housing loan interest rate. A credit score is a 3-digit representation of an individual’s repayment history and creditworthiness. Applicants with a lower credit score are more likely to pay higher interest rates and vice versa. Consequently, the EMIs are also higher for those with a low CIBIL score.
Location of the property
The property’s location is a crucial factor that decides the rate of interest. Several factors like proximity to the main road, hospitals, educational institutes, and other local amenities influence the rate of interest. Homes with such available amenities have higher resale value; hence the interest rate on such homes is always low as lending institutions consider such properties lucrative. Any deviations will increase the rate of interest; thereby, borrowers will have to pay a higher home loan EMI.
Loans with a longer tenor attract a higher rate of interest than short term loans. Individuals opting for a home loan over 15 years are generally opting for a long-term advance, wherein their EMIs are lower, but in the long run, the borrowers end up paying more interest. Applicants can use an online home loan EMI calculator to compute the total payable amount and make an informed decision.
Among the several home loan eligibility criteria, the applicant’s age is another deciding factor for interest rates. Though the minimum and maximum age bar differ from lender to lender, applicants approaching their retirement age will have to pay a higher rate of interest as there is always credit risk involved.
Type of interest
An individual’s home loan EMI depends on the type of interest he/she opts for. There are primarily two types of interest rate; floating and fixed rates. Any change in repo rate by the Reserve Bank of India directly affects the floating interest rate offered by a lender. If the RBI declares a higher rate, the interest outgo increases and automatically affects the EMIs. In the case of fixed interest rate, borrowers pay the same EMI throughout the loan tenor.
These are some of the major factors that influence a home loan EMI. While some of these factors can be controlled by the borrowers, there are some that are directly dependent on the Indian economy. Applicants and borrowers must consider these factors when availing a home loan to optimise the benefits according to their requirement.
Further, applicants must also look for pre-approved offers extended by leading HFCs to customers to help streamline the borrowing experience. One can avail these offers on multiple financial products like home loans, loans against property etc. Check your pre-approved offer online by simply entering your name and contact number.
Out of all the loans that let an applicant enjoy tax exemption, a home loan tops the chart. Under Section 24 of the Income Tax Act, applicants can get a deduction of up to Rs.2 lakh on the interest paid. This provision significantly reduces a borrower’s total cost of borrowing, thereby allowing him/her to maximise savings.