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The Important Factors that Affect Your Housing Loan Interest Rate

  • 2 min read

  • 800Views

  • 50People Reading right now


  • Highlights

  • Loan to Value Ratio

  • Location and Home Value

  • The Interest Rate

  • Income and Occupational Health

  • Marginal Cost of Funds Based Lending Rate (MCLR)

  • Final Thoughts

Interest rates are among the various home loan factors to be considered when applying for a loan. These varying home loan interest rates are often determined by factors within and outside the borrower’s control.

In this article, we’ll discuss some important factors that affect your housing loan interest rate

Loan to Value Ratio

In the finance and real estate industry, lenders consider the value of the property before granting loans to the borrowers. It is the term used to express the ratio of a loan to the value of the property to be purchased. It is a comparison between the loan amount to the monetary market value of the asset that is about to be purchased. 

For mortgage loans, the loan to value ratio is used by lenders when underwriting a mortgage. It helps assess the required amount of down payment that is required and the amount of risk a lender is exposed to. Most lenders prefer to have a lower loan to value ratio especially from 80% below to avoid private mortgage insurance. Occasionally, the lower the loan ratio the higher the chances of loan approval and a lower interest rate. 

Credit Score

A loan to value ratio is used to determine the level of creditworthiness of a potential borrower by home loan lenders. It is a critical factor in determining the ability of a borrower to pay back the home loans and the interest incurred. Borrowers with high credit scores are most likely to complete the loan payment plus interest sooner. Some of the factors considered when evaluating a client's credit score are the payment history, the applicant’s existing debts and financial obligcations, and the length of the credit history. 

A high credit score increases your chances of securing a home loan with an affordable interest rate, based on low risk potential. If you’re in the market for a home loan, the Bajaj Housing loan interest rates are pocket-friendly and would make for a good financing deal.

Duration of Loan

Your preferred loan tenor also plays a role in determining the interest you pay on your home loan. If you are a low-risk applicant with a strong credit profile, you will be extended the benefit of a long home loan tenor, at a lower interest rate, as the lender has confidence in your repayment capacity. However, if you are at a risk for defaulting, or have a weak credit profile, you may not get the loan tenor of your choice – in case you want a lengthy tenor and will have to repay you loan in a shorter period of time, with higher EMIs and cash outflow.

Location and Home Value

Home loan interest rate are impacted by the value of an asset awaiting purchase. A low home loan interest rate is proportional to the value the property holds. The higher the value of your property is, the more likely it is for you to get a lower interest rate. The aspects that lenders look at when it comes to property evaluation are its location and proximity to local landmarks and roadways, its projected resale value, the amenities and facilities it comes with and developer record. 

When a property has a high resale value, it attracts low interest rates. Lenders will be eager to approve home loan applications for such a property too. This lessens the risk lenders undertake by granting loan bids. 

Type of Interest Rate

The type of interest you choose affects the rates of interest you stand to get on your home loan. The two types of interest you can choose from, are the fixed interest rate and the floating interest rate. The fixed interest is not subject to change, as it maintains the same monthly payments. In addition, it is of a low risk irrespective of the duration of the loan. However, the fixed interest rate is often a little higher than its counterpart.

On the other hand, floating interest changes, reacting to the market conditions. Under favourable market conditions, the interest rate on which you service your loan is low and affordable, and on the flipside, it can also increase when the market trends go in the opposite direction. Opting for a floating rate of interest allows you to negotiate a lower rate of interest, as well. We recommend that you browse the Bajaj Housing Loan interest rates for favourable terms you won't find elsewhere. 

Income and Occupational Health

Occasionally, lenders consider the income and the nature of occupation of prospective borrowers. This gives them useful insights that guide them during the loan approval process. Home loan applicants with a stable source of income are considered to be of low risk. They also receive low-interest rates as offers, complementing your dependable repayment capacity.

Marginal Cost of Funds Based Lending Rate (MCLR)

MCLR means the Marginal Cost of Funds Based Lending Rate. MCLRs are the lowest or minimum rates of lending which a commercial bank is not allowed to lend. The MCLR is a home loan factor and the explanation is simple. The lower the benchmark for the MCLR, the lower the rate of interest. The higher the benchmark for the MCLR, the higher the rate of interest on the home loan. Bajaj Housing Finance abides by the laws that guide the MCLR, and we make decisions that suit our loyal customers. 

Read More: MCLR vs Base Rate

Final Thoughts

Now that you know the important factors affecting your home loan interest rate, we urge you to use our Online Home Loan EMI Calculator to find a payment plan that befits you. Bajaj Housing Finance values your best interests, and that’s why we offer the most customer-friendly interest rates.


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