As per the data released by the consultancy firm Cushman and Wakefield, the real estate sector in India witnessed a record investment of Rs.17,600 crore in the first quarter of the financial year 2019. With an increasing number of individuals investing in properties primarily through housing finance options, lenders tend to provide a lower rate of interest and charges on home loans to borrowers with a strong credit history. In addition, home construction loans are curated for borrowers seeking financial help to build homes.
This loan is secured by a mortgage on the property that is being financed. They typically involve high-value and long term credits. With respect to this situation, it is apparent that even a slight variation in the interest rate will increase the total cost of the home loan.
Thereby, before proceeding to opt for the loan, it is imperative to have knowledge about the factors that help you avail the lowest housing loan interest rate.
Factors that influence interest rate –
- Credit Score
Borrowers possessing higher CIBIL scores are preferred by the financial institutions and receive instant approval for their home loan. It assures the lender of your repayment capacity.
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Subsequently, they implement the lowest home loan interest rate for those with an ideal score of 750 and above.
- LTV Ratio
It is the ratio of the value of the property and the loan amount sanctioned against it. Financial lenders calculate loan to value ratio to decide upon the maximum loan amount a borrower can avail.
Lower LTV ratio allows you to avail the lowest home loan interest rate, hence making the EMI affordable. Borrowers will have to make a larger down payment in case they avail a lower principal.
- Balance Transfer Facility
In case the borrower is not satisfied with the rate of interest provided by the current lender, he/she can avail this facility. He/she needs to transfer its outstanding loan amount to a new lender who would provide the lowest home loan interest rate.
- Higher EMI Payments
Borrowers can subsequently lower their interest payment burden by revising their installments every year. An increase in income or creating an alternate source of earning can grow the repayment capability of an individual. In such cases, one can increase their EMI payouts by a certain amount to repay the debt faster.
Select a convenient repayment tenor as it is one of the factors that impact home loan interest; a smaller tenor will decrease the interest paid towards the principal amount. To check your repayment ability and financial obligations, use a loan EMI calculator.
- Income Tax Benefits
Unlike regular home loans, where tax exemptions can be availed on both interest and principal amount, home construction loan tax advantages are different.
Tax exemptions for the principal amount of the loan can only be availed after the construction is complete and the financial institution certifies that the borrower has disbursed the full loan amount.
Upon completion of the process of construction, borrowers can claim home loan interest tax benefit up to Rs.2 lakh on the interest payment made in a year under Section 24(b) and also up to Rs.1.5 lakh on the principal amount paid under Section 80C.