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7 Major Factors That Affect Your Home Loan Interest Rate

Many lenders will offer you a mortgage loan at a friendly rate to build or buy a home of your dreams. Owning a home gives you freedom and a sense of security you don’t get when renting. If you’ve decided to go for a home loan, remember that the conditions for approval of the same vary from one financial service provider to another. 

You might get a lender with a lower loan interest rate, but additional costs like late repayment penalties might add up later. 

Make sure you research available lenders, their loan’s interest rates, and other extra charges to know where to get a loan from. That allows you to choose the lender with a less expensive mortgage loan.

Understand what lenders consider when calculating home loan interest rates before you make a decision such that you can make an informed decision at your end. 

Factors That Influence Home Loan Interest Rates

1. Type of Interest Rate

You can choose between floating or fixed interest rates when taking a home loan. If you go for a fixed interest rate, the rate charged on a loan remains the same throughout repayment tenure. On the other hand, floating interest rates vary depending on MCLR rates set by the Reserve Bank of India.

Generally, the interest rate in the floating option is lower than a fixed interest rate, which means you will pay a lower amount by the end of the repayment period. Saving even a small fraction in terms of interest rate has a big financial impact. That’s why you can consider going with floating interest rates on home loans.

2. Credit Score

Credit score influences the interest rate charged on your home loan. Many lenders prefer home loans in India to borrowers with an impressive credit score of 750 and above. A high credit score means low risk on credit. Your lender will offer you a home loan at a lower interest rate, if your credit score is higher compared to someone with a lower value.

3. Loan Repayment Period

How long do you intend to repay the loan you receive? If you take a home loan with a longer repayment tenure, the interest rate will be high. Loans with longer terms carry an increased level of risk, which makes a Lender charge a high rate.

If you get a home loan in India and repay it within 20 or 30 years, the equated monthly installment is always low, which minimizes your financial strain. But the interest rate will be high, and at the end of the repayment period, you pay more for your loan than a short-term loan with big EMI and low interest.

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4. Loan-to-value Ratio

LTV ratio shows the ratio of your loan to the value of the property you’re buying. Many lenders will finance up to 90% of your property cost as a loan. Then, you’re required to pay the remaining amount as a down payment. Making a larger down payment will help you get a home loan at a low-interest rate. Lenders view your higher stakes in a property as a sign of low credit risk, which attracts low-interest rates on a mortgage loan.

5. Employment Status

If you’ve a stable job and income, you are likely to get a home loan in a hassle-free manner. Lenders consider unstable sources of income to be a high risk for credit. For example, if you’re a salaried public employee, or working in a reputable private organization, you are in the category of low-risk borrowers, and you might get a home loan effortlessly compared to others.

6. Location of Property

You can access lenders with a friendly home loan interest if your property is near the market, the existence of good roads, and other social amenities. Such a property commands a high value, meaning low risk. And your lender can repossess and sell your home quickly if you fail to repay the loan.


You experience great joy by owning a house. While you have access to many home loan lenders, ensure to do ‘loan shopping’ to get a good deal at low-interest rates. Once you take a loan, it influences your financial health. That’s why you should go to a lender with favorable EMI to avoid financial constraints.


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