When you consider taking house loan, or in that matter any type of loan, you need to be ready to pay interest calculated against it. Housing loan interest rate is the rate at which any housing loan is offered to the borrower. In simple words, it is a percentage fee on the principal amount. The interest rates may vary as per the supply and demand for the money in the current economy trend. Some of the factors that can affect the interest rate for home loan –
Changes in the Monetary Policy –
The RBI’s financial strategy seeks economic growth and stability. So it controls the entire monetary policies including money supply, liquidity, and interest rates. If the RBI loosens monetary policy, then interest rates decline, and if the RBI constricts the policy, then interest rates may rise.
Economic Growth –
This is the important factor influencing interest rates. Since the purchasing power has increased, the demand for funds increases. So the home loan interest rate increases.
Fiscal Deficit –
The budgetary deficit indicating the fact that government will have to borrow fund from market indirectly, the interest rate spikes up.
Rate of Inflation –
When there is a rise in the cost of goods and services, the inflation rises. When it rises, the purchasing power of the unit of currency reduces. This also affects the home loan interest rates.
Reference Read: List of Factors That Influence Housing Loan Interest Rates