Updated Home Loan Interest Rates Which are Best for Customers in 2021

2020 has seen the greatest cuts in home loan interest rate besides other financial products, in 15 years. Thanks to the complete halt on economic activity since March 2020, the Reserve Bank of India slashed repo rate to 4%. 

This, in turn, resulted in home loan interest hitting figures below 7%, making it the best time for individuals to opt for such funding. However, borrowers should also consider other factors before proceeding, as discussed below.

Which type of interest rate to choose?

A key factor which decides your total borrowing cost, in the long run, is the interest rate type you opt for. There are 2 basic classifications:

1. Fixed interest rate: This interest rate remains even throughout the repayment tenure. No market-rate fluctuation affects interest payments, thus promising a risk-free repayment. However, just as it saves borrowers from sudden hikes, they cannot benefit if/when the standard lending rates fall. 
2. Floating interest rate: These rates are periodically revised by lending institutions as per market conditions and RBI policies. Borrowers can enjoy the latest home loan interest rate set by lenders, which can be highly advantageous when low, but highly unprofitable when rates skyrocket.

This might be the best time to opt for a home loan with floating interest rates since the fixed rates are usually set way higher.

Other factors that affect interest rates

Besides the macroeconomic factors at play, housing loan interest rate also depends on borrowers. One can lower rates by maintaining the following in their portfolio – 

• Maintaining a balanced credit mix – Borrowers should have both secured and unsecured credits under their belt in equal measures. This shows healthy financial debt management.
• Borrower income – The amount of income you draw per month or year determines whether you are a risky borrower. Individuals with a significant disposable income are more likely to serve loans effective, thereby encouraging HFCs to charge limited interest.

Note that creditworthiness attributes like credit score above 750 can also aid in lowering these interest rates. Borrowers can also claim tax exemption on home loan interest rate under Section 24B of the Income Tax Act to further enhance savings.Read Also: Do you want to know the process for home loan?