Home loans, either secured or unsecured are given by banks and financial institution for the sole purpose of building and purchasing houses. Most often than not a home loan is given for the long term and the interest rates ranges from 7% to 10% depending on the borrower and the lender. The eligibility criteria also differ from bank to bank. At present, the home loan India sector has grown exponentially and is expected to grow further.
The eligibility criteria for home loans and it’s interest rates are regularly revised by the Reserve Bank of India from time to time. There are several financial tools that affect your home loan interest rates, both fixed and variable. The reserve bank of India monitors and effectively applies these tools to control the economy.
Fixed factors are mandatory for financial institutions; they dictate the terms and policies for home loans in India. These factors are as follows:
• Base rate – it is the minimum rate set by Reserve bank of India for home loans in India. It is set to ensure transparency and low cost of all available home loan funds.
• Repo rate – it is the rate at which the Reserve bank of India lends money to a financial institution in the event of any shortfall. If the Reserve bank of India wants to put more money in circulation, it lowers the repo rate and vice versa. Hence it is a tool to regulate inflation.
• Reverse repo rate – it is the rate at which the Reserve bank of India borrows money from financial institutions. It is a tool to control the money supply in the economy.
• Cash reserve ratio (CRR) and the Statutory liquid ratio (SLR) – CRR is the amount of money that a bank has keep with the RBI. The SLR is the ratio between liquid assets (cash, gold) and the net demand and time liabilities (NDTL).
Apart from these fixed factors that dictate the interest rates for home loans India, there are other variable factors that affect the home loan rates such as:
• Prime lending rate (PLR) – it is a reference rate set by banks taking into consideration their cost of operations. So the PLR is directly proportional to the home loans rate.
• Down payment – The lump sum amount you pay initially which is treated as collateral affects your home loans rate. High down payment leads to low-interest rates and vice versa.
• Credit Score – your income level and your credit rating makes up your FICO score which is calculated by banks to evaluate your loan amount and home loan rate.
• Shorter loans – you can cut down the tenure of your loan say from 20 years to 10 years and by doing so it will bring down your home loan rate.
The eligibility criteria for home loans and it’s interest rates are regularly revised by the Reserve Bank of India from time to time. There are several financial tools that affect your home loan interest rates, both fixed and variable. The reserve bank of India monitors and effectively applies these tools to control the economy.
Fixed factors are mandatory for financial institutions; they dictate the terms and policies for home loans in India. These factors are as follows:
• Base rate – it is the minimum rate set by Reserve bank of India for home loans in India. It is set to ensure transparency and low cost of all available home loan funds.
• Repo rate – it is the rate at which the Reserve bank of India lends money to a financial institution in the event of any shortfall. If the Reserve bank of India wants to put more money in circulation, it lowers the repo rate and vice versa. Hence it is a tool to regulate inflation.
• Reverse repo rate – it is the rate at which the Reserve bank of India borrows money from financial institutions. It is a tool to control the money supply in the economy.
• Cash reserve ratio (CRR) and the Statutory liquid ratio (SLR) – CRR is the amount of money that a bank has keep with the RBI. The SLR is the ratio between liquid assets (cash, gold) and the net demand and time liabilities (NDTL).
Apart from these fixed factors that dictate the interest rates for home loans India, there are other variable factors that affect the home loan rates such as:
• Prime lending rate (PLR) – it is a reference rate set by banks taking into consideration their cost of operations. So the PLR is directly proportional to the home loans rate.
• Down payment – The lump sum amount you pay initially which is treated as collateral affects your home loans rate. High down payment leads to low-interest rates and vice versa.
• Credit Score – your income level and your credit rating makes up your FICO score which is calculated by banks to evaluate your loan amount and home loan rate.
• Shorter loans – you can cut down the tenure of your loan say from 20 years to 10 years and by doing so it will bring down your home loan rate.
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