Acquiring a new home requires a significant amount of money. If you are planning to buy a new home, the chances are that you might be looking at alternative sources of finance.
Besides your ability to secure a loan, you also need to pay attention to the terms of repayment. Considering that a loan tenure can extend as far as ten years, a small difference in the interest rates gives a huge difference. Therefore, you should be mindful of the interest rates charged for different home loans. This article looks at some financial factors that determine interest rates charged on home loans to help you secure a better deal.
A loan applicant’s credit score is one of the most important parameters any financial institution considers. A healthy credit score might qualify you for relatively lower interest rates. On the other hand, poor scores make banks see you as a high-risk investment, which might significantly increase their interest rates. Therefore, it is important to ensure that you work on your credit score before you start looking for a home loan.
The amount of loan you need also affects the interest rates. Small low amounts often attract lower interest rates than massive six-figure loans. This disparity can be explained by the risk associated with high loan values. Therefore if you want to purchase an expensive home and still keep the interest rates at a manageable level, it is advisable to pay a larger down payment.
Type of Interest Rate
Home loans have three different types of interest rates – floating, fixed, and mixed. Floating interest rates are determined by the prevailing market scenario, which means that your interest might reduce or increase. These loans tend to be cheaper than the fixed type, only that it might be difficult to budget. Just as the name suggests, fixed home loans require you to pay a certain amount over the entire course of your loan. On the other hand, mixed loans are subject to fixed and variable interest rates during specified loan periods.
It is important to pay attention to these parameters when scouting for a home loan. You should also be ready to do anything that is within your means to see that you get favorable interest rates.