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3 Ways in Which a Low Interest Rate Can Influence Your Home Loan Repayment

To reap the advantages of a low interest rate on your Home Loan, you must carry out a cost-and-benefit analysis, and switch loan providers if necessary.

· home loan,Finance,home loan emi

Low interest rates can be expected to stay for some time, but there are outside influences that must be considered before you analyse your Home Loan. Real estate developers have started promoting their offerings to aspiring homeowners looking to use government subsidies.

The real estate market in India is showing signs of concern, both for consumers and investors who are looking to lock in funds for fast gains. There are many factors to manage, from late possession to surplus availability of units. The PMAY (Pradhan Mantri Awas Yojana) has been rolled out to oversee the activities of the developers. It also watches the infrastructure associated with affordable housing in India. But before taking a Home Loan, you’ll need to understand the basics of this loan.

Calculating the Interest Rate

In the past, Home Loans used to be linked with the base rate applied by the Reserve Bank of India. This has now been replaced with the Marginal Cost of Lending Rate, or MCLR. Any rise or fall in the repossession rate, reverse repossession rate, statutory liquidity ratio, or cash reserve ratio, will have a direct influence on the MCLR and on the Home Loan EMI.

You should note here that the MCLR is only applicable to loans supplied by banks. This is a system that runs contrary to the single rate. It helps banks to effectively price loans with variable tenure on the basis of different MCLRs. The prices still remain in sync with their individual strategies, operational mechanisms, and business ethics.

Typically, if you are a new borrower, you would be able to leverage a low interest rate. If your Home Loan is a few years old, you could take advantage of reduced rate which would decrease your Home Loan EMI. According to financial experts, you must analyse the costs and benefits before switching Home Loan types for the remaining tenure.

Choosing your Interest Type

If you are a new applicant, you should first explore fixed and floating interest rates. Both come with their own set of pros and cons. It goes without saying that a fixed rate is beneficial if the current interest rate is low, and may increase with the passage of time. A floating rate is preferable when the economy shows signs of low interest rates hitting the market soon.

The Home Loan EMI is subject to fluctuations of the interest rate, keeping the base rate immovable. If you take a Home Loan from NBFCs or housing finance companies operating in India, you will be able to customize the repayment options as per your preferences.

Understanding your Credit Score

No matter where you apply for your Home Loan, each institution will check your credit score. The CIBIL score indicates the creditworthiness of an individual, and is valued highly by all lending corporations in the country. It is a three-digit number which must be as high as possible in order to fetch a low interest rate on the Home Loan EMI scheme.

Making payments on time is the best way to improve your credit score. Any dispute would invariably impact your credit score and lead to undesirable consequences.

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