What Causes Mortgage Rates to Fluctuate?

Mortgage rates refer to the interest cost associated with a loan to finance a home purchase. Mortgage rates are rising. While some industry experts say they are hopeful that interest rates won’t rise relentlessly, others say they may continue rising further to control inflation. 

Several factors can cause mortgage rates to increase or decrease. Applicants’ credit profile, financial stability, and other factors can help them to enjoy a housing loan interest. Also, a complex set of factors impact mortgage interest rates. It includes broader economic conditions, the monetary actions of the apex banks, like the RBI (Reserve Bank of India) and the Federal Reserve, and macroeconomic factors like inflation, etc. 

Since a home purchase is a significantly large investment, most individuals prefer financing a home or residential property with a home loan. Borrowers with a basic understanding of factors impacting mortgage rates can make a prudent financing decision. 

Primary Factors Impacting Mortgage Rates

Here are insights into the primary factors that impact mortgage rates:

  • External Benchmark of the Lending Institution 

Various external benchmarks impact mortgage rates. It includes RBI’s repo rate, FBIL’s (Financial Benchmarks India Private Ltd) published yields for 3-month T-Bill, 6-month T-bill and other benchmark market interest rates. Borrowers can consider a bank’s home loan connected to the repo rate as the external benchmark. Repo rate impacts mortgage interest rates as it is the rate at which the RBI provides loans to private and public banks in India. With an increase in repo rate, banks get funds at a higher interest rate from the RBI, making them levy mortgage interest rates accordingly. 

Experts say these loans are favourable for borrowers as the repo rate is kept mostly the same by the RBI. While other benchmarks mentioned above are market-driven, the repo rate is decided by the RBI and considered stable.

  • Property Type, Condition and Location 

Lending institutions consider the type of property to determine the mortgage interest rates. The interest rate offered to an owner of residential property will differ from that of commercial property owners. The location also impacts interest rates. A property in a metro city can provide a higher loan amount at a competitive interest rate as they have modern amenities with a greater resale value. The lender can ensure the recovery of the loan amount with significantly high property value at prime locations in the city. They can offer a lower interest rate mortgage against such property. Also, the better the condition or newer the age of the property, the lower the interest rate.

  • The Borrower’s Credit Profile

Lending institutions need to be assured about the prompt repayment of loans. Therefore, they gauge the borrower’s credit profile. They check how well the borrower has treated their previous or existing debts. They rely on an individual’s credit score to offer mortgage interest rates. An excellent credit score means a spotless credit history, stable income, employment stability, and a low credit utilisation ratio. It makes most lenders offer loans at lower interest comparatively. A credit score of 750+ is considered a good score and preferred by most lending institutions.

  • Loan Size 

Leading banks can offer a high loan amount for a home purchase. It can be as high as 90% of the property’s market value and EMI calculated with a property loan emi calculator . Borrowers should know that the higher the loan amount, the higher the interest rates. It is because the lender is taking a high risk by sanctioning such a large loan. The loan amount with banks can be up to Rs.75 lakhs depending on the applicant’s eligibility criteria. Borrowers should apply for a home loan amount per their requirements to avoid the unnecessary burden of high-interest rates.

  • Loan Tenure

Another influencing factor for mortgage rate change is loan tenure. Lenders charge a higher interest rate for longer-term loans than short-term loans. Again, lenders bear the market risk. Markets can change multiple times during a long tenure. Land mortgage loans, loans against property, and home loans are flexible enough for loan tenure and can be availed for a long tenure of up to 20 years. 

Thus, considering these aspects, individuals can make prudent decisions for big financial commitments against mortgage loans. Get an affordable home loan at an attractive rate, starting at 8.65%, with leading banks. Make an online application with a suitable loan size and tenure for a minimum home loan interest rate.  

Leave a Reply

Your email address will not be published. Required fields are marked *