What are the factors that affect the interest rate on your home loan charged by the bank?
Recently, I and my colleague applied for a home loan from the same bank to buy an apartment in Gurugram. I was surprised while discussing with the bank manager regarding offering a home loan at two different interest rates. Shockingly, I asked the bank manager why you are offering home loans to us at two different interest rates. We are working in the same company, salaried, and having a minor difference in our monthly salary.
The bank manager asked me to relax and explained that other factors affect the interest rates charged on my home loan. Your credit score or risk grade of the home loan applicant, the margin charged by the bank over & above external benchmark rate and loan processing charges factors that impact the interest rate charged on the home loan taken by you.
Some banks have in-house risk-assessment teams who categorize risk grade of the individual. Some banks depend on credit score reports generated by credit agencies. Therefore, while seeking a home loan from any bank always have a good credit score so that bank to charge a lower risk premium from you.
The bank while offering any kind of loan charge premium based on applicant credit-risk assessment. This is the reason why banks offer home loan for self-employed at higher interest rates than salaried class applicants.
I was stunned by this information shared by the bank manager and renegotiated on the interest rate on par with my colleague.