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HomeBusinessFactors That Affect Mortgage Loan Interest Rate

Factors That Affect Mortgage Loan Interest Rate

Wondering what factors affect your interest rates? We have compiled a list of these factors so you can minimise them. Check them out here.

A home loan allows you to get the home of your dreams at a secured loan with a fixed interest rate offering the home as collateral. The charged interest rate is included in monthly EMIs or Equated Monthly Instalments along with the principal amount you pay after taking the home loan.

On a broader level, the loan interest rate is affected by various fixed factors, such as RBI’s Repo Rate. However, your housing loan interest deduction depends on various other factors you can control. 

We have listed some of the factors that affect the interest rates of mortgage loans. Let us dive in deep to check them precisely-

  1. Type of Interest

Interests are mainly of two types, i.e., fixed and floating. The Reserve Bank of India decides the rate of floating interest. If the RBI is lowered the norms of floating interest rate, then your monthly interest rates will be lower and vice versa.

A fixed interest rate is when you get the same interest rate throughout your tenure. This helps you to stay consistent in your EMI payments as your interest rate remains unaffected by the bank’s changing rates.

  1. Credit Score

Your credit score is the score that is given to you based on your credit history and your financial dealings. This credit score reflects how many loans you have taken, how many of them you have repaid, how many are still ongoing and whether you pay the EMIs on time or not.

Everything that is a part of your financial history is what your credit score is made up of. A person with a higher credit score is considered less risky and, therefore, will be offered lower interest rates. A credit score is very likely to affect your mortgage loan interest rate.

  1. Job Profile

People with a stable income are considered lower-risk individuals, and the interest rate for such people is also low. However, the bank sees someone who does not have a stable income proof as a high-risk individual and usually charges higher interest rates on loans. Meanwhile, those in the self-employed category, like doctors, lawyers, or chartered accountants, are generally considered low-risk category people.

  1. Marginal Cost of Funds Based Lending Rate

MCLR rate is the minimum interest rate at which the bank can lend you money for your loan. This rate is derived from factors like operating cost, the marginal cost of funds, Cash Reserve Ratio, and tenure premium. The MCLR rates are rewritten yearly, which can affect your interest rates.

  1. Home Location

The home’s location is pivotal in deciding your monthly interest rates. Homes in posh areas with good amenities and modern facilities have a good resale value.

Affordable homes in the less preferred neighbour hoods may have a lower resale value, and the efforts to sell that house will be high. So, the interest rates charged for such a property will be higher.


Many factors are fixed, and you won’t be able to change them. But other factors are variable. You can prevent these factors and manage them to get the best rate on your loan.

Proper knowledge of these variable factors will help you make changes to them, which will help you get the best rate, lowering your EMIs. You can also check with your bank and get a clear idea about the factors that affect the interest rate of your home loan.

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