Factors That Affect Your Home Loan Interest and EMI

Home Loan interest rate and EMI are essential components related to your repayment. There are eight factors that affect your Home Loan interest rate and EMI.

Type of Interest: 

When you apply for a Home Loan, the nature of interest applicable to your loan is an essential factor. You can choose – Floating interest rates, which change depending on the Reserve Bank of India benchmark rate. On the other hand, fixed interest rates remain the same throughout the tenure. So choose the type of interest carefully. 

MCLR Rates: 

MCLR refers to the Marginal Cost of Funds Based Lending Rates. The interest rate is the minimum amount the bank can lend Home Loan rates.

MCLR is calculated based on the loan tenure, which refers to the stipulated period a borrower has to repay the loan. The banks calculate the MCLR based on various factors and publish the same after careful consideration. So do check the MCLR rate before applying for a Home Loan.

Location of the Property:

The location of the property you buy is also a factor affecting the interest rate and EMI. Houses in a good locality have a higher resale value which is why the interest rate will be lower since the lender sees the property as a lucrative asset. 

Similarly, homes in less-known localities have a lower resale value which is why the interest rate will be higher. Therefore, the interest on the Home Loan and the EMI you will pay on it is calculated based on the house location. 

Tenure of the Loan:

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The tenure of the loan is the period between the payout of your loan and the last EMI payment you make. The lower the Home Loan tenure, even if the EMI is higher, the lower the interest payout will be. 

Similarly, the higher the Home Loan tenure, the higher will be the interest payout. 

So a Home Loan repayment calculator helps you determine the stipulated period of your Home Loan. 

Loan to Value Ratio: 

Loan to value or LTV refers to the percentage of property value. A loan quantum refers to the maximum amount of money you can borrow from the lender. 

A higher loan quantum results in a higher interest rate because it has a higher credit risk. So with a higher down payment, you can reduce the loan quantum and get a lower interest rate. 

Credit Score

The credit score refers to the records of the history of your repayments. Your credit score also reflects your habit of paying back and whether you pay back the loan in the stipulated time. 

A high credit score indicates a lower credit risk. On the other hand, a low credit score indicates a higher credit risk. So a lower risk will get you less interest rate.

Occupation and Job Profile

Lenders often do a background check on the borrower before they lend money. And this is taken into account while determining the loan’s interest. Your job and income help the lenders analyse whether you can pay back the loan amount within the stipulated period or not. 

Your job profile also plays an essential role in determining the interest rate. The lenders will consider you a low-risk borrower if you are a salaried employee working for a stable company. A salaried employee who does not have a stable income is a high-risk borrower. However, doctors and chartered accountants are considered low-risk among self-employed applicants. 

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Job Status

Lenders also check the status of your job before they sanction your loan. If you are employed when you apply for a Home Loan, it can lower your loan interest rates as you have a stable source of income. A permanent employee with minimum three years of experience in the current organisation is a low-risk borrower.


Above are some factors that affect the interest rate and EMI. While some factors, like selecting the type of interest, can be under your control, other factors are influenced by the lender, such as the benchmark rate. So keep up with these factors while applying for a Home Loan and work towards fulfilling the criteria required to pay back your loan on time, along with interest. 

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