Home Loan Interest Rates: How to Calculate Effectively and Types

Home loan interest rates refer to the cost of borrowing money from a bank or financial institution to purchase a home. When you take out a home loan, the lender charges you an additional amount on top of the principal amount you borrow. This additional amount is called the interest rate.

Compare the lowest home loan interest rate starting from 8.40% p.a. and apply for the best home loan. Get the complete list of current housing loan rates of interest in India from all leading banks and financial institutions.

Home Loan Interest Rate of all Banks 2023

Banks	Starting Interest Rate (p.a.)	Processing Fees
Kotak Mahindra Bank	8.75% p.a. onwards	2%
Union Bank of India	8.70% p.a. onwards	0.50% of the loan amount
Bank of Baroda	8.60% p.a. onwards	Up to 0.50% (Min. Rs. 8,500; Max. Rs. 25,000)
Central Bank of India	8.35% p.a. onwards	NIL or up to 0.50%
Bank of India	8.45% p.a. onwards	Up to 0.25% for individuals (Min. Rs. 1,500; Max. Rs. 20,000)
State Bank of India	9.15% p.a. onwards	0.35% – 1% of loan amount
HDFC Home Loans	8.45% p.a. onwards*	0.5% or Rs.3,000 whichever is higher
LIC Housing Finance	8.45% p.a. onwards	Up to 0.50%
Axis Bank	9.00% p.a. onwards	Up to 1% or min. Rs. 10,000
Canara Bank	9.25% p.a. onwards	0.50% of the loan amount (min. Rs. 1,500 and max. Rs. 10,000)
Punjab and Sind Bank	8.95% p.a. onwards	Full Waiver
IDFC First Bank	8.85% p.a. onwards	Up to 3% of the overall loan amount
Bank of Maharashtra	8.60% p.a. onwards	0.15% of the loan amount subject to a maximum of Rs. 25,000
Indian Overseas Bank	9.55% p.a. onwards	0.15% of the loan amount subject to a maximum of Rs. 25,000
Punjab National Bank	8.60% p.a. onwards	0.35% (Max Rs. 15,000)
UCO Bank	8.75% p.a. onwards	0.5% of loan amount min. Rs. 1500 and max. Rs. 15,000
IDBI Bank	10.20% p.a.	0.50% (Rs. 2,500 – Rs.5,000)
HSBC Bank	8.75% p.a. onwards	1% of loan amount or Rs. 10,000, whichever is higher
Karur Vysya Bank	7.15% p.a. onwards	1% of loan amount or Rs. 10,000, whichever is higher
Saraswat Bank Home Loan	8.60% p.a. onwards	Up to Rs. 35 lakh: NilRs. 35 lakh – Rs. 50 lakh: 0.30% of loan amountRs. 50 lakh – Rs. 70 lakh: 0.40% of loan amountRs. 70 lakh – Rs. 1.40 lakh: 0.50% of loan amount
Jammu and Kashmir Bank	8.75% p.a. onwards	0.25% + GST (min. Rs. 5,000 and max. Rs. 50,000)
South Indian Bank	Repo Rate + 3.35% p.a. onwards	0.50% of the loan amount or a minimum of Rs. 5,000 + GST
PNB Housing Finance Limited	8.75% p.a. onwards	Up to 0.50%
Federal Bank	10.10% p.a. onwards	Housing Loan: 0.50% of the loan amount (min. Rs. 3,000 and max. Rs. 7,500)Property Power Loan: 1% of loan amount (min. Rs. 3,000)
Standard Chartered Bank	8.75% p.a. onwards	1%
Aavas Financiers	Contact the bank	1.00%
Karnataka Bank	8.75% p.a. onwards	Contact the bank
Sundaram Home Finance	7.85% p.a.	Rs.3,000 (for salaried)
Dhanlaxmi Bank	ranges up to 15% p.a.	1% of the loan amount
Tata Capital	8.60% p.a. onwards	0.50%
Tamilnad Mercantile Bank	9.35% p.a. onwards	0.50%
Bandhan Bank	9.15% p.a. onwards	Contact the bank
Yes Bank	9.40% p.a. to 10.25% p.a.	2% of the loan amount plus GST or Rs. 10,000, whichever is higher
Hudco Home Loan	8.95% p.a. onwards	NA
Indiabulls	8.75% p.a. onwards	0.50% onwards
Aditya Birla	8.80% p.a. onwards	Up to 1%
Reliance Home Finance	9.75% p.a onwards	Up to 2%
Shriram Housing	10.49% p.a. onwards	NA
India Shelter Finance	13.00% p.a. to 20% p.a.	2.00% to 3%

How to Calculate Interest on Home Loan?

Generally, home loans are long-term loans and it is important to figure out your overall interest liability towards the loan in the first place. You can calculate the same using any of the two methods listed below:

EMI Calculator

To figure out the interest amount for your home loan, you can make use of a home loan EMI calculator. It’s a tool that helps you calculate the Equated Monthly Installment (EMI) for your loan. To use the calculator, you need to provide specific information such as the loan amount, repayment tenure, and the rate of interest. Once you’ve entered these details into the calculator, you can click on the ‘Calculate’ button.

The calculator will then generate a detailed breakdown of your loan, including the amount you need to pay towards the interest component. This allows you to better understand and plan for your loan repayment..

EMI Calculation Formula

Alternatively, you can also use the following formula to calculate your EMI liability for your home loan-
EMI = [P x r x (1+r)^n]/[(1+r)^n-1]
Wherein, P is the Principal, r is the rate of interest, and n is number of instalments or loan tenure in months.

How to Calculate the Effective Interest Rate?

The applicable interest rate on a home loan consists of two components, the base rate and the markup rate. The combination of this two is what you will be paying on the loan. Let’s look into these components to give you a better understanding.

Base Rate

The standard lending rate of the bank is the interest rate that applies to all retail loans offered by the bank. It’s important to note that this rate can change frequently based on various factors.

Markup

A small percentage component is added to the base rate to calculate the Effective Interest Rate (EIR) for a particular type of home loan. This additional component varies from one loan type to another.

Effective Interest Rate (EIR) = Base Rate + Markup

Starting from April 2016, the Reserve Bank of India (RBI) introduced a new way for banks and financial institutions in India to determine the interest rates they charge on loans. This new method is called the Marginal Cost of Funds based Lending rates (MCLR). The aim of this change is to make the process of setting interest rates more transparent and adaptable.

Under this system, the RBI requires banks to consider different factors like the repo rate and deposits, as well as the level of risk involved in lending money to borrowers. Also as a result, the interest rates determined through MCLR are generally slightly lower than the previous base rate system.

Types of Interest Rates in Home Loan

There are mainly two types of home loan interest rates charged by most banks.

Fixed Interest Rate

In this particular system of calculation, the interest rate remains constant or fixed throughout the entire duration of the loan. This means that there will be no changes in the interest charges over time since the rate remains the same. However, it’s important to note that the availability of a fixed rate option may vary depending on the loan offer and the lender’s terms. In some cases, there may be an option to switch to a floating rate system after a certain period.

Advantage:In a fixed-rate loan, the advantage is that you know the exact amount of interest charges you will be paying right from the beginning. This upfront knowledge allows you to plan your finances accordingly. Since the interest rate remains fixed, your loan will be protected from frequent fluctuations in lending rates.

Disadvantage: If the standard lending rates falls, you will not benefit since the interest component remains frozen.

Floating Interest Rate

In this type of home loan, the interest charges you pay are determined by the current lending rates of the bank. The interest rate is connected to the bank’s most recent published rate, which is influenced by various factors like the monetary policy set by the Reserve Bank of India (RBI), changes in lending rates, and how the bank responds to these changes. As a result, the interest rate can vary base on these factors, and your loan’s interest charges will be adjust accordingly.

Advantage: One of the main advantages of choosing a floating rate for your loan is that you are billed based on the most current interest rate. This means that if the rates decrease, you will benefit from lower interest charges..

Disadvantage: In rare scenarios, if the standard rates go up, the loan has to be bear the brunt of being billed a higher rate.

Determining Factors for Your Home Loan Interest Rate

When you apply for a home loan, lenders consider various factors to assess your eligibility and determine the interest rate. Since home loans involve large sums of money, banks and Housing Finance Companies (HFCs) carefully evaluate your credit history, repayment capacity, income, and property details. It’s important to be aware that lower interest rates typically come with more stringent eligibility requirements. Here are the key factors that lenders take into account:

Credit Score

Your credit score is an important indicator of your credit history and financial track record. It reflects how well you have managed your credit obligations, including timely payments of EMIs and credit card bills. A good credit score indicates responsible credit behavior and can have a positive impact on your ability to get a home loan. Lenders, such as banks and Housing Finance Companies (HFCs), often view applicants with a credit score of 750 or above more favorably. In addition, credit scores are increasingly being use by lenders to determine home loan interest rates. Those with higher credit scores, demonstrating responsible credit management, may be offer lower interest rates on their home loans.

For individuals with no or low credit scores, there are steps to improve their creditworthiness. One option is to consider a lifetime free Step-Up Credit Card, which is a secured credit card co-branded with SBM Bank India Ltd

Income and Employment

When assessing your eligibility for a home loan, lenders take into account several factors, such as your income, employment type, and employer profile. Typically, individuals with steady employment in government positions, Public Sector Undertakings (PSUs), or renown private sector organizations are regard more positively by lenders. This is primarily due to the greater assurance of job security and stable income associated with these positions. Consequently, such applicants may be present with the opportunity to secure home loans at lower interest rates.

Moreover, on the other hand, individuals also with irregular or insufficient income may face challenges in obtaining a home loan at a lower interest rate. Lenders prefer borrowers who have a reliable and steady income stream to ensure timely repayment of the loan.

Loan Amount

The amount you want to borrow for your home loan can affect the interest rate. Generally, loans for amounts up to Rs. 30 lakh have lower interest rates than larger loan amounts. Additionally, making a significant down payment upfront can reduce the overall loan burden and potentially help you secure a lower interest rate for your loan.

Type of Home Loan

Different types of home loans come with varying interest rates. Regular home loans generally have standard rates, while specialized loans like Plot Loans or NRI Home Loans may have higher interest rates.

Interest Rate Concession for Women Borrowers

Certain lenders provide a special concession on home loan interest rates, typically around 0.05%, exclusively for women borrowers. In light of this, it is recommends for married couples to contemplate a joint home loan and designate the wife as the primary applicant if it can lead to a lower interest rate. Opting for a joint home loan not only improves eligibility but also offers additional tax benefits.

Type of Interest Rate

The type of interest rate you choose for your home loan has an impact on your repayment. With a fixed-rate home loan, your Equated Monthly Installments (EMIs) remain the same throughout the loan tenure. However, for floating rates, which are linked to factors like Repo Linked Lending Rate (RLLR), the interest rate fluctuates as the lending rate changes. Lenders usually charge higher interest rates for fixed-rate home loans because of the increased risk associated with interest rate fluctuations.

FAQs on Home Loan Interest Rate

What is the home loan interest rate?

The home loan interest rate is the percentage that the lender charges the borrower for using the principal amount. This interest rate, set by banks and non-financial institutions, determines the cost of your home loan. When you make your monthly home loan EMI (equated monthly installment) payments, the interest rate determines the amount you need to pay the lender each month. Interest rates are often tied to repo rates and can differ from one lender to another.

Which bank has lowest home loan interest rate?

While banks have the flexibility to adjust their interest rates, currently, the Bank of Maharashtra is offering the lowest home loan interest rate of 8.40% per annum to its customers. It’s also important to note that this rate is specifically applicable to home loan applicants who are women.

How to Get Lowest Home Loan Rates in India?

Currently, home loan interest rates are at their lowest point in the past 15 years. Furthermore, as a result, most banks are offering lower interest rates on home loans compared to the previous financial year. To secure the lowest possible home loan interest rates, it’s advisable to compare the rates offered by different lenders. When comparing rates, it’s recommended to use a home loan EMI calculator.

How to reduce home loan interest?

Home loan interest rates refer to the cost of borrowing money from a bank or financial institution to purchase a home.

How Home Loan Risk weightage is linked to LTV Ratio?

An LTV or a loan-to-value ratio is the percentage of the property cost that the bank will finance while the rest of the amount is financed by the homebuyer. Most banks finance up to 90% of the property cost. This percentage may vary depending the loan amount. Lenders generally use LTVs to determine how risky the loan is and whether they will approve or deny it.

How can I check total interest payout for my housing loan?

Use a home loan EMI calculator to check your total interest payout against your loan. Just enter the loan amount, tenure, and interest rate. Through the amortization table representing your repayment schedule, you can check how much interest you have paid against your loan.

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