Home Loan Interest Rate

While a feasible loan offer can help you buy or construct your dream house, knowing the current house loan interest rates and associated charges is essential. With this information, you can plan your budget effectively and decide on an affordable repayment plan. On Bajaj Markets, you can get some of the best house loan interest rates starting from just 8.50% p.a.

Here is a list of the current home loan interest rates and charges of various lenders that have partnered with Bajaj Markets. 

To calculate the interest charged on your home loan, you can use the formula provided below:

 

Interest = (Loan Amount x Interest Rate x Tenure)/100

 

Let’s understand this better with the help of an example. Assume you took a home loan of ₹50 Lakhs for a tenure of 20 years. The interest rate for the loan is 8.50% p.a. In this case, the interest charge for the loan will be:

 

Interest = (5000000 x 8.50 x 20) / 100

= 850000000 / 100

= ₹8500000

 

The interest charged on your loan majorly depends on the interest rate of the loan. Depending on your loan eligibility, an effective interest rate (EIR) is offered to you. Let’s look at how lenders calculate this rate.

 

Previously, the home loan interest rate was calculated with the help of the following formula:

 

Effective Interest Rate = Base Rate + Markup

 

The base rate is the minimum rate set by RBI and other central banks worldwide which financial institutions use to lend money to their customers. Meanwhile, the markup is a small percentage which can be adjusted by the lender to accommodate the lending cost and the borrower’s financial situation. The markup is decided by the lender as per the type of loan they opt for. This rate is added to the base rate, resulting in the effective interest rate which is charged on the loan.

 

However, in April 2016, RBI introduced the Marginal Cost of Funds Based Lending Rate (MCLR). The formula to calculate the MCLR is as follows:

 

MCLR = Marginal Cost of Funds + Negative Carry on Cash Reserve Ratio + Operating Costs + Tenure Premium

 

As seen in the formula, the MCLR accounts for all the operational and other additional costs lenders incur. It ensures that the interest rate is fair to both the lender and borrower. This changed the way interest rates are calculated by replacing the base rate used for the calculation. The MCLR-based rates are revised regularly as per changes in RBI regulations and policies. This provides greater transparency to the borrower. The MCLR varies depending on the tenure the borrower selects and is generally lower than the former base rates. 

There are two types of home loan interest rates that you should know about:

1. Fixed Interest Rate

The fixed interest rate is set by your lender at the start of the loan tenure. This rate remains constant throughout the repayment period. It becomes easy to plan and budget your loan repayments as the interest charge remains the same over the tenure and so does the EMI. This brings a sense of stability and predictability in loan repayment. It makes it easier to plan for prepayments and foreclosure. It is beneficial for those with a lower risk appetite.

2. Floating Interest Rate

A floating interest rate is dynamic and is revised regularly on the basis of changes in macroeconomic conditions. The rate is linked to a benchmark rate like repo rate or the MCLR. As these rates change, so does the interest rate of your loan. The advantage of this interest rate is that it is lower than the fixed rate. Additionally, if the market trends are favourable, the rate may drop further, leading to lower interest charges, helping you save money on your EMIs. However, the risk of the rate surpassing the fixed rate during periods of inflation and recession also remains. Thus, it is important to keep a close eye on the market trends and constantly monitor them when opting for a floating interest rate.

 

In case you wish to switch the type of your home loan interest rate, you can do so for a minimal charge. This can help you strategically save more and enjoy the benefits both types of interest rates offer. Reach out to your lender for further details.

Here are factors which may have a major impact on your home loan interest rates:

Credit Score

Lenders usually assess your credit and repayment history with the help of the credit score. Most lenders consider the score issued by TransUnion CIBIL to check your creditworthiness. A CIBIL score of 750 or more can enhance your loan eligibility, enabling you to benefit from a lower interest rate. 

Loan Amount

The lower the loan amount, the lower the risk related to the loan for the lender. This usually incentivises the lender to offer you lower interest rates. So, consider borrowing only the amount you need and can repay easily.

Interest rate type

If you opt for a floating interest rate, the rate offered is usually lower than a fixed interest rate. This can help you save on the interest charges of your loan. However, note that the floating interest rate is subject to change due to fluctuations in the market rates. They may surpass the fixed rate in case of inflation or any other economic crisis. Thus, it is essential to closely monitor the market rates and trends before choosing the interest rate. Ensure to thoroughly assess the total probable cost of the loan before selecting the type of interest rate.

Income & Employment

Having a stable income shows that you have the required repayment ability, making the lender more willing to offer a low interest rate. Similarly, having steady employment assures the lender of your income source enabling you to get favourable loan terms.

Gender

Women are likely to get concessions and lower interest rates on a home loan. This can help you save majorly on your loan’s total repayment costs. You can also get discounts on the stamp duty charges which leads to additional savings.