Home Loan Interest Rate 2023

While many have the question, “What is the interest rate on a home loan?”, the answer is simple. It is the cost of borrowing funds from a financial institution. At Bajaj Markets, the home loan interest rate starts at 8.65% p.a., giving you access to affordable financing.

Get the list of top banks and financial institutions that provide low home loan interest rates in India at Bajaj Markets and apply for a home loan online.

Current Home Loan Interest Rates 2023

Below is a list of the current housing loan interest rates and charges in 2023 for all leading banks/NBFCs of India:

Disclaimer: Interest rates and processing charges are subject to change as per the change in the financial institution’s terms and policies

Types of Home Loan Interest Rates

As of now, three kinds of home loan interest rates exist in the lending market, namely fixed, floating and hybrid rates of interest.

• Fixed Home Loan Interest Rate: 

It is a predetermined borrowing rate that does not change at any given point during the loan repayment tenure. This form of interest rate paves the path for an easy calculation of the total home loan dues that a borrower is supposed to repay.

• Floating Home Loan Interest Rate: 

It keeps varying and is revised periodically as per market trends. As such, it can be difficult to predict changes, and compute the total interest payable at the start. 

• Hybrid Home Loan Interest Rate: 

These rates are fixed for a certain period and then become floating rates, variable as per market conditions. You can choose them if you are getting a low fixed interest rate but plan to foreclose once they become floating rates. 

This is because, as per RBI guidelines, no foreclosure charges are applicable on floating-rate loans.

Factors Affecting Home Loan Interest Rate

Factors that have a direct impact on home loan interest rates are as follows: 

• Type of Interest Rate: 

You can avail a home loan at any of the three types of home loan rates in India. They can either be fixed, floating or hybrid. While fixed rates remain constant throughout the tenure of repayment, floating rates are affected by the changes in the policy rates introduced by the RBI. 

So, if you choose to go with the floating rate, keep in mind that market movements will affect your outgo. 

• Benchmark Rate of Lending: 

Benchmark lending rates can either be the Marginal Cost of Funds-based Lending Rate (MCLR) or the Repo-Linked Lending Rate (RLLR). Lenders generally decide a reset period for MCLR for durations such as 3, 6, 12 or 24 months throughout the tenure and levy interest rates accordingly. 

RLLR, on the other hand, is directly linked to the RBI’s repo rate and can change almost every quarter. As a result, the lender’s policy plays a critical role in the home loan rates offered.

• Loan to Value Ratio or LTV Ratio: 

This is the maximum loan amount a lender is willing to extend and is expressed as a percentage of the property’s market value at the time. Although a high LTV ratio brings in suitable financing, it also translates into a higher risk for the lender. Thus, with a high LTV ratio, you may also get higher interest rates for home loans.

• Tenure of Repayment: 

The tenure of home loan repayment is directly linked to the risk of lending to financial institutions. As a result, your housing loan interest rate may be higher if you repay the same over a long period of time. On the other hand, you may get low-interest home loans with a shorter tenor.

• RBI Policies: 

Any changes in the policies drafted by the Reserve Bank of India will bring about a change in the interest on housing loans. The recent introduction of the Marginal Cost of Funds Based Lending Rate (MCLR) system, for example, allows you to set a date on which your interest rate will be reset. With this, you can benefit from a drop in the interest rates. Learn more about Home Loan RBI policies.

How to Get a Low Home Loan Interest Rate

To offer low home loan interest rates, banks and NBFCs look at your credit profile as a whole to gauge the risks. As a result, there are some things you can do to ensure you get the best terms. 

• Improve your credit score: 

Your credit score is a three-digit numerical representation of your creditworthiness that stays within the range of 300-900. The higher your credit score is, the better your chances of being approved for a minimum home loan interest rate. If your credit score is more than 750, you can get a home loan at a fairly low interest rate.

• Improve your income and employment situation: 

Another thing that influences home loan rates in India is your annual income and the reputation of your employer in the sector it operates in. The higher your income will be, the more confidence a lender will have in your repayment ability. 

This confidence can translate into low-interest rates for you. So, to get a home loan at low interest rates, you can always improve your income by securing annual increments and working towards promotions. 

Alternatively, you can even consider switching a company and joining a more reputed firm to stand a chance of securing a home loan at low-interest rates. The reputation of your employer is essential because it gives an idea about your income stability.

• Go for a low home loan amount: 

The quantum of funding needed also determines the interest rate applicable to you. A high loan amount would translate into a high home loan interest rate and vice-versa. 

So, if you want to reduce the interest burden, you can always consider going for a relatively inexpensive home or making a large down payment to reduce your borrowed principal amount.

• Get a Joint Home Loan: 

If you want to secure a home loan at a low-interest rate, consider applying for a joint home loan and make your working wife the primary borrower. You must consider doing so because women get concessions on home loan interest rates of anywhere between 0.05% - 0.1%.

Check How much home loan can I get based on my salary?

How to Calculate the Effective Interest Rate

Effective interest rate refers to the interest rate after adding any additional benefits/ costs that you may avail/ incur in your loan tenure. Doing this gives you a detailed estimate of the interest rate at which you availed the loan. 

In simple terms, the effective interest rate is the real cost at which you avail the loan. To calculate the effective home loan interest rate, you will need to consider: 

• Current home loan interest rate

• Tenure

• Additional fees/charges

• Concessions, if any

To begin, note the home loan interest rate amount that you will be paying and add it to your principal borrowing. Once you get the total repayment amount (principal + interest), add any other additional costs that you incurred (processing fee, foreclosure charges, penalty, etc.).

After that, deduct the benefits you may have availed on your home loan. As per the Income Tax Act, you can avail tax deductions on home loan repayment under various sections. This deduction will give you the actual cost of borrowing. 

With this, you can calculate the effective NBFC or bank home loan interest rates at which you avail the funds. You can even use a financial calculator to get an idea of effective interest rates for home loans.

Other Associated Charges

Besides the home loan interest rate and the applicable processing fees applicable, there are other charges to note as well. These are mainly categorised as legal, government, loan-specific and document-related fees.  

As a borrower, you need to be aware of these charges, as these will increase the cost of borrowing. For a brief overview, here are the particulars of these charges.

• Switching/Conversion charge: This fee is levied whenever you choose to switch from a fixed-rate to a floating rate loan, or vice-versa. It can go up to 3% of the outstanding balance or be set at a flat sum.

• Insurance premiums: While not mandatory, lenders may make this part of the loan deal and you are liable to keep up with the premium payments.

• Stamping charge: A charge levied on legal documents, which varies based on the costs incurred.

• Inspection fees: This is the cost of inspecting and evaluating your property, and lenders will levy a set fee for offering the service.

• CERSAI Charge: This is fees payable for registering a pledge with this body. The charge varies, and can go up to ₹500.

• Prepayment/ Partial-prepayment charge: This charge is levied in case you wish to completely pay off the outstanding balance or partially pay the outstanding principal. Depending on the lender, the percentage payable varies.

This isn’t an exhaustive list of charges, but these are the common ones to know about. As such, you should check the lender’s documentation to get the full picture and decide accordingly.

However, from these charges mentioned above, the prepayment and partial-prepayment charges are particularly important to know about. This is because availing these facilities can be quite beneficial to you, and can even help you save a significant amount of money.

For a better understanding of how this works, take a look at the following example.

Consider that you have availed a home loan of ₹50 Lakhs over a 20-year tenure at a home loan interest rate of 9%.

These savings are significant, amounting to nearly 50% of the total interest outgo. Do note that the actual savings will vary slightly as the lender levy a fee for this facility. Additionally, there are other benefits in making part-prepayments.

For one, you can choose to either lower the EMI amount or the tenure of the loan. Considering the same example, wherein you retain the EMI amount of ₹44,986, your new home loan tenure would get reduced to just 13 years.

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