Why You Should Always Compare Home Loan Interest Rates?
With Home Loan interest rates trending at a record low, lenders are seeing a substantial rise in home loan applications. However, to make an informed decision while signing up for a home loan, you need to keep a few factors in mind – the primary one being home loan interest rates.
Types of Home Loan Interest Rates
Before digging deep, let’s first have a clear idea regarding the different types of Home Loan interest rates.
1. Floating Interest Rates
Also termed variable interest rates, floating rates are directly related to current market lending rates as decided by RBI. Therefore, these rates are susceptible to changes during the loan tenure. Your home loan instalment will either rise or fall depending on any changes made by RBI.
2. Fixed Interest Rate
The fixed interest rate remains unchanged throughout the repayment tenure, thereby keeping loan EMI fixed. However, in case of fixed rate loans, you don’t have the privilege to enjoy lower rates whenever the lending rates fall. But, some lenders offer the option to switch from fixed interest rates to variable ones.
Also Read – NBFCs For Home Loans
Home Loan Interest Rates In 2022
Here’s a tabular representation showcasing a comparison among various Indian lenders.
| Lending Institutions | Interest Rates Starting From (per annum) | Processing Fees |
| Navi Home Loans | 7.39% onwards | Check with lender |
| Kotak Mahindra Bank | 7.50 % onwards | 0.5% |
| Axis Bank | 7.60% onwards | 1% |
| Yes Bank | 8.95% onwards | 1.5% |
| ICICI Bank | 7.60% onwards | 0.5% – 2% |
| HDFC Bank | 7.55% onwards | 0.50% |
| Bank of Baroda | 7.45% onwards | 0.50% |
| Bank of India | 7.40% onwards | 0.25% |
| LIC Housing Finance | 7.50% onwards | Check with lender |
| Federal Bank | 8.55% onwards | 0.50% |
| Union Bank of India | 7.40% onwards | 0.50% |
| Reliance Home Finance | 9.75% onwards | 0.5% – 1% |
* Rates are subjected to change as per banks’ discretion.
* Additional service charges may apply along with processing fees
For an instant and hassle-free loan application, you can download the Navi app on your Android & iOS device and get a home loan in 5 minutes. Navi offers big-ticket home loans of up to Rs. 5 crore at competitive interest rates starting from 7.39% p.a with flexible tenure of up to 25 years.
How To Calculate Home Loan Interest Rates?
Home loans are usually high quantum loans that come with long repayment tenures. It is essential to calculate the overall interest that you need to pay for the loan to ascertain the monthly EMI outflow. You can calculate your home loan interest with any of the two following methods:
1. Using EMI calculator
Use an online home loan EMI calculator to find out the interest amount that is applicable for a home loan. To calculate home loan EMI using an online tool, you need to enter the following three data:
- Loan amount
- Rate of Interest and
- Repayment period
Once you provide these data, the calculator will instantly provide a detailed breakup of the home loan along with the amount to be paid as interest.
2. Using EMI Formula
Alternatively, one can also calculate home loan interest using the following formula:
EMI = [P x r x (1+r)^n]/[(1+r)^n-1]
Here, r signifies interest rate, P stands for principal, while n is the repayment tenure represented in months.
Top Factors That Influence Home Loan Interest Rate
Here are some of these major factors that tend to impact home loan interest rates.
1. Credit score
Having a healthy credit score translates to better chances of getting your loan application approved and negotiating with lenders for lower rates This is because lenders tend to trust individuals with a good credit score, above 750 to be precise.
2. Occupation
Salaried professionals tend to get lower interest rates as compared to others as they enjoy a fixed monthly income.
3. Type of Interest Rate
Home loan interest rate is also dependent on the type of interest rate levied by the lending institution. Fixed interest rate is usually higher than floating home loan interest rates.
4. Location of Property
The location or neighborhood in which you are buying or building your property has an impact on the loan interest rate. If your property is situated in a reputed location, you can expect your home loan interest rate to be higher.
Also Read – Home Loan Balance Transfer
How to Get a Home Loan at a Low Interest Rate?
Home loans involve a lump sum of money and therefore, before giving out loans, every financial institution checks the borrower’s creditworthiness on the basis of several parameters. However, if you have a good credit history and have been a responsible borrower, depending on your profile, lenders may offer you better deals on your home loans, including preferential rates.
To get home loan at a low interest rate, you can consider the following points:
1. Credit Score Above 750
Credit score determines your creditworthiness. Usually, any score above 750 is considered as a good credit score. Having a better than average score depends on various factors, including repaying debt on time, credit utilisation ratio and maintaining a healthy credit channel, to name a few.
So, if you have a CIBIL score above 750, then great! If not, don’t worry. You can still improve your credit score by following the best practices. Higher credit score reflects good credit history and might help you fetch lower rates on your home loan.
2. Salary and Profession
Your profession or source of income matters. Professionals with steady income are preferred by lenders. This is primarily because there’s less risk in lending individuals with a stable source of income. If your salary or income is beyond a certain threshold, lenders may consider you as a low-risk borrower. This might help you get better deals on home loan rates.
3. Having a Good Lender-customer Relationship
Let’s say you have been transacting with a particular financial institution for a decade or more. It’s safe to say you have built a steady relationship with the institution built on mutual trust. So, if you’re a preferred customer, lenders may offer you the best rates on your home loan.
4. Balance Transfer
Probably one of the easiest ways to lower your home loan interest rate. However, balance transfer is possible only if you have an existing home loan. If you already have one, you can bring down your existing home loan interest rate considerably. For instance, switching your existing home loan to Navi can reduce your home loan by 5%.
How To Reduce The Interest Burden of Your Home Loan?
If you want to reduce the overall interest burden of your home loan, then consider paying a hefty sum as down payment of the home loan. This will reduce the home loan burden, plus might help you get a home loan at a lower interest rate. You can also consider home loan balance transfer or you can also pre close the home loan by paying the entire balance before the tenure and clearing out the dues. However, some specific lenders have terms and conditions for home loan foreclosure. Just so you know, Navi doesn’t charge a single rupee for home loan pre-closure. Home loan prepayment also helps in reducing the loan burden and improves the interest rates.
Points to Remember Before Applying for a Home Loan
If you want to find a home loan that suits your financial requirement well, make sure to keep the following points in mind while applying for one:
1. Compare Among Lenders
The commercial lending market is now flooded with numerous banks and financial institutions. It is important to conduct thorough market research and compare mortgage rates from lenders to find the one providing the best home loan rates.
2. Look For Additional Charges
Almost all lenders come with different types of additional fees such as administrative fees, service charges, processing fees, and more. Make sure to discuss these extra charges with the lenders before applying for the loan.
It is crucial to carefully read and understand all loan-related documents to get a comprehensive idea about the finer details of the home loan. This will help you avoid any discrepancy or error in the future.
4. Repayment Tenure
While longer repayment tenure reduces the EMI, however, in the long run, you will end up paying more towards the interest. If you choose shorter repayment tenures, your EMIs will be comparatively higher, however, you will pay less towards the interest. Choosing shorter tenures may also help you repay the loan early.
Final Words
Always compare interest rates offered by different lenders before applying. Simultaneously, gauge your repayment capacity to maintain 100% financial discipline. Take various parameters like your credit history, pre-existing loans if any, and monthly salary into consideration before taking a home loan. In short, plan well so that you don’t fall into the debt trap.
FAQ’s on Home Loan Interest Rates
1. How can I reduce my home loan interest rate?
You can reduce the burden of home loan interest rate by employing any of the following methods:
- Choosing a shorter loan repayment tenure
- Getting a balance transfer
- Opting for regular pre-payments
- Applying for a home loan with a co-applicant
2. What is the current home loan interest rate?
Home loan interest rates typically range between 6.50% and 20.00% per annum. However, your home loan interest rate will vary on different factors such as loan amount and loan repayment tenure.
3. Does RBI Repo Rate impact the housing loan interest rate?
Yes, RBI Repo Rate impacts home loan interest rates. Repo rate is the rate at which commercial banks borrow money from the Reserve Bank. When the Repo rate increases, banks have to borrow money at a higher rate which increases the interest rates for borrowers. Similarly, a lower repo rate means low home loan interest rates.
4. Will my employment status affect home loan interest rates?
Yes. salaried applicants generally tend to get better home loan interest rates than self-employed individuals. Employees with a stable jobs at reputed organisations are also likely to get better rates.
5. What credit score do I need to qualify for a home loan?
The minimum credit score to qualify for a home loan depends on the lender. A CIBIL score of 750 is generally considered the minimum score to get better interest rates.
Before you go…
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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