All You Need to Know About Home Loan Interest Rates

One of the most important considerations of prospective home buyers who are planning to take loan is knowing the latest home loan interest rate. It significantly influences the total cost of the house, therefore even a small difference in its interest rate can have considerable financial implications. So, home loan borrowers should compare the interest rates of different lenders before finalising one.

Here are some important information regarding home loan interest rates that a borrower must be aware of.

Factors affecting home loan interest rate

Take a look at some factors that not only affect your latest home loan interest rate but also impact the EMI:

  • Financial profile of the applicant

The home loan interest rate varies depending on the applicant’s financial profile. Salaried borrowers with a high credit score and stable income attract competitive interest rates as those compared to those who have a low credit score and unstable income.

  • Condition and location of the property

The resale value of the property is determined by its condition, age, location, and amenities available. So, if the property has a high resale value then lender might offer a lower home loan interest rates to borrowers and vice versa.

  • Type of interest rate

Another factor that determines their home loan interest rate is whether the borrower is choosing a floating or fixed interest rate. In the case of a fixed one, the interest rate remains constant; while in the case of floating interest rate, it changes with the change in RBI’s repo rate.

  • LTV ratio

The LTV ratio is the maximum loan amount that a home loan borrower might get as a percentage of the current market value of property. Thus, a high LTV results in an increased home loan interest rate.

  • Repayment tenor

If the repayment tenor of a home loan is higher, then borrowers can get a housing loan at an increased rate of interest, and vice versa.

Thus, all these factors should be considered beforehand while applying for a home loan.

Types of home loan interest rates

Mainly, there are two types of interest rates on a home loan that a lender can opt for:

  • Fixed interest rate

Availing of home loans at a fixed interest rate helps manage finances and plan repayment effectively. As this interest rate here remains constant throughout the loan tenor, one can estimate his/her loan repayment capability beforehand.

This interest rate is suitable under circumstances that predict a possibility of an increase in the interest rate.

  • Floating interest rate

These interest rates vary over the loan tenor. Floating interest rates on home loan changes depending on the benchmark rate linked to the home loan. It might not be suitable during high market volatility.

Ways to calculate home loan interest rate

There are primarily two ways following which the interest rate of home loan gets calculated. These are:

  • Manually

The current home loan interest rate can be calculated manually by using this formula:

EMI = [P x r x (1+r)^n]/[(1+r)^n-1],

Where “P” is the principal loan amount, “r” is interest rate and “n” is the loan tenor in months. 

  • Using EMI calculator

Another popular way to calculate the home loan interest rate is via a home loan EMI calculator. Here you just need to input the loan amount, interest rate, and tenor in their respective field and finally click on the “Calculate” option to get the desired results.

Following these two methods, home loan interest rates can be easily calculated.

Therefore, before choosing any financial institution, borrowers should compare the interest rates offered by different lenders.

Existing borrowers can also take advantage of pre-approved offers provided by some reputed financial institutions. These offers simplify the loan process and are available on various financial products like home loans, loans against property, personal loans, etc. Before applying for this loan, borrowers can check their pre-approved offers with their lenders by providing their name and contact details.

So, it is significant to get a full idea of the latest home loan interest rate before one applies for a home loan.

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