All About Home Loan Interest Rates

Home loan not only assists people to buy a house, but it also impacts the quality of their living over time. So, it is necessary to set the correct financial term, EMI amount and other terms to make feasible repayments. Also, though different financial institutions charge different rates for home loans, the ballpark is usually the same for all.

Information about types of latest home loan interest rates charged by lenders, factors affecting it and other details are given below.

What are the different types of home loan interest rates?

Lenders set two types of home loan interest rates against a borrowed amount. These include:

  1. Fixed rate of interest

The interest amount remains fixed for an entire loan tenor in this calculation system. As a result, borrowers can estimate their total repayment liability and interest.

  1. Floating rate of interest

This is where house loan interest rates are floating and change over loan tenor. Moreover, its value increases or decreases depending on a benchmark rate. This is mainly beneficial at the time when the market shows a fall in rates in future. Mostly floating rates are comparatively lower than fixed rate of interest.

How to calculate home loan interest rates?

Lenders follow two standard methods for calculating the latest home loan interest rate. They are:

  • Putting the EMI calculation formula

One can calculate their current home loan interest rate using a manual formula:

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

Here’ P’ denotes the principal amount, ‘r’ means the interest rate, and ‘n’ is the tenor of loan repayment.

  • Using a home loan EMI calculator

The simplest and most error-free way to calculate the preferred interest rate is by using a home loan EMI calculator. Its steps are as follows:

  1. Enter the loan amount.
  2. Set a tenor for repayment.
  3. Provide the preferred interest rate amount.
  4. Click on calculate to view the result.

Factors affecting home loan interest rate

The following factors that affect the home loan interest rate of borrowers:

Credit score

An individual’s credit score directly reflects a person’s creditworthiness and how well he/she performs while repaying his/her loan amount. This means if the credit score is high, it will fetch a lower interest rate on the home loan. Thus, one must check their CIBIL score for a home loan to control the rate.

Value and location of property

Another factor that plays a vital role in determining the home loan interest rate of individuals is a property’s value and location. In other words, if the property is located in a low-profile area or has poor amenities or construction, the re-sale value of such a property will be less. Thus individuals may get a lower interest rate.

MCLR rates

The latest home loan interest rates depend on the MCLR rate (Marginal-Cost of Funds Based Lending Rate), unlike previous ones, which were based on a base rate. Also, these loans have a reset clause with a pre-determined period of 6 to 12 months, during which MCRL rates can change the interest rate. In other words, if the MCLR rate increases or decreases during this period, so will the interest rate of availed home loan.

Individuals require a housing loan to be able to choose from any five categories of homes, be it luxury, budget, featured, new or ready homes. Moreover, there are associated benefits, too, like easy application, tax benefits, etc.

Lenders also provide pre-approved offers on secured loans like home loans and loans against property to their loyal customers. It reduces loan approval time and makes the application process easy. However, first the individuals must check their pre-approved offers by entering their names and contact numbers.

Lastly, check the latest home loan interest rate to avail the best term!

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