Home Loan Interest Rates

Home Loan Interest Rate – 2022

Home loans are available to fund the purchase of residential properties from almost all scheduled banks and several Housing Finance Companies (HFCs). Home loan interest rates currently start at 7.15 percent per year for terms up to 30 years, depending on the applicant’s credit score, monthly income, loan amount, LTV ratio, job history, and other factors.

Depending on the applicant’s credit history and the limits on LTV ratios imposed by the lenders, the amount of the loan might range from 75 to 90 percent of the cost of the house. 

Home Loan Interest Rates Of Different Banks And NBFCs

LenderUpto Rs. 30 LakhsAbove Rs. 30 Lakhs and up to Rs. 75 LakhsAbove Rs. 75 Lakhs
IDFC First Bank7.50 onwards7.50 onwards7.50 onwards
Indian Bank7.40-8.457.40-8.457.40-8.45
Federal Bank8.55-8.608.60-8.658.65-8.70
Union Bank of India7.40- 9.157.40- 9.357.40- 9.35
ICICI Bank7.60-8.207.60-8.357.60-8.45
Kotak Mahindra Bank7.50 onwards7.50 onwards7.50 onwards
Punjab National Bank7.45-8.857.40- 8.557.40-8.50
Bank of Baroda7.45-8.957.45-8.957.45-9.20
State Bank of India7.55-8.557.55-8.457.55–8.45
Axis Bank7.60-12.507.60-12.507.60-8.05
HDFC7.55-8.757.55-9.007.55-9.10
L&T Housing Finance7.70-8.707.70-8.707.70-8.70
PNB Housing Finance7.50–16.757.50–16.757.60–10.70
Tata Capital7.75 onwards7.75 onwards7.75 onwards
LIC Housing Finance7.50-8.607.50-8.807.50-9.00
Bajaj Housing Finance7.20 onwards7.20 onwards7.20 onwards
Godrej Housing Finance7.49-10.997.49-10.997.49-10.99

Processing Fee And Other Charges :-

The following is a list of the processing fees of the top Indian banks for home loans:-

BankProcessing Fee Amount (Min.)Processing Fee (Min. in %)
SBIRs.10,0000.4%
AxisRs.10,0001%
Canara BankRs.1,5000.5%
Federal Bank0.5%
Bandhan Bank0.25%
Standard Chartered0.5%
PNB1%
IDBIRs.2,5000.5%
HDFCRs.3,0000.5%
Bank of IndiaRs.1,5000.25%
Aditya Birla Housing Finance 0.5%
Jammu and Kashmir Bank Rs. 5,0000.25%
South Indian Bank Rs. 5,0000.5%
DBS Bank Rs. 10,000
UCO Bank Rs. 1,500 0.5%
IDFC First BankRs. 10,000
LICRs. 10,000
Dhanlaxmi BankRs. 10,0001%
IOBRs. 20,0000.5%
Union Bank Of IndiaRs.15,0000.5%
Indiabulls 2%
Kotak 0.5%
HSBC Rs. 10,0001%

How is the Effective Interest Rate Calculated?

The base rate and markup rate are the two parts that make up the relevant interest rate for a home loan. You will be repaying the loan using the sum of the two. To help you understand, let’s go through these elements.

Markup: This component, which is a small percentage, is added to the base rate to determine the EIR (Effective interest rate), which varies depending on the type of home loan.

Base Rate: This is the bank’s uniform lending rate, which is used for all retail loans. This rate varies depending on a variety of factors.

Effective Interest Rate (EIR) =  Markup + Base Rate

The Reserve Bank of India (RBI) has mandated a new approach for calculating lending rates starting from April 2016 in order to replace the base rate system. The Marginal Cost of Funds based Lending Rate (MCLR) was created with the intention of improving the transparency and adaptability of the rates that Indian banks and financial institutions publish.

 After considering the risk element related to lending to borrowers, RBI orders banks to set the interest rate. It considers a number of relevant aspects, including deposits and repo rate. This MCLR-based calculation results in a somewhat lower base rate than initially believed.

Types of Interest Rates in Home Loan

Most banks charge one of two different types of interest rates for home loans.

  1. Fixed Rate of Interest

In this method of calculating the interest the rate of interest is constant throughout the entire loan term. Since the rate is still constant, there won’t be any changes to the interest charges. Depending on the offer, you might be able to change to the floating rate system after the loan tenure has been finished for a specific amount of time.

Advantages:-

  • Regardless of the condition of the market, interest rates are fixed. This provides the best protection, particularly in unpredictable situations.
  • In terms of stability and certainty, it is also beneficial for long-term planning.

Disadvantages:-

  •  You won’t benefit if regular loan rates decline because the interest amount is still frozen.
  1. Floating Rate of Interest

Your home loan’s interest rate is based on the bank’s current average lending rates. The rate is based on the bank’s most recent published rate, which in turn is influenced by a number of variables, including revisions to the RBI’s monetary policy and lending rate as well as the bank’s response to the modification.

Advantages:-

  • The fact that the floating interest rate on home loans is typically lower than the fixed interest rate is one of its main advantages.
  • shorter time period for loan repayment. This makes it a great option for people who will need more loans eventually.

Disadvantage:-

  • In exceptional circumstances, the loan will be charged the higher rate if the standard rates increase.

What Are The Factors That Affect Your Home Loan Interest Rates?

The interest rate is influenced by a wide range of factors and varies depending on the lender.

  1. Term of loan

Even if the EMIs are higher, loans with shorter terms have lower interest rates than loans with longer terms (which will have lower EMIs but a higher interest rate). Finding the ideal loan tenure is straightforward with an online home loan EMI calculator.

  1. Ratio of Loan-to-Value (LTV)

LTV is the term used to describe the portion of the property value that can be financed with a loan. A larger loan amount attracts a higher rate of interest since the credit risk is higher. A larger down payment can assist in reducing the amount of the loan, which will then lower the interest rates.

  1. Job Profile

People who have a reliable source of income are viewed as low-risk individuals, while those who don’t are viewed as high-risk individuals. Thus, those with stable incomes—such as salaried professionals, PSU and government employees, as well as those employed by top private sector companies—are given access to lower interest rates. Among the self-employed group, doctors and chartered accountants are regarded as low-risk professions.

  1. Rates for MCLR

The Marginal Cost of Funds based Lending Rate is known as MCLR. The lowest interest rate a bank will lend money at is this one. Other variables that may come into play include the tenor premium, cash reserve ratio (CRR), marginal cost of funds, operating cost, and any negative carries on those variables. Banks examine the rate for current home loan borrowers during the MCLR’s yearly reset date. Even if the MCLR changes between now and the reset date, the MCLR on the reset date continues to be relevant until the reset date of the following year. This implies that depending on changes in the MCLR rate, your interest rate may go up or down.

  1. Credit Rating

Your credit score is a reflection of your creditworthiness, financial discipline, and repayment history. A lower credit score indicates a larger credit risk, which would need lenders to impose higher interest rates to offset their associated risks & vice-versa.

  1. Categories of Interest

You have a choice of fixed, variable, or mixed interest rates. Floating interest rates fluctuate in response to Reserve Bank of India (RBI) movements. You receive the same rate of interest for the duration of your loan when it has a fixed interest rate. Loans with mixed interest rates first have a fixed rate of interest for a predetermined amount of time before switching to a variable rate.

How To Get A Home Loan At Minimum Interest Rate?

  1. Online Interest Rate Comparison

Before choosing a certain product or lender, you must conduct thorough research on loan products and compare rates. You can obtain a clear view of the rates and other fees charged by various lenders on a number of third-party websites. It is therefore best to compare the home loan interest rates offered by all banks before settling on a certain bank or home loan product.

  1. Increase your EMI 

Some lenders provide you the option to revise your installment once a year. Therefore, if you changed jobs and received a greater pay, you can always choose higher EMIs to shorten the tenure. Moreover, once the tenure is shortened, the total interest you must pay on your loan will drop significantly. Consult your lender to see if they offer such choices.

  1. Choose a shorter Tenure

Your loan tenure is one of the main elements determining the interest you must pay, as was previously indicated. Though shorter tenures, like 10 to 15 years, may help lower the overall interest payable, longer tenures, like 25 to 30 years, will reduce the monthly installment amount. 

  1. Search for better deals

It is completely obvious that lenders favor clients with strong credit histories. For those who have an excellent credit history or are current customers, banks frequently provide preferred rates. Therefore, there is a chance that you will be given lower interest rates on your loan if you have been a responsible borrower and have made all of your repayments on time. If not, provided you have a good working relationship with the lender, you can negotiate with them. 

  1. Prepayments Are a Smart Move Too

On floating rate loans, lenders do not assess prepayment or loan foreclosure fees. Therefore, if you have taken out such a loan, strive to make prepayments frequently. Frequent prepayments will significantly reduce the main balance and lower the total interest. However, keep in mind that lenders do charge a set amount for early repayment of fixed-rate loans. 

  1. Increase your down payment.

It’s preferable to pay extra from your own money as a down payment rather than paying the least amount possible. The loan amount will be smaller if you make a larger down payment, which will also immediately lower the amount of interest you must pay.

  1. Transferring your home loan balance could be an alternative.

Only when you’ve begun making prepayments on your loan does the topic of balance transfers come up. You can transfer the remaining principal balance to a bank or lender with a lower interest rate if you believe the interest rate charged by your current lender is a little on the high side. Balance transfers, though, need to be your last option. On balance transfer-based loans, greater penalties apply to any missed payments. Therefore, only use a home loan balance transfer if you have no other choice.

Also Check – How to apply for Home Loan

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