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Buying Your First Home: Find the Best Home Loan Rates

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Thinking about buying your first home? It’s normal to feel a mix of excitement, stress, and uncertainty, especially in today’s market. However, with the right information, you can make a smart decision that fits your budget and your lifestyle.

To help you get started,Refer Loan has compiled information on the current interest rates for home loans from top banks in India. By comparing the rates and terms from different lenders, you can find the best home loan for your needs.

And if you need extra guidance, our team of experts is here to help. We can answer your questions, provide personalized recommendations, and support you every step of the way. So why wait?

How to Determine the Interest on a Home Loan?

To get a clear picture of the amount of interest you will be paying on a home loan, it is essential to calculate it at the outset. This can be done through the following methods:

  • Using an EMI Calculator: An EMI calculator is a convenient tool that allows you to easily calculate the interest amount on a home loan. Simply enter the loan amount, repayment tenure, and interest rate in the fields provided, and the calculator will give you a detailed breakdown of the loan including the interest amount.
  • Using the EMI Calculation Formula: Another way to determine the interest on a home loan is to use the EMI calculation formula:

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

Where P is the principal loan amount, r is the rate of interest, and n is the number of installments or loan tenure in months.

Bank/NBFC NameRate of InterestProcessing FeeLoan AmountRepayment TenureCibil Score Required
Bajaj Finserv Home Loan7.20%*-15.00%*Up to 7% of the loan amountUpto 5 croreUpto 30 years700
PNB Housing Finance8.25% p.a.1-2% of the total loan amountUpto 5 croreUpto 30 years611
AXIS Bank Home Loan8.10%-8.45%Up to 1% of the loan amount +GST (minimum Rs 10,000)Upto Rs. 5 croreUpto 30 years750
Tata Capital Home Loan7.75%* onwards0.5% of the loan amount onwardsUpto Rs. 5 croreUpto 30 years750
ICICI Bank Home Loan8.10%-9.10%0.50% of the loan amountUpto Rs. 5 croreUpto 30 year750
Aditya Birla Home Loan9.00% to 12.50% p.aUp to 1% of the loan amount or ₹3,000, whichever is higher, plus applicable taxes.Upto Rs. 10 croreUpto 30 year750
HDFC Bank Home Loans8.10% P.A.Up to 0.50% of the loan amount or ₹3,000, whichever is higher, plus applicable taxes.no limitUpto 30 year720
Standard Chartered Home Loan8.05% – 9.50%Up to 1% of the loan amount or ₹3,000, whichever is higher, plus applicable taxes.35 croresUp to 20 years700
Bank of Baroda Home Loan8.05% – 9.40%Up to 0.50% of the loan amount or ₹3,000, whichever is higher, plus applicable taxes.20 croresUpto 30 year700
Aadhar Home Loan9.90%-15.00%2.5%Upto 1 croreUpto 30 yearsNULL
Indian Bank Home loans7.90% to 8.95%0.20%-1.00%Take up to 90% of property valueUpto 30 years750
Shubham Housing Finance Home Loan11.90% to 16%LOWUpto 50 lacs25 yearsNULL
Bajaj Housing Finance Home Loan7.20%*Up to 7% of the loan amount5 Crore or higherUp to 30 years750
DMI Home Loan11 to 15% per annum1-1.5% of the total loan amount5 lakhs to 1 croreUp to 30 years700
PNB HFL Housing Loan8.25% p.a.1-2% of the total loan amountUpto 90% market value of the propertyUpto 30 years611

How to Calculate the Effective Interest Rate?

The interest rate on a home loan is made up of two components: the base rate and the markup rate. Understanding these components will give you a better understanding of the effective interest rate (EIR) that you will be paying on the loan.

  • Base Rate: The base rate is the standard lending rate of the bank and is subject to change based on various factors.
  • Markup: The markup is a small percentage added to the base rate to arrive at the EIR, which varies depending on the type of home loan.

The EIR is calculated as follows:

EIR = Base Rate + Markup

Starting from April 2016, the Reserve Bank of India (RBI) introduced a new method for computing lending rates, called the Marginal Cost of Funds based Lending Rate (MCLR), aimed at bringing more transparency and flexibility to the way rates are published by banks. The MCLR takes into account various factors such as repo rate, deposits, and the risk associated with lending to borrowers, which leads to a slightly lower rate than the previous base rate system.

What Factors Affect Your Home Loan Interest Rate?

When applying for a home loan, it’s important to understand the various factors that lenders consider to determine the interest rate. Here are the key factors that influence your home loan interest rate:

  • Credit Score: Your credit score, which reflects your credit history, is a key factor in determining your home loan interest rate. If you have a high credit score, lenders are more likely to offer you a lower interest rate.
  • Income and Employment: Your income, type of employment, and employer also impact your home loan interest rate. Those with higher job security and income, such as government or PSU employees, are often offered lower interest rates.
  • Loan Amount: The amount you are borrowing also affects the interest rate. Home loans up to a certain amount usually have a lower interest rate compared to larger loans. Making a larger down payment can also help lower your interest rate.
  • Type of Home Loan: Different types of home loans, such as regular home loans or NRI home loans, may have different interest rates.
  • Women Borrowers: Some lenders offer a 0.05% interest rate concession for women home loan borrowers. Consider applying for a joint home loan with your spouse as the primary borrower if you are eligible for a lower interest rate.

Type of Interest Rate: The type of interest rate you choose also affects your interest rate. Fixed-rate home loans have a set interest rate, while floating rate home loans can change based on market conditions. Fixed-rate home loans usually have a higher interest rate compared to floating rate home loans.

What are the Different Types of Home Loan Interest Rates?

  • Fixed Rate Home Loans: These loans have a constant interest rate throughout the loan tenure, resulting in a consistent home loan EMI. It’s advisable to opt for a fixed rate home loan when the current interest rate is low and an upward trend is expected in the future.
  • Floating Rate Home Loans: Also known as variable rate home loans, these loans have interest rates that are subject to changes in the market lending rates and may vary during the loan period, affecting the home loan EMI.
  • Hybrid Rate Home Loans: As the name suggests, these loans are a combination of fixed and floating rate home loans. The interest rate is fixed for a specified period, after which it changes to a floating rate. Hybrid rate home loans are suitable for borrowers who plan to prepay or foreclose the loan before the floating rate starts.

What to Consider Before Applying for a Home Loan?

Here are some tips for before taking a home loan

When considering taking out a home loan, it is important to know the cost of the house and how you plan to finance it. There are many banks in India that offer home loan schemes, but it can be difficult to determine which one is best for you. Consider these guidelines to help you make an informed decision:

  • Compare Interest Rates – Don’t just choose a home loan scheme with the lowest interest rate. Consider the terms and conditions associated with the scheme and understand why the rate may be lower compared to others.
  • Research the Lender’s History – Before borrowing a home loan, be familiar with the lender’s history. Loans are a liability, so it is important to borrow money from a trusted and reputable lender. Look up reviews and information about different lenders online, or consult with a mortgage broker or expert.
  • Make a Down Payment – Making a down payment can reduce your overall interest liability and lower your monthly payments. Be cautious of schemes that don’t require a down payment, as they may result in paying more interest in the long run.
  • Read the Fine Print – Before taking a home loan, be sure to read the fine print, as it contains all the terms and conditions related to the loan. If you have trouble understanding it, consult a chartered accountant for clarification.
  • Understand Fees and Charges – There are various fees and charges associated with a home loan such as processing fees, legal charges, and documentation fees. Ask the lender for a written list of all the fees to be aware of.

In addition to these tips, be sure to research the tax benefits on home loans and how to claim them. Once you have a home loan, make timely payments each month to avoid any late payment fees.

FAQs

The central bank, the Reserve Bank of India (RBI), increased the repo rate 5 times in a row starting in May 2022 and ending in December 2022. The repo rate went up from 4.0% to 6.25%, causing banks to raise their lending rates. This has made it harder for borrowers to pay their home loan EMIs because of the higher interest rates.

A home loan is a valuable tool for purchasing your dream home, but the high interest rates can quickly add up, resulting in paying almost twice the amount of the loan. To save money, you need to come up with a smart financial strategy that will help you recover the interest paid on your home loan EMI.

Here are some tips to help you reduce the interest payments on your home loan:

1.Invest in a Systematic Investment Plan
Investing a portion of your EMI amount in an equity fund through a Systematic Investment Plan (SIP) can help you save money every month. For example, if you save just 10% of your EMI amount in a SIP throughout the loan term and earn a good average annual return, you’ll have a lump sum that you can use to pay off part of your loan or as a retirement fund.

2. Make Regular Prepayments
Making prepayments before the end of the loan term can help you significantly reduce your interest payments. When you receive surplus amounts from investments, bonuses, gifts, etc., use them to make a prepayment on your home loan to save even more on your interest payments.

3.Negotiate with Your Bank
If you have a good history of paying your EMIs on time and have a long-standing relationship with your bank, you may be able to negotiate a lower interest rate.

4.Refinance Your Loan
You can transfer your home loan to a lender with a lower interest rate, which is called refinancing your loan. It’s important to research and compare interest rates among various lenders before making a decision. Keep in mind that there may be nominal conversion fees charged by your existing bank or lender.

  1. Increase Your Down Payment
    Most banks offer up to 90% of the property’s value through a home loan. However, instead of making the minimum down payment of 10% to 20%, consider contributing a larger amount from your own savings. This will lower the Loan-to-Value (LTV) ratio, increase your loan eligibility, and improve your chances of approval.

6.Utilize the Overdraft Facility
Your home loan account may have an overdraft facility that allows you to deposit extra funds at any time, apart from your EMI amount. This is considered a prepayment until it’s withdrawn, but keep in mind that withdrawing the funds will increase the outstanding balance and interest payments on your loan. If you regularly deposit extra funds in the overdraft facility of your home loan account, such as bonuses, your loan term and interest payments will be reduced.

Choose one or more of these options to recover or reduce the interest paid on your home loan and save both money and time.

FAQs

The home loan interest rate is determined by the Reserve Bank of India’s bi-monthly policy, and is outside of your control. An increase in the interest rate means you will pay more in interest, while a decrease means you will pay less. Your lender may allow you to keep the same monthly payment (EMI) and adjust the loan term instead.
Consider the following revised example to understand the impact of a rise in interest rates. You have a 25 lakh loan from Bank X with a 8.5% floating rate, a 15-year tenure (180 months), and an EMI of 22,000. After 7 years, the interest rate has risen to 8.75%. The new outstanding balance is 17,00,000, with an 8-year tenure (96 months) and an EMI of 22,500.This increase of 0.25% in interest results in a monthly increase in EMI of Rs.500, or Rs.48,000 over 96 months. To offset this, the lender may extend the loan term by one month and keep the EMI unchanged. The cost of this additional month would be Rs 22,000, with the remaining Rs 26,000 to be paid along with the final installment. In conclusion, a 0.25% increase in interest rate should not cause significant financial strain and you may continue with the existing arrangement.

Confused about finding a low-interest loan? Let us help! Contact Refer Loan and we’ll guide you to the best bank for your needs(cta)

Are you struggling with the burden of high interest loan payments? If so, you may be a candidate for a loan balance transfer. This process allows you to transfer the outstanding balance of your loan from one bank to another, potentially reducing your monthly payments and overall interest costs.

The loan balance transfer process is straightforward. You simply need to close your existing loan account with your current lender and pay a transfer fee to your new bank. Your new bank will then pay off your outstanding loan balance, and you’ll start making payments to your new lender at a lower interest rate.

For instance, consider a personal loan of INR 5,00,000 with an interest rate of 12.00%. If you transfer this loan to a new bank offering a rate of 8.50%, you could potentially lower both your monthly payments and overall interest costs. A loan balance transfer is a convenient way to ease the burden of high loan payments, and it doesn’t require any collateral from you. If you’re interested in finding out if a loan balance transfer could help you save, don’t hesitate to contact us for expert advice.
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The home loan interest rate refers to the percentage of the loan amount that the lender charges the borrower for borrowing the funds. This interest rate determines the cost of the home loan and impacts the monthly loan repayments. As interest rates are often linked to the repo rate, they can vary between lenders. It’s essential to keep in mind that seeking expert advice is better than relying on a calculator for determining the interest rate and loan cost.

As interest rates can fluctuate, the bank currently offering the lowest home loan interest rate is Citibank at 6.65% p.a. However, it’s important to note that this rate is exclusive to female home loan applicants.

With home loan interest rates at a 15-year low, most banks are offering competitive rates. To secure the best rate, it’s advisable to compare rates offered by different lenders. Using a home loan EMI calculator can also help estimate monthly repayments and make informed comparisons. Still if you need better understanding of interest rate.

What are some strategies for reducing home loan interest?

To reduce the burden of loan repayments, consider the following strategies for reducing home loan interest:

  • Choose a shorter loan tenure – Shorter loan tenures result in lower interest charges over time, though the monthly repayments may be higher.
  • Make regular prepayments – Early prepayments help reduce the outstanding loan principal and the overall interest charged. Be aware that some banks may charge prepayment fees, especially for fixed-rate loans.
  • Consider balance transfer – If you believe your current lender is charging a higher interest rate, consider transferring the loan balance to a lender offering a lower rate. Most banks offer balance transfer options.

FAQs

The Loan-to-Value (LTV) ratio indicates the proportion of the property value that a lender is willing to finance through a home loan. Banks usually finance up to 90% of the property value, but the amount may vary based on the loan size. Lenders use the LTV ratio to evaluate the risk involved in a loan and make a decision on approval or rejection. For instance, a loan amount of Rs. 30 lakh with an LTV ratio below 80% has a risk weightage of 35%. If the LTV ratio is between 80% and 90% for the same loan amount, the risk weightage increases to 50%. Loans above Rs. 75 lakh with an LTV ratio above 75% also have a risk weightage of 50%.

For a comprehensive understanding of your home loan repayment, it’s best to seek expert advice. A specialist can provide a detailed breakdown of your repayment schedule, including the total interest you will pay over the loan tenure. This personalized approach can help you make informed decisions and plan accordingly. However, if you want a quick estimate, you can use a home loan EMI calculator by inputting the loan amount, tenure, and interest rate. This will give you an idea of the total interest payable over the loan tenure, along with your monthly repayments.
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Pre-EMI refers to the interest payments made on a partially disbursed home loan. During the construction of a housing project, a loan may be disbursed in stages. The interest incurred on the disbursed loan amount must be serviced by the borrower until the full loan amount is disbursed. This interest is referred to as Pre-EMI. Pre-EMI is calculated on a monthly basis and must be paid from the date of initial disbursement until the start date of regular EMI payments.

Rather than relying solely on calculators, it is recommended to consult with experts who can provide a more accurate estimate of the total interest cost of a home loan. These experts consider various factors, such as the home loan amount, tenure, and interest rates, to determine the estimated EMI and total interest cost of the home loan.
Additionally, it is important for home loan applicants to understand their budget, loan amount, and EMI before making any home selections. This helps to ensure that the selected home fits within their financial means and helps to avoid any potential financial strain in the future.

Yes, switching from fixed to floating interest rate is possible. It is a common option offered by many lenders. This allows the borrower to take advantage of lower interest rates, if they occur, during the loan period. However, there is a fee associated with this conversion. Lenders typically charge a conversion fee of 0.5% of the outstanding principal of the loan. This fee is charged for the administrative and processing costs involved in making the change from a fixed to a floating rate loan. It’s important to note that the conversion fee and the terms and conditions for switching may vary from lender to lender. Before making the switch, it’s important to carefully consider the potential benefits and costs involved.

External benchmark lending rate (EBLR) refers to a reference rate used for setting the interest rate of loans based on external benchmarks such as the RBI’s repo rate or T-Bill yields. Before EBLR, banks set floating loan interest rates considering internal factors such as deposit costs and operating expenses. All retail and MSME loans with floating rates must be linked to EBLR according to RBI guidelines. EBLR was introduced to improve the transmission of interest rate changes from the market or policy to borrowers.

Banks use benchmarks besides the RBI’s repo rate for home loan interest rates, including:

  • 3-month Treasury Bill yield of the Government of India published by Financial Benchmarks India Private Ltd (FBIL)
  • 6-month Treasury Bill yield of the Government of India published by FBIL
  • Any other benchmark market interest rate published by FBIL

It’s important to note that the home loan interest rates offered by banks may vary based on various factors such as credit score, employment status, income, etc. Citibank, Bank of Maharashtra, and Dhanlaxmi Bank offer some of the lowest home loan interest rates starting from 8.00% p.a., 8.35% p.a. and 8.40% p.a. respectively, it’s still recommended to consult with experts and compare offers from different banks to determine which one is the best fit for your specific circumstances. The terms and conditions for each loan may differ, so it’s important to carefully consider all factors before making a decision.

The frequency of change in interest rate for an EBLR-based home loan depends on the bank’s chosen external benchmark rate and the reset frequency. Banks must reset EBLR-linked interest rates at least once every 3 months as per RBI guidelines.

Banks add spread and credit risk premium to EBLR when setting home loan interest rates. Credit score, occupation, employer, income, and other factors are considered when setting the credit risk premium. A high credit score indicating financial discipline and regular payments reduces credit risk for lenders, leading many banks to charge lower credit risk premiums and offer lower interest rates to high-credit borrowers.

A high credit score reduces credit risk for lenders, which results in a lower credit risk premium and therefore a lower home loan interest rate for the borrower.

According to RBI guidelines, it is possible for a bank to adjust the credit risk component if the borrower’s credit risk assessment changes during the loan tenure.

Banks are allowed to change other components of the spread used in setting the home loan interest rate once every three years, per RBI guidelines.

Yes, adding a co-applicant, particularly a female earning member of the family, may lead to a lower home loan interest rate as some lenders, such as SBI, HDFC, Union Bank of India, Bank of India, etc., offer interest rate concessions of 0.05% for female applicants.

A credit score of 750 or above is typically considered ideal for obtaining the best home loan interest rate. Although some lenders may offer home loans to applicants with a lower credit score, the interest rate may be higher. Improving or maintaining a credit score of 750 or higher is recommended for prospective home loan applicants to receive the best possible interest rate based on their credit profile.

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