Demystifying Housing Loan Interest Rates: What you Need to Know - Loan Trivia


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Thursday 2 May 2024

Demystifying Housing Loan Interest Rates: What you Need to Know

With the help of a home loan, it becomes increasingly possible for borrowers to own their dream property during their lifetime. On having excellent creditworthiness, banks offer a highly affordable housing loan interest rate. One can manage this expense every month without stressing other aspects related to their fixed costs. 

In this article, home loan borrowers will learn about the standard housing loan interest rates and the process of calculating loan EMIs online. 

Types of interest rates in housing loan

Banks and NBFCs apply either of the two forms of interest rates on home loan offers: fixed interest rate and floating interest rate.

For fixed-interest loan offers, the EMI amount stays intact throughout the repayment term. On the other hand, if one has agreed upon a floating interest loan then their EMIs will fluctuate as per market conditions. In simple words, home loan providers extend floating interest loans at a base rate which further has a floating element attached to it. Thus, when the base rate varies the floating interest rate accordingly goes up or down. 

Recently, floating interest-rate housing loans have gained popularity as they let borrowers enjoy temporary periods of favourable EMIs. Also, these offers encourage the borrowers for occasional part prepayments in exchange for no foreclosure charges. 

How to calculate interest on a housing loan?

The home loan interest varies from one lender to another. A common factor influencing this rate is the RBI’s repo rate. Apart from this, a borrower’s job profile, credit history, location of the property chosen and various other factors contribute to the final rate of interest.

One can easily calculate the EMI of their home loan using an online calculator. Here’s how:

Step 1: Visit the website of a lender

Step 2: Choose the option of Home Loan EMI calculator

Step 3: Enter the specifics like the principal amount, agreed-upon interest and tenor in the appropriate fields

After executing all these steps one can view the EMI applicable for each month. If the borrower has an excellent credit score then they can contact the lender to negotiate the loan offer. 

Tips to reduce housing loan interest rates

Here are some helpful tips that borrowers can use to reduce the applicable interest rates:

  • Going for a shorter loan repayment term

  • Opting for a plan that attracts no part prepayment charges and trying to make prepayments whenever possible

  • Finalising an offer after comparing home loan products extended by top-reviewed lenders

  • Sticking to a higher downpayment

  • Considering a practical EMI amount and avoiding payment of too little EMI as that would increase the tenor as well as the total payable interest

  • Considering a home loan balance transfer, if needed

Various financial institutions provide pre-approved loan offers to their loyal customers on financial products like loans against property, and home loans, depending on their credibility. These offers speed up the loan application process and turn out to be much more favourable. Individuals can check their pre-approved offers online by entering their name and contact details on the lender's website.

Comparing online the exact housing loan interest rate offered by various lenders is too simple. No one needs to physically visit the institution these days to fetch such details. Thus, the greater accessibility has increased all borrowers' openness towards accepting big-ticket loan deals. Also, they get 24x7 support from the lender in case they face any issues while repaying. All these factors have made home buying a lot simpler than it was over two decades ago.

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