What Is Home Loan Interest Rate and How Is It Calculated
Are you skeptical about taking a Home Loan because you don’t know how much you might have to pay in the form of interest? Say goodbye to your Home Loan Interest Rate doubts because it is now possible to calculate how much interest rate you will pay for the loan taken. Thanks to the Home Loan Interest Rate Calculator, a quick online tool that helps you instantly find out the interest rate, EMI, and even your total repayment amount.
But what is the Home Loan Interest Rate?
The lending institutions charge the customers a percentage of the principal amount for using the funds. This percentage is called the interest rate. Every lending organisation determines a Home Loan rate that they wish to offer. However, these finance companies have to follow a minimum interest rate benchmark. This is called as the MCLR or Marginal Cost of Funds Based Lending Rate and it was implemented by the Reserve Bank of India. So, even though finance companies can decide an interest rate for their customers, it cannot drop lower than the Marginal Cost of Funds Based Lending Rate or MCLR.
Types of Home Loan Rate
Home Loan Interest Rate is of two types, fixed and floating. Fixed Home Loan Rate remains constant throughout your loan tenure even if there are any fluctuations in the market. On the other hand, Floating Home Loan Interest Rate changes in accordance with market fluctuations. The Floating Home Loan Interest Rate in India is reviewed on a quarterly basis. The banks and lending institutions usually make amends to the tenure and keep the EMI amount constant. There is also the mixed interest rate wherein the rate of interest remains constant for a certain number of years initially and then changes as per the market situation.
How You Can Calculate The Home Loan Interest Rate
The most accurate way of finding out your Home Loan Rate is through a Home Loan Interest Rate Calculator. Using this calculator you can find out details such as your monthly EMI and your interest rate even before you apply for a loan. It is an extremely helpful tool as it helps you make the right decision and save yourself from any financial losses. When using the Home Loan Interest Rate Calculator you need to feed in some details like your monthly income, age, desired loan amount, and so on. Based on these factors the Home Loan Interest Rate Calculator will instantly calculate the rate of interest for you
Factors Impacting Your Home Loan Interest Rate In India
Your Home Loan Interest Rate in India is an important point to be considered when taking a Home Loan. Your EMI amount and also the total amount that you repay against your Home Loan depend on the Home Loan rate. So, before opting for a Home Loan, it’s crucial to understand what factors are responsible for deciding the Home Loan Interest Rate and how it impacts your Home Loan deal in general. Although some of these factors cannot be changed, there are a few aspects of your financial situation that you can change to avail of a better Home Loan Interest Rate.
• Credit Score The applicant’s credit score determines their creditworthiness. So, it is only obvious that a better credit score will get you a more affordable Home Loan Rate as opposed to a not-so-good credit score.
• Property Location and Value An upmarket location with a higher property value will get you comparatively better Home Loan terms. So, choosing a good location will improve the resale value of your home. That in turn will fetch you a good Home Loan Interest Rate in India.
• Stable Employment Regular income is another crucial factor indicating the applicant’s repayment capacity. Increasing your income or disclosing multiple income sources can also be of help in determining your repayment capacity, which will help you with a good Home Loan deal.
• Loan Tenure Another important factor that can help you lower your interest rate is your loan tenure. A longer tenure allows you more repayment time and a lower interest rate. Whereas a shorter tenure incurs a higher interest rate to compensate for the lesser duration.
• Type of Interest The types of interest rates you can choose from are the floating rate, fixed rate, and mixed rate. A fixed interest rate is higher as compared to floating interest rates, but floating interest rates are unpredictable.
Ways to Lower Your Interest Rate
Use the following tips to ensure that you have a low rate of interest on your home loan:
• Choose to repay the loan amount in a short tenure as it will allow you to pay a smaller percentage in the form of interest.
• Choose the home loan balance transfer facility to transfer your loan to a lender offering a lower rate of interest than your current rate.
• Increasing your EMI amount will lead to a shorter tenure, which will in turn help you lower your rate of interest
• Paying a large amount in the form of a down payment will decrease the amount on which the interest is calculated, and therefore you will end up paying a lower rate of interest.
Home Loan Interest Rate is something that should be looked into deeply before you take the leap of borrowing a home loan. It can take a toll on your financial health if not thought out carefully. Home Loan Interest Rate in India is an affordable expense that most borrowers can easily bear, however doing your own research will help you choose the best lender with the lowest rates of interest and suitable loan tenure.
Apart from the Home Loan Interest Rate, there are other costs when availing of a Home Loan, such as processing fees, penalties, and so on. In addition, there are certain costs like the stamp duty, which are not included in your Home Loan and these funds have to be arranged by the applicant themselves.
L&T Finance provides Home Loans with affordable interest rates to their customers. If you are looking to avail of a Home Loan apply now
This article is authored by L&T Finance
As a seasoned financial expert with a deep understanding of home loans, I'd like to shed light on the concepts discussed in the article, "What Is Home Loan Interest Rate and How Is It Calculated."
Firstly, the article highlights the importance of understanding Home Loan Interest Rates before committing to a loan. The key tool mentioned is the Home Loan Interest Rate Calculator, an online tool that allows individuals to quickly determine their interest rate, EMI (Equated Monthly Installment), and total repayment amount.
The Home Loan Interest Rate is defined as the percentage charged by lending institutions on the principal amount borrowed. It's a crucial factor in determining the overall cost of a home loan. The Reserve Bank of India has implemented a benchmark called the Marginal Cost of Funds Based Lending Rate (MCLR), which sets a minimum interest rate that lending organizations must adhere to.
The article distinguishes between two types of Home Loan Interest Rates: fixed and floating. A fixed rate remains constant throughout the loan tenure, providing stability, while a floating rate fluctuates with market conditions. There's also a mixed interest rate option, combining fixed and floating rates over specific periods.
To calculate the Home Loan Interest Rate accurately, the article recommends using the Home Loan Interest Rate Calculator. This tool considers factors like monthly income, age, desired loan amount, etc., to provide instant calculations.
Factors influencing Home Loan Interest Rates in India are then discussed. These include the applicant's credit score, property location and value, stable employment, loan tenure, and the type of interest rate chosen. Improving one's credit score, selecting a prime property location, maintaining stable employment, choosing an optimal loan tenure, and picking the right type of interest rate can lead to better Home Loan terms.
The article provides practical tips to lower the Home Loan Interest Rate, such as repaying the loan in a shorter tenure, opting for a home loan balance transfer, increasing EMI amounts, and making a substantial down payment.
Finally, it emphasizes the importance of thorough research before choosing a lender, considering not only the interest rate but also other costs like processing fees, penalties, and additional expenses like stamp duty. L&T Finance is mentioned as a provider of Home Loans with affordable interest rates.
In conclusion, understanding Home Loan Interest Rates and their calculation is essential for informed financial decision-making, and the article provides valuable insights for potential home loan borrowers.