A home loan is one of the best financing options that let you purchase your dream house. Being secured, the interest rate on a home loan is usually low i.e. the current rate of interest starts from 6.65% onwards. With home loans, borrowers can also enjoy tax several tax deductions under section 80C, 24B and 80EEA. However, before applying for home loans, you need to do proper market research and choose a loan that best suits your requirement. Check here the current home loan interest rate offered by the top banks and housing finance companies in India.
Current Home Loan Interest rates of India
|Banking/Housing Finance Company||Interest rate|
|State Bank of India||6.65%|
|LIC Housing Finance||6.90%|
|PNB Housing Finance||8.90%|
|GIC Housing Finance||8.90%|
Types of interest rates in home loan
Fixed Interest Rate: In this system of computation, the rate of interest remains even or fixed throughout the loan tenure. Thus, the home loan EMI also remains the same throughout the repayment schedule. Home loans at a fixed rate of interest are beneficial as it keeps one prepared for the monthly home loan EMIs that needs to be paid. Thus, finances can be well managed with a fixed home loan rate type. However, it could turn out as demerit when the market rates are less, but one is bound to pay a higher interest rate on a home loan due to a fixed rate of interest.
Floating Interest Rate: As per the floating rate of interest, the home loan rate remains variable. The interest rate as per floating rate type is linked to the external benchmarks perceived by the lender. Thus, based on these conditions, the interest rates as per this rate type keeps on changing as per the market conditions. Also, since the rate is not fixed, the home loan EMI may increase or decrease abruptly. Opting for a floating rate of interest is beneficial in times when the market trends allow a lower home loan interest rate. However, in case the rate goes up one is bound to pay a higher home loan EMI. Also, since the home loan, EMI is not fixed, the financial planning of borrowers may take a toll at this time.
How is a Home Loan interest rate calculated?
Home loan interest rate calculation is based on certain home loan components. Though home loans are linked to the external benchmark products yet, it is calculated based on the formula-
Effective Interest rate=Base rate/External benchmark rate + Markup
Base rate: The base rate is the standard lending rate decided by the financial institutions for lending all the retail products. The base rate is subject to revision over time.
Markup or spread: Markup or spread is the margin added to the base rate to arrive at the EIR (Effective interest rate) for a specific type of home loan and varies from one type to another.
External benchmark: As per RBI’s directives, financial institutions are bound to offer home loans linked to any of the external benchmarks such as RBI’s repo rate or three-month treasury bill rate, among others. The change in the external benchmark rate leads to a change in the home loan interest rate.
Factors That Influence your Home Loan Interest Rate
There are several factors that influence your home loan interest rates such as MCLR rate, type of interest on home loan i.e. fixed or floating, loan-to-value ratio, credit score, Location of the property, your job profile and loan tenure. Among these listed factors, some are within your control, while others are influenced by the economy. Keeping all these factors in mind while deciding on a home loan will help you to get the best value loan as per your budget and requirements.