Interest rates on home loan is an amount that the bank or financial institution charges from you for taking a loan. Home loan interest rates are usually either related to repo rate or governed by Reserve Bank of India mandates.
Home loan interest rates are different for each bank and non-banking financial institution in the country. Public sector banks such as State Bank of India charge lower home loan interest rates compared to private sector lenders. The interest rates generally fall in the range of 8 to 11 per cent.
Banks also offer two kinds of home loan interest rates—fixed and floating rates. The fixed interest rate is, as the name suggests, fixed throughout the loan tenure. On the other hand, the floating rate changes with any market changes.
Home Loan Interest Rate Comparison - All Banks in India
Home loan interest rates are different for each banks and financial institution in India. The interest rate is determined by the RBI’s repo rate. Here is a comparison of the interest rates of home loans offered by leading banks in the country:
- State Bank of India: This public sector bank offers one of the lowest interest rates in the country. As on August 2019, the bank’s home loan interest rate if 8.05 per cent. The bank additionally charges a processing fee which is calculated as a percentage of the principal amount.
- Axis Bank: Home loans at Axis Bank are currently offered with two kinds of home loan interest rates. The effective interest rate for floating interest type starts at 8.9 per cent per annum. The fixed rate of interest is 12 per cent per annum. It is one of the leading private sector banks offering home loans and it charges a processing fee of up to 1 per cent of the loan amount.
- HDFC Bank: HDFC Bank is currently charging an interest starting at 8.55 per cent on its home loan products. The bank has a lower processing fee. It charges up to 0.5 per cent of the loan amount or Rs3,000, whichever is higher.
- ICICI Bank: ICICI Bank home loan interest rates are currently starting at 8.60 per cent. The bank charges anywhere between 0.5 to 1 per cent of the loan amount as processing fee.
- Citibank: If you are planning to take a home loan from Citibank, you will be charged an interest rate of 8.5 per cent and above. The bank charges a processing fee of up to Rs5,000 depending on the loan amount.
- Kotak Mahindra Bank: Kotak home loan interest rate comes to around 8.9 per cent and upwards. It is a floating type of interest. The bank also charges a processing fee of up to 2 per cent of the loan amount. If you apply online, you will be eligible for a waiver on processing fees.
- Standard Chartered Bank: Home loan interest rates at Standard Chartered start at 9.41 per cent. A processing fee of up to 1 per cent of the loan amount is charged.
- IDFC First: This bank charges a home loan interest rate starting at 8.6 per cent.
- Bank of Baroda: Banks of Baroda offers a range of housing loans with rate of interest staring at 8.45 per cent per annum and going as high as 13 per cent.
- Yes Bank: Yes bank home loan rates start at 9.85 per cent and go up to 12 per cent. A processing fee of 1 per cent or Rs15,000, whichever is higher, is applicable on home loans.
- Tata Capital: This non-banking financial company offers home loans with interest rates starting at 9.25 per cent per annum.
Types of Home Loan Interest Rates
Banks and financial institutions offer two kinds of home loan interest rates—fixed and floating rates.
In case of fixed rate, as the name suggests, the home loan rate remains constant throughout the tenure of the loan. For example, you get a loan for Rs30 lakh in August 2019 at an interest rate of 8.55 per cent per annum for 25 years. If the rate of interest is fixed, the interest will remain constant all throughout the 25 years. Your EMIs will be calculated accordingly.
On the other hand, in case of floating interest rates, the rate is subject to changes in the lending trends in the market. So the interest rate is likely to change several times during the loan tenure. Let us take the same example—you get a loan for Rs30 lakh for 25 years. At the time of loan approval, your effective interest rate is 9 per cent. Now during these 25 years, the rate of interest may increase or decrease depending on the latest market trends.
With fixed rate of interest, you can safely plan your financial goals and need not worry about any market trends. You know your expenses and EMIs from the start of the loan. On the other hand, floating rates of interests are usually lower than fixed rates. It may seem lucrative but it is an option for those with a high risk appetite. If you are willing to take the risk, you may be able to save a lot on your interest going forward. When the interest rates fall, your interest payable decreases considerably. At the same time, there is a risk of the rates going up. So you may have to pay a large interest if the rates go up. These rate changes depend on the latest lending trends in the market as well as the policies of the RBI.
Factors that affect Home Loan Interest Rates
There are several factors that decide the interest rate on home loans. Here are some of the factors that you can keep track of to understand how interest rates change:
- MCLR: Banks decide home loan interest rates based on the Marginal Cost of Funds-based Lending Rate or MCLR. This is a standard rate that banks and other lenders use to set their interest rates. The MCLR changes as per market trends and monetary policies. So a change in the MCLR will lead to a change in the interest rate.
- Loan amount: Banks usually have different interest rates for different loan slabs. For instance, the interest rate on home loans up to Rs 30 lakh is lower compared to loans above Rs 30 lakh.
- Credit score: Contrary to popular belief, borrowers can negotiate with the bank to get their interest rates lowered. If you have a good credit score, you can negotiate the terms of your loan including the tenure and the interest rate.
- Gender of borrower: Many banks offer lower interest rates for home loans to women borrowers. There are concessions of up to 0.5 per cent in the interest rate for women.
- Type of interest: As explained above, the type of interest you opt for will decide the rate of interest for you. Usually floating interest rates are lower than fixed rates.
How to get lowest Interest Rate on Home Loan
When it comes to interest rates of home loans, there is very little a borrower can do to get it lowered. Home loan interest rates are decided by the bank based on the latest lending trends in the market.
You can, however, negotiate with your bank for a lower interest rate. Having a good credit score will give you an advantage and you can push for a concession in the interest rate.
Women applicants are eligible for concessions in home loan rates. Men can make their wife a co-applicant to avail of this concession.
If you have opted for a fixed rate of interest and at any point feel that you want to switch to a floating rate system to avail low interest rates, you can do so. Most banks allow this change.
If you have an existing loan and feel that another bank is offering a lower rate of interest, you can take a new loan with the second bank and transfer your balance to the new account to avail lower rates.
How to calculate Interest on Home loan
The interest rate on a home loan is calculated based on the Marginal Cost of Funds-based Lending Rate or MCLR. The MCLR is a standard datum below which lenders and banks are not allowed to offer interest rates. Interest rate on loans are calculated based on this rate.
The MCLR is a reflection of the latest lending trends in the country. If it goes down, housing loan interest rates will also go down. It was mandated by the RBI in April 2016 that all interest rates be calculated based on the MCLR.
In case of floating interest rate, the effective interest rate is a sum of the base rate and the mark-up. The base rate is a minimum rate set by the RBI. The mark-up is the margin over and above the base rate that the bank decides to add to the interest rate.
How often does the interest rate on home loan change?
The interest rate on home loan is dependent on the latest market trends. The lending trends are usually unpredictable and therefore, there is no set frequency at which interest rates change.
There are several factors that can change the market trends. Any change in the monetary policies introduced by the RBI at any time could lead to a change in the interest rate. Repayment capacity of borrowers also decide the interest rates.
What is the current lending trend in the market?
As of August 2019, interest rates on home loans are on a downward trend. The RBI has been consistently slashing repo rates. This has led to a churn in the lending market. Interest rates are going down. They are expected to go down further in the times to come.
How is my EMI calculated?
There is a common mathematical formula based on which all banks and financial institutions calculate the EMI. It is based on the principal loan amount, the rate of interest and the loan tenure. Here is the 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 per month and n is the number of monthly instalments.
Is floating rate of interest better than fixed interest?
Floating rate of interest is usually lower than the fixed rate of interest. It usually appeals to the borrower because of this factor.
Whether it is better than fixed rate of interest depends on your appetite for risks. In case of fixed rate of interest, you are certain of the EMI you have to pay. It is safe from any changes in the market. On the other hand, the floating rate of interest changes along with market trends.
In the current market, as the repo rate continues to go down, the floating rate of interest is also reducing. Therefore, the floating rate of interest appears to be a good option for homebuyers. However, if there is a change in the market trend and the rates start rising, you may have to pay considerably large amounts of EMI. So it is advisable to go for floating rate of interest if you are willing to take that risk.
Is home loan different from home renovation loan?
Yes. A home loan is given to you when you purchase a flat or a piece of property. On the other hand, a home renovation loan is when you plan to renovate or repair your existing house. While home loans are secured loans, home renovation loans are a kind of personal loan. A home loan requires a security against the lending. Personal loans do not require any kind of security. Also, home loans are usually of higher amounts than home renovation loans and the loan tenure is also longer.
What is a flexi EMI plan?
Banks usually offer two kinds of repayment methods—the standard EMI plan and the Flexi-EMI plan. In case of a standard EMI plan, you pay an EMI which is a combination of your principal amount and interest rate. The EMI will be constant throughout the loan tenure. This is a safe option and is ideal for people who have a regular income.
There is another option for repaying your loan. This plan is ideal for people whose income is expected to rise at regular intervals. Under the Flexi-EMI plan, you start out by paying lower EMIs. The EMI increases gradually as your income increases. If you opt for Flexi-Emi plan, you are eligible for a higher loan. It basically allows you to pay more as your income increases.