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Home Loan Interest Rates And Charges

What is the Interest Rate on a Home Loan?

Usually expressed as a percentage, home loan interest rate is the rate at which interest is charged on the principal home loan amount over a specified tenure.

Tata Capital offers among the most competitive home loan interest rate in India, starting at just 8.95%*.

Our home loan interest rates start at 8.95% and are competitive amongst the other players in the industry. Furthermore, depending on your loan eligibility, income, credit score, and other criteria, we determine the best interest rates for your home loan requirement.

When you apply for a home loan with Tata Capital, you do not have to worry about any hidden charges. Whether it is related to processing fees, foreclosure charges, or delayed EMI Payments, we convey all expenses in a transparent manner. 

What Is The Current Home Loan Interest Rate?

 Currently, the interest rates on home loans are at a 15-year low and range anywhere from 8.95% to 12%. With Tata Capital, you can avail of housing loans that start at the latest home loan interest rates of just 8.95%*.

In the hopes of encouraging economic recovery, the Reserve Bank of India (RBI) cut down the repo rate by 40 basis points (BPS) to 4% in May 2020. As a result, interest on house loans from banks and NBFCs has dropped to incentivise home buyers.

Why are Interest Rates on Home Loan so Important?

Home loan interest rates are a vital part of a home loan. The home loan interest calculation lets you know in advance the amount that you’d need to pay over and above the principal home loan amount. Given that home loans are generally long-term loans, extending up to 15 to even 30 years, the total interest can become a considerable sum over time. Even a slight percentile difference in housing loan interest rate can be significant over years. Plus, home loan interest will also rise with an increase in tenure. Therefore, it is important to check and compare home loan interest rates and choose a lender offering competitive home loan interest rates in India.

How to Calculate Interest on Home Loan?

Home loan interest is usually calculated on the outstanding principal amount at the end of each day and charged every month. The lending institution takes the outstanding loan amount per day and multiplies it by the latest home loan interest rate that has been assigned for housing loan interest calculation.

Housing loan rates do not remain constant. They are subject to change, primarily following the monetary policy set by the Reserve Bank of India (RBI), which includes the base lending rate and MCLR. Your home loan interest rate is also calculated based on your credit rating and varies across lenders, depending on how much an institution can lend. 

Use the following formula to calculate your EMI liability for your home loan-

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

Wherein:

P is the Principal,

r is the rate of interest, and n is the number of instalments or loan tenure in months.

How to Calculate the Effective Interest Rate?

The applicable interest rate on a home loan consists of two components: the base rate and the markup rate. The combination of these two is what you will be paying on the loan. 

 

  • Base Rate: It is the standard lending rate of the lender, applicable for all loans. Note that this rate is subject to frequent changes based on multiple inputs and follows the RBI guidelines.
  • Markup: This component of a small percentage is added to the base rate to calculate the EIR (Effective interest rate)

    Here is the formula for effective interest rate

    Effective Interest Rate (EIR) = Base Rate + Markup

 

What is the LTV Ratio?

The percentage of the home loan amount offered on the property is called the loan to value ratio. The LTV ratio shows the maximum amount of loan the lender offers to the applicant. If the amount sanctioned is high, the lender's home loan interest rate will be higher owing to the increased risk involved in lending. 

To reduce the loan amount, you can make a large down payment and get lower home loan interest rates.

 

What Are the Factors Affecting Home Loan Interest Rates?

The following are the factors affecting home loan interest rates:

CIBIL score

our CIBIL score represents your creditworthiness and repayment capability, and it significantly affects the interest rate you have to pay. The higher your CIBIL score, ideally over 750, the more competitive housing loan rates you can get.

Job profile

A steady source of income, secure job, and employment with a reliable employer assure the lender of your repayment capacity and ultimately affect your housing loan interest rates.

Income

Besides your job profile, lenders consider your monthly income to evaluate your financial fitness. The greater your income is, the better your home loan eligibility. That’s why if you have any additional income sources like rental income, part-time business, etc., highlight them. You can also apply with a co-applicant, and by pooling your incomes together, you can easily qualify for a low interest home loan.

Debt-to-income ratio

To review your ability to pay off additional debt, lenders check your debt-to-income (DTI) ratio. If your monthly debt payments are significantly draining your monthly income, you will become a high-risk borrower. In that case, the lender may charge you a higher interest on the house loan. 

Benchmark rate of lending

Benchmark lending rates can either be Marginal Cost of Funds based Lending Rate (MCLR) or Repo Linked Lending Rate (RLLR). RLLR is directly linked to the RBI’s repo rate and bears a quick adjustment with every change in the policy rates. The RBI has decided to phase out MCLR-based lending over time to introduce a more transparent and repo rate-receptive RLLR to offer affordability to customers and improve the overall financial system.

What is MCLR?

In 2016, the RBI announced a new set of guidelines for lending called the Marginal Cost of Funds-Based Lending Rate (MCLR). The MCLR was introduced for all loans granted after April 1, 2016 and has replaced the older base rate regime.

If you took out a home loan before this date, you can switch to MCLR depending on the cost of your loan, since some conversion charges are applicable.

What are Fixed and Floating Home Loan Interest Rates?

Lenders primarily offer two kinds of home loan interest rates – fixed and floating interest rate.

Fixed interest rate is one wherein the interest rate on the home loan will never change no matter how volatile the market scenario gets. People who have opted to repay their home loan through fixed rate need to pay equally divided fixed monthly instalments over a pre-determined tenure with no unexpected changes in the middle.

Alternatively, floating home loan interest rate is one which is volatile and keeps changing as per the market scenario. Since floating interest rate is dependent upon the floating or alterable base rate offered by lenders, it gets revised automatically and in proportion to a change in the base rate.

What is Repo Rate Linked Lending Rate?

The repo rate is the rate at which the RBI lends money to other commercial banks. This rate is reviewed once every two months. The repo-rate linked lending rate is the rate of interest set according to the repo rate and is directly affected by a change in the repo rate. For instance, if the RBI reduces the repo rate, the home loan interest rates will also go down for the borrowers.

Under repo-rate linked lending rates, a home loan borrower is not dependent upon the respective lending institution to decide the lending rate. It is automatically updated (on the first day of the month after the change) to be in line with the repo rate.

Salaried & Self Employed Interest Rate Table

Home Loan

Salaried Any Amount 8.95%* onwards
Self Employed Any Amount 8.95%* onwards

Home Equity

Salaried/Self Employed Any Amount 10.10% onwards

*Final ROI may vary based on credit checks, property & other parameters

 Searching the market for getting the right home loan interest rate is essential for reducing your costs. Housing loan interest rates will vary based on the different home loan schemes available for individual buyers, joint buyers, women, etc. You can use a free online home loan emi calculator to get a fair idea of the amount you are eligible to borrow as loan principal

Tata Capital Housing Finance Limited - Prime Lending Rates (PLR)

January 1st, 2023 19.50%
October 1st, 2022 19.25%
August 22nd, 2022 18.75%
June 15th, 2022 18.25%
May 16th, 2022 17.75%