# Home Loan Interest Rates

For Salaried Professionals and Doctors

 Home Loan Slabs Effective Rate of Interest* Variable / Semi - Fixed for 2 to 3 years (Calculated on Monthly Rest Basis) Loan Amount up to Rs. 75 Lakhs 8.75% - 8.80% Loan Amount above Rs. 75 Lakhs 8.80% - 8.85%

For Self-employed Professionals / Non-Professionals

 Home Loan Slabs Effective Rate of Interest* Variable / Semi - Fixed for 2 to 3 years (Calculated on Monthly Rest Basis) Loan Amount up to Rs. 75 Lakhs 8.90% Loan Amount above Rs. 75 Lakhs 9.05%

## Special Home Loan Interest Rates for Women

Women borrowers get 5 bps lower than what is quoted above for loan amount up to Rs 30 lakhs with certain conditions.

The home loan interest rates are also categorized as floating and fixed rate. In the fixed rate of interest, the rate is fixed throughout the tenure of the loan whereas in the floating rate the rate fluctuates with the prime lending rate for the first 3 years of the loan tenure and thereafter it becomes fixed rate.

## How is Home Loan Interest calculated ?

Since the repayment is in the form of EMIs each EMI comprises a principal component and an interest component. When an EMI is paid for a month, the next month's EMI s calculated on the principal outstanding after deducting the previous month's principal component. This calculation is done for the duration of the loan period. In this way, the initial years of the loan repayment period would have a larger component of interest payment and a smaller component of principal repayment. In the later stages of the tenure, the opposite takes place. Through this calculation, your EMI is uniform throughout the period of the loan.

To know more about the additional charges, you can go through the detailed Home Loan Fees and Charges

## What does your Home Loan Interest Rate depend upon ?

The factors that affect interest rate are

• The prevailing marginal cost of funds based lending rate (MCLR) at the time of the loan
• The borrower's credit history
• The tenure of the loan
• The applicability of floating or fixed rate of interest

If your credit history is sound then you are likely to merit lower rate of interest.

## What is MCLR ?

The Reserve Bank of India (RBI) governs the lending rates in India for financial transactions by financial institutions. RBI used to follow a system known as base rate system in which it would decide the base rate and all others would follow that rate as the minimum lending rate. Since April 2016, RBI has changed the system to fix base rates to marginal cost of funds based lending rate (MCLR).

The RBI has set guidelines for revising the MCLR every month based on several factors including borrowing rates and the repo rate. Banks set 5 MCLR benchmark rates for tenures from 1 day to 1 year.

MCLR depends on the interest rates given by banks to depositors and RBI for obtaining funds. The rate given to RBI for obtaining funds from there is known as the repo rate. MCLR uses the marginal cost of obtaining such funds in fixing their base rate. A change in the deposit rates and the repo rate brings about a change in the lending rate and hence the base rate now follows the MCLR system.

In the MCLR system, the financial institution prepares the MCLR which is now the internal benchmark lending rate. The MCLR will be the new benchmark to fix lending rates to customers based on their credit worthiness (or riskiness).

## What is Floating Rate ?

A floating rate is defined as the lending rate charged to borrowers that follows the MCLR. If the MCLR changes, then the interest rate to the borrower also changes. Thus, if you have taken a home loan at an interest of 9% when the MCLR was say 6%, that interest rate would change if the MCLR goes up or down. The effect of floating rate is usually not felt by borrowers because when the MCLR goes up the tenure goes up and when the MCLR goes down the tenure goes down. In both cases, the EMI stays fixed.

## What is Fixed Rate ?

A fixed rate is defined as the lending rate charged to borrowers that stays fixed irrespective of the changes in the MCLR.

## What is Base Rate ?

RBI is the custodian of banking transactions. It sets an interest rate below which banks are not permitted to lend to their borrowers. This rate is known as the base rate. The advantage of base rate to borrowers is that banks are rendered more transparent and the borrowers can expect to borrow at a rate which is base rate plus a sufficient cushion to cover credit risk premium.

## What is Prime Lending Rate ?

The prime lending rate is the rate at which banks lend to its most credit worthy borrowers.

## Interested in applying for a Home Loan ?

We at Tata Capital make it easy for you to apply for a home loan. We follow a transparent process and indicate to you the processing fees and charges inclusive of statutory levies upfront so that you can evaluate all the costs associated with the home loan besides the interest rate and tenure. The processing fee for the home loan is up to a maximum of 0.5% of the loan amount. All other charges are as per our standard rates which you can check here. You can further check our home loan eligibility criteria and try the Home Loan EMI calculator to get an estimate of your EMI.

Important Information