If you’re looking to buy a home in India, you’ll likely need to take out a housing loan. And when it comes to housing loans, the interest rate is one of the most important factors to consider.
In India, housing loan interest rates are typically determined by the Reserve Bank of India (RBI), which is the country’s central bank. The RBI sets a “base rate” for loans, and then banks add their own margins on top of that.
So, if you’re shopping around for a housing loan, it’s important to know the kinds of interest rates, the calculations and the points you should consider when taking a home loan.
Here’s a look at everything you need to know about home loan interest rates.
Calculating the Home Loan Interest Rate: How to Do It?
When calculating the home loan interest rates in India, there are two ways you can get it done.
The EMI Calculator
Using the EMI calculator, you can easily calculate the home loan interest rate. You have to fill up all the fields provided on the calculator with information on the “rate of interest“, “home loan amount”, and “loan repayment tenure“.
After providing all the details, you just have to press the “CALCULATE” button and receive detailed information on the home loan. It will also contain the amount payable for interest.
The EMI Calculation Formula
If you do not wish to use the EMI calculator and look for a different way, you can opt for the “EMI calculation formula”, which is:
“EMI = [P x r (1+r) ^n] / [(1+r) ^n-1]”
In this formula, P is known as the “Principle“, R is the “rate of interest“, and N is the “loan tenure or installments in months”.
The Various Kinds of Interest Rates
There are two primary sorts of interest rates, which are charged by the majority of the banks in the country. These rates are:
Floating Interest Rate
The interest charges on the home loan are subject to the existing lending interest rate of the bank. The rate is connected with the bank’s new published rate. These rates depend on numerous factors, such as banks’ replies to the revision, lending rate revisions and RBI funding policy.
Fixed Interest Rate
Under this computation system, the interest rate stays throughout the loan tenure. Changes will not be made within the interest rate charges because the rate remains completely fixated. Depending on the offer, you might get the chance to switch to the floating rate option once you complete a certain period of the loan tenure.
Things to Keep in Mind When Taking a Home Loan
When you have decided to take a home loan, there are several things you must keep in mind, which are:
- Compare the Interest Rates: Once you find a home loan with a lower interest rate, don’t apply for it immediately. Go through the T&C or terms and conditions of the scheme and then check how exactly the interest rate is lower than other home loans. You should always compare the interest rates before applying for a loan.
- Go Through the Lender’s History: Before you apply for a home loan, you must check their history. Loans are a liability, leading to massive monetary issues when you take them from an untrusted or unknown lender. Look at the news on various lenders online, check the reviews of their products and services and also read their history. Contact the experts or mortgage brokers to learn more about a lender.
Home loans are ideal for individuals who want to purchase a house/apartment or build a residential property. But before you apply for any home loan, be sure to check the interest rate. Banks and other financial institutions in India have their own interest rates for home loans. Go through them and compare the rates before you proceed further.