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Home loan interest rate is an important factor that plays a crucial role during home loan journey as it can either make or break the deal for you. Though interest rates vary from lender to lender, so it's vital to compare the same in order to grab the best deal. While borrowing the home loan, you can choose from either floating or fixed rate of interest. you can take loan on floating rate of interest or fixed rate of interest. Home loan tenure is much longer as compared to personal loan or car loan, so it is advisable to take the loan on floating rate of interest.

Types of Home Loan Interest Rates

You can avail a home loan either on fixed or floating rate of interest. At fixed rate of interest, home loan is fixed for the whole tenure of the loan. But, in case of a home loan, it is fixed for a certain period of time and then the rate of interest is shifted to adjustable rate of interest. In fixed rate of interest, the interest rates don't change with the fluctuation in the market.

Whereas, the floating rate of interest means it varies with the market conditions. Home loan on a floating rate of interest are offered on base lending rate plus a floating element thereof. Therefore, if the base rate changes, the floating interest rate also varies.

Home loan interest rate

Interest rate offered by the bank determines the amount that you will be required to pay in terms of Equated Monthly Installments (EMIs) against your home loan. The interest rates of home loan are calculated on the terms of floating or fixed rate of interest.

Marginal Cost of Funds Based Lending Rates ( MCLR)

Headed by the former Indian Governor Raghuram Rajan, it would not be wrong to say that Reserve Bank of India (RBI) slashed the repo rate by 125 basis points, since January, 2015. However, one thing that needs to be mentioned here is the fact that banks have lowered their lending rates around 50-60 bps, thus not even giving 50% of benefits to the borrowers.

Disappointed with the lack of proper response by the banks with regards to repo rate cuts, the RBI introduced one methodology called Marginal Cost of Lending Rate (MCLR), in place of base rate regime, to ensure better transmission of rate cut benefits to the borrowers. However, one thing that needs to be mentioned here is the fact that the base rate is still applicable for loans disbursed before 1st April, 2016. Moreover, new home loans will automatically come under the MCLR regime. Thus, if you have availed a loan before the said period mentioned above, and looking forward to make the most of it, you can have the option to switch to MCLR. But, you need to be a bit careful as after switching to MCLR, you don't have the privilege to shift back to the base rate.

When it comes to the calculation of MCLR , the bank looks at the marginal cost of funds that they incur. Apart from this, operating cost and tenure premium also play a pivotal role in the revision of MCLR at regular intervals of time. When it comes to a home loan, banks can either provide the same at MCLR or an add up to it, after assessing the creditworthiness of an individual.

Furthermore, banks keep on publishing the MCLR on a monthly basis but after reviewing it once in a quarter. In addition, the lenders will actually have to specify the dates on which the rate of interest is reset, especially in case of loans which are on floating rates. The banks will publish the MCLR for a fortnight, Month, a year, two year and three years on fixed date in a month. Based on the changes in MCLR, the rate of home loan will get reset by lenders at least once in a year. All the banks are supposed to mention the frequency of rate rest in the agreement papers itself.

Components of MCLR at a Glance

The basic components of MCLR calculation include

  • Operating Expenses : It is nothing, but the cost incurred by the banks in their daily operations.
  • Cost to Maintain Cash Reserve Ratio (CRR): )It is usually a cost that banks have to pay while keeping the reserves with the RBI, offering no interest on the same. However, the cost of maintaining these idle funds actually passed on by the banks to the end borrowers of loans.
  • Marginal Cost of Funds: Derived after considering interest rates offered on savings, current, fixed deposit and other deposit accounts. It is also based on short-term borrowing rate, known as repo rate, as well as long-term borrowing rate.
  • Tenure Premium: (An additional slab of interest over the base rate depending on the tenure of the loan)

Components of Base Rate

The basic components of base rate calculation consist of

  • Cost of Funds
  • Margin
  • Operating Expenses
  • CRR

The difference between MCLR and Base Rate lies in the marginal cost of funds and tenor premium included in the earlier. As marginal cost of funds is significant in the calculation of MCLR, so any hike or cut in key rates like repo rate by the RBI will bring a change in marginal cost of funds. Thus, banks will have to keep changing their MCLR.

Home Loan Interest Rates of Lenders

Lenders Interest Rate (in p.a.)
State Bank of India (SBI) 8.60% (For Women)
8.70% (For Others)
ICICI Bank 8.65%
Bank of Baroda (BOB) 8.35% - 9.35%
LIC Housing Finance 8.50% - 8.70%
DHFL 8.60% - 8.70%
HDFC Limited 8.65% - 9.25%
Indiabulls Housing Finance 8.65% - 8.70%
PNB Housing Finance 8.90% -9.10%
Bank of India (BOI) 8.65% - 8.70%
Axis Bank 8.85% - 9.35%

Home Loan Interest Rate Calculator

The moment you are satisfied with the rate of interest offered by a lender on your home loan, total amount of EMI payable from your pocket is the next thing that you should concentrate on. When it comes to home loan EMIs, they will be decided by the EMI Calculator or you can say interest rate calculator. This calculator takes into account, the loan amount, tenure and interest rate of your home loan. When you enter these important details into this effective and time-saving tool, an indicative EMI amount will pop-up on the screen in front of you. Knowing your EMI amount is highly important as it gives you an indication in advance regarding the amount you are going to pay in the future. In fact, with the help of this calculator, not only the EMIs,but you can also have an idea about interest outgo and overall amount payable from your pocket. So, if you want to know your home loan EMI, read this article further. Check out the formula below that helps you to calculate your loan EMI:
EMI=[P x R x (1+R)^N]/[(1+R)^N-1]
Where, P= Principal Amount
R= Interest Rate
N= Number of Monthly Installments

However, to give you more clarity on the same, below is the table showing EMIs, interest outgo and total amount payable on a home loan of ₹25,00,000 for a tenure of 20 years at an interest of 8.5% p.a.

Loan Amount (In ₹) Tenure (In Years) Interest Rate (In % p.a.) EMI (In ₹) Total Interest (In ₹) Total Payment (Principal+Interest) (In ₹)
25,00,000 1 8.50 1,74,440 93,275 20,93,275
25,00,000 2 8.50 90,911 1,81,872 21,81,872
25,00,000 3 8.50 63,135 2,72,863 22,72,863
25,00,000 4 8.50 49,297 3,66,237 23,66,237
25,00,000 5 8.50 41,033 4,61,984 24,61,984
25,00,000 6 8.50 35,557 5,60,087 25,60,087
25,00,000 7 8.50 31,673 6,60,530 26,60,530
25,00,000 8 8.50 28,784 7,63,289 27,63,289
25,00,000 9 8.50 26,559  8,68,340 28,68,340
25,00,000 10 8.50 24,797 9,75,657 29,75,657
25,00,000 11 8.50 23,373 10,85,207 30,85,207
25,00,000 12 8.50 22,201 11,96,960 31,96,960
25,00,000 13 8.50 21,224 13,10,879 33,10,879
25,00,000 14 8.50 20,398 14,26,926 34,26,926
25,00,000 15 8.50 19,695 15,45,062 35,45,062
25,00,000 16 8.50 19,090 16,65,245 36,65,245
25,00,000 17 8.50 18,566 17,87,432 37,87,432
25,00,000 18 8.50 18,109 19,11,576 39,11,576
25,00,000 19 8.50 17,709 20,37,632 40,37,632
25,00,000 20 8.50 17,356 21,65,552 41,65,552

Amortization Calculator

With the help of amortization calculator below, you can get an idea of your loan repayment amount year-on-year. This effective tool enables to give you the glimpse of yearly payments towards principal and interest. In fact, you can also get to know the outstanding balance at the end of each year till the time your loan is pending. So, without wasting any time, let's get started with the table below showing loan repayment amount of each year.

Year Principal (In ₹) Interest (In ₹) Balance Outstanding (In ₹)
1 39,801 1,68,471 19,60,199
2 43,318 1,64,954 19,16,881
3 47,146 1,61,126 18,69,735
4 51,314 1,56,958 18,18,421
5 55,849 1,52,423 17,62,572
6 60,785 1,47,487 17,01,787
7 66,157 1,42,115 16,35,630
8 72,006 1,36,266 15,63,624
9 78,370 1,29,902 14,85,254
10 85,298 1,22,974 13,99,956
11 92,837 1,15,435 13,07,119
12 1,01,043 1,07,229 12,06,076
13 1,09,973 98,299 10,96,103
14 1,19,694 88,578 9,76,409
15 1,30,275 77,997 8,46,134
16 1,41,792 66,480 7,04,342
17 1,54,323 53,949 5,50,019
18 1,67,963 40,309 3,82,056
19 1,82,812 25,460 1,99,244
20 1,99,368  9,304 0