Home loan interest rates have come down substantially to 7%-8.50% now as banks cut rates aggressively in response to 250 basis point cut in the repo rate by the Reserve Bank of India since 2019. Even housing finance companies have cut the rates much like their banking counterparts.
Despite rate cuts, some could still have to pay the home loan at a greater rate than others. Even if the rate is 0.50% higher, it could result in an excess interest payment of INR 2 lakh or even more. If you are aware of the interest rate setting, you will know there’s a risk premium that banks charge over the benchmark rate. That risk premium can be more in some cases, resulting in greater interest rates. So, in what cases will that risk premium be more? Let’s find out in this post.
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On What Basis Does the Lender Hike Home Loan Interest Rates?
The lender hikes the risk premium if it feels the income of the borrower is going to be irregular, when someone has a poor credit score, and when the loan amount is huge, etc. All these pose a greater degree of credit risk for lenders to deal with, prompting them to set a greater rate of interest.
The income greatly decides the repayment potential of an applicant. This helps lenders assess the loan amount for applicants. But the setting of the interest rate will depend on how regular the flow of income is for a respective borrower. Keeping that in mind, lenders ask you to submit bank statements when you apply for a home loan. From that, they can check the flow of income and take a call on the interest rate. Individuals with a regular flow of income will most likely get lower rates compared to someone whose income is erratic.
It is largely believed that salaried people are expected to have a regular flow of income compared to self-employed applicants whose earnings can be erratic and depend on seasons. Such perceptions have meant that home loan interest rates are higher for self-employed borrowers in India. Check out below the rates for salaried and self-employed across top lenders in India.
|Lenders||Interest Rates for Salaried (In Per Annum)||Interest Rates for Self-employed (In Per Annum)|
|State Bank of India (SBI)||6.70%-7.15%||7.10%-7.60%|
|HDFC Limited||6.75% - 7.85%||7.10%-8.00%|
|ICICI Bank||6.75% - 7.40%||7.20%-8.05%|
|LIC Housing Finance (LIC HFL)||6.66% - 7.80%||7.00%-7.90%|
|PNB Housing Finance (PNBHFL)||7.35% - 8.80%||8.85%-9.45%|
Lenders consider setting home loan rates based on the loan amount too. The interest rate increases on a loan amount from INR 30 lakh onward. Let’s take a look at the rate of interest charged by lenders based on the loan amount.
|Lenders||Interest Rate on Loans Upto INR 30 Lakh (In Per Annum)||Interest Rate on Loans Above INR 30-75 Lakh (In Per Annum)||Interest Rate on Loans Above INR 75 Lakh (In Per Annum)|
|State Bank of India (SBI)||6.95%-7.25%||7.20%-7.45%||7.30%-7.60%|
|Kotak Mahindra Bank||7.20%-9.20%||7.20%-9.20%||7.30%-9.30%|
|Union Bank of India Home Loan||6.70%-7.10%||6.95%-7.10%||7.00%-7.15%|
The credit score, which ranges from 300 to 900 in India, may not be much of a concern when it comes to getting a home loan from the lender. But when it comes to getting the best home loan rate, individuals having a good credit score of 750 and above wins over those with a score of below 650 or are new to credit. While some lenders disclose credit score based interest rates, others don’t disclose it but do consider the score while pricing home loans of borrowers. Let’s check out the credit score based interest rates of some lenders.
LIC Housing Finance
The housing finance company offers interest rates based on the credit score provided by the most renowned credit bureau in India i.e. CIBIL. Its home loan interest rate is the lowest for individuals having a credit score of 700 and above. Check out the table below to know the CIBIL score based rates of LIC Housing Finance.
Interest Rates Based on Loan Quantum & CIBIL Score for Salaried & Professionals and Non-Salaried & Non Professionals
|Loan Quantum (In INR)||CIBIL Score||Salaried & Professionals||Non-Salaried & Non Professionals|
|Up to 50 Lakh||>=700||6.66%||6.76%|
|Above 50 lakh to 1 Crore||>=700||7.00%||7.10%|
|Above 2 Crore to 3 Crore||>=700||7.10%||7.20%|
|Above 3 Crore to 15 Crore||>=700||7.20%||7.30%|
Interest Rates for Salaried & Professionals and Non-Salaried & Non Professionals Whose CIBIL Score is Zero and Less
|Loan Quantum (In INR)||Salaried & Professionals||Non-Salaried & Non Professionals|
|Upto 50 Lakh||7.40%||7.50%|
ICICI Bank also sets the home loan rate based on the CIBIL score. So, if you have got a score of 750 and above, the interest rate will be lower than someone having a score of less than 700. And, if you are new to credit score, the rate will be even higher. Check out the tables below to know the same.
|Loan Amount (In INR)||CIBIL Score >750||CIBIL Score 701-749||CIBIL Score<=700||NTC|
|Upto 35 Lakh||6.75%||7.00%||7.10%||7.15%|
|Above 35 Lakh-75 Lakh||7.00%||7.10%||7.25%||7.30%|
|Above 75 lakh||7.10%||7.20%||7.35%||7.40%|
|Loan Amount (In INR)||CIBIL Score >750||CIBIL Score<=701-749||CIBIL Score<=700||NTC|
|Upto 35 Lakh||6.90%||7.15%||7.25%||7.30%|
|Above 35 Lakh-75 Lakh||7.15%||7.25%||7.40%||7.45%|
|Above 75 lakh||7.25%||7.35%||7.50%||7.55%|
Bank of Baroda
Bank of Baroda (BoB) is perhaps the only lender that only checks the credit score before setting home loan interest rates of borrowers. If you have a CIBIL score of 775 and above, you will get the lowest rate from the bank. Check out the table below to know the rates it offers based on your CIBIL score.
|CIBIL Score||Interest rate|
|775 and above||6.75%|
|726 and above but less than 775||7.10%|
|701 and above but less than 726||7.35%|
|650 and Above but less than 701||8.35%|
Note: BoB will charge a risk Premium of 0.05% as per extant guidelines for customers not obtaining credit insurance cover.
PNB Housing Finance
PNB Housing Finance has recently started setting home loan interest rates based on the credit score of an applicant. Check out the table below to know the credit score-based rates of this housing finance company.
|Credit Score (Irrespective of Loan Amounts)||Normal Home Loans||“UNNATI” Home Loans|
|Salaried/Self-employed Professionals||Self-employed||Salaried/Self-employed Professionals||Self-employed|
Home Loans/NRPL under Unnati Program
|Less Than Zero||8.65%-8.80%||8.95%-9.05%||10.75%||12.00%|
|>650 to <700||8.35%-8.55%||8.60%-8.80%|
|>700 to <750||7.99%-8.10%||8.35%-8.55%|
|>750 to <800||7.80%-7.99%||8.30%-8.45%|
- Cases approved under Banking, LIP and Rental Income Program will be charged 0.50% higher rates above the existing grid (except Unnati cases).
- Plot Purchase (not classified as Plot Purchase + Construction) will be charged 1% higher rates above the existing “Home Loan” grid.
- Home Improvement Loan up to 25% of the IHL sanction amount will be priced at “Home Loan” card rates.
- Stand-alone Home improvement loans up to INR 25 Lakh will be at “Home Loan” card rates.
- Home Extension (HEL) will be at Home Loan Rates of interest.
- Top-up Loans will be priced as per the card rates of “Non-Home Loan”.
Fixed Rate Home Loan
Home loans are usually provided on a floating rate basis, which means the rate of interest will keep changing with the changes in market rates. When the rate comes down, the interest payment will reduce, and the other way round when the rate goes up. The fluctuation of rates, which is so common with a floating rate, makes some nervous. But there’s a way by which you can take the fluctuation out of the equation. Yes, you can apply for a fixed rate home loan and don’t see any change in the interest rate throughout the tenure. But is it good to apply for? No! The fixed rate loan will be around 3%-4% higher than the floating rate loan. So, even as the floating rate loan will have rate fluctuations, the overall outgo from it will most likely be much lower than a fixed rate loan.