- Which is the best home loan interest rate?
- Let’s check out the factors that help decide you the best rate
As the average home loan amount will most likely be around INR 30-50 lakh given the prevailing property prices, the interest rate needs to be substantially lower so that your homeownership cost remains to the minimum level. In case you choose a home loan interest rate much higher than what’s prevailing in the market, you might end up paying much more. Yes, a difference of even 0.50-1% can bring a massive difference of INR 2 lakh or more in terms of interest payments over the loan term. You may ask, which rate of interest is best for home loans? The best home loan interest rate is the one that not only keeps repayment affordable but also ensures minimum payments from your end. You should know the difference between fixed and floating rates. Plus, you should be clear about the best rate on a home loan balance transfer. Let’s start discussing the best rates on home loans here.
Which Type of Home Loan Interest Rate is the Best One?
Home loans can be given either on a fixed or floating rate. A fixed rate loan will have the same rate of interest throughout the loan tenure, thus eliminating the fear of repayment fluctuation. Hearing this might make you opt for a fixed rate. But you better consider this decision. The reason being the rate of interest will most likely be 2-4% higher than the prevailing floating rate. Yes, a floating rate won’t remain the same throughout the loan tenure. It will change based on the interest rate movement in the market. Despite all these rate changes, the repayment will most likely be much lower in a floating rate loan compared to a fixed rate loan. Let’s consider an example to understand it better.
Example – Ritwik and Satish apply for a 20-year home loan of INR 50 lakh each. The interest rate offered to Ritwik is 8.20% on a floating basis, while Satish has bagged a fixed rate deal of 11%. Let’s see how it will pan out over 20 years.
|EMI||INR 42,446||INR 51,609|
|Interest Outgo||INR 51,87,159||INR 73,86,261|
You could see Ritwik’s interest obligations are lower than that of Satish by INR 21,99,102 (73,86,261-51,87,159). However, the interest outgo of Ritwik will most likely change from what’s shown in the table above. Even then, the outgo will be much lesser than Satish.
But Shall You Apply for Teaser Home Loan Interest Rates?
A teaser home loan interest rate is a mix of both fixed and floating rates. The interest rate remains fixed for some years before it automatically converts into a floating rate. In a rising interest rate scenario, many fall for a teaser home loan rate only to curse later on. Like we have said before, the fixed rate remains higher. Plus, a floating rate home loan will have no change in the EMI for existing borrowers. The change in floating rates will change the interest and principal repayment though. Despite changes in repayment, the floating home loan will most likely have lower interest obligations for borrowers to service.
So What Exactly is the Floating Home Loan Interest Rate Now?
Home loan rates will differ from one lender to another. Recently, floating home loan rates have come down heavily after the Reserve Bank of India (RBI) cut the repo rate by more than 100 basis points so far in 2020. Let’s check out the floating rates of top lenders below.
|Lenders||Interest Rates (In Per Annum)|
|State Bank of India (SBI)||8.05%-8.55%|
|HDFC Limited||8.65% - 9.95%|
|ICICI Bank||8.75% - 9.80%|
|LIC Housing Finance (LIC HFL)||8.65% - 10.25%|
|Bank of Baroda||7.45% - 8.80%|
|PNB Housing Finance (PNBHFL)||8.50% - 10.35%|
How Can You Get the Best Home Loan Interest Rate?
The best home loan rate can be given if the following conditions are met.
- Good Credit Score – Lenders have started pricing home loans based on the credit score of an individual. Those having a good credit score are offered lower rates compared to someone with a poor score or is new to credit.
- High Income – Income decides greatly about the repayment capability of an individual. If you are earning high, your repayment potential will enhance, leading to lower home loan interest rates. A high repayment potential makes lenders believe that you can pay dues on time, which eventually results in lower rates.
- Less to NIL Existing Obligations – Existing loan obligations will also impact the interest rate, but the exact effect will depend on the obligation amount. If the obligation amount is not much and creates enough space for home loan EMI payments, you can get the best interest rate.
- Good Location – Applying for a home loan to buy a property in a good location can result in attractive interest rates. The location holds importance in the case of a home loan. A property in a posh location filled with top-notch amenities makes lenders confident of lending you the home loan amount. This further makes lenders pass on the benefits of lower rates to borrowers.
What can be Called the Best Interest Rate in a Home Loan Transfer?
A balance transfer means the transfer of the outstanding loan from one lender to another at a lower rate of interest. But what will be the best home loan balance transfer rate? The rate offered on a balance transfer should be lower than the existing home loan interest rate by 1-2% to be called the best. But even if the interest rate is lower than the existing rate by at around 0.50-1% per annum, it can bring best results for you. Also, the balance transfer yields you more when you do much before the loan closes. Let’s consider an example to understand the concept of best interest rate in a home loan balance transfer.
Example – You took a home loan of INR 60 lakh for 20 years at 8.65% per annum 3 years ago. Now, a lender comes to you with a balance transfer offer of 7.90% per annum. How will it impact your repayment? Let’s find out!
|Home Loan Aspects||Amount|
|Home Loan EMI @8.65%||INR 52,640|
|Interest Payable Over 20 Years||INR 66,33,700|
|Interest Paid Over 3 Years||INR 15,10,654|
|Outstanding Loan Balance||INR 56,15,599|
|New Home Loan EMI @7.90||INR 50,108|
|Interest Outgo @7.90%||INR 46,06,605|
|Interest Paid @8.65% + Interest Payable @7.90% on a Balance Transfer||INR 61,17,259|
|Savings on a Balance Transfer||INR 5,16,511|
The new lender will charge a balance transfer fee, which will reduce the savings slightly from INR 5,16,511. If you do a balance transfer after paying the EMI for say 15 years, the savings won’t be substantial. So, when you look for a balance transfer, make sure the loan has quite a bit of time left before it gets over.