Housing loan is a type of credit facility that is extended to the borrower for the purchase, renovation, construction or extension of a house. It is the most useful product offered by various financial institutions to fulfill the housing needs of individuals who aspire to live in their own house. Individuals, who take up the loan, repay the principal amount along with the interest charged on it. Interest is a certain percentage of principal that the lender charges from a borrower. The housing loan is generally taken for a period of 20-30 years. In the said time frame, lenders can take out a massive chunk of the payment from your pocket if the interest rate is steep. Higher the interest rate, more will the money go out of your pocket and vice-versa. In the existing scenario, the interest rates range from 8.60%-9.50% p.a. across many public sector banks in India.

Types of Housing Loan Interest Rates

  • Fixed Rates
  • Floating Rates

In the case of fixed rates, the rate of interest remains the same throughout the tenure of a home loan. While the interest rates are in for a constant change with a floating rate mechanism in place. Based upon the time-to- time changes in lending rates induced by the market conditions, the rate of interest undergoes a change. Normally, housing loans are offered on floating rates to the borrowers.

Housing Loan Interest Rates

Depending upon the setting of the interest rate by a lender, the amount of Equated Monthly Installments (EMIs) payable from your pocket will be determined. The EMIs form a portion of both interest and principal amount that accrue on a loan.

Marginal Cost of Funds Based Lending Rates ( MCLR)

The Reserve Bank of India (RBI) had slashed repo rate, the rate at which the central bank lends to commercial banks, by 125 basis points (bps) from Jan 2015 to March 2016. But banks cut their lending rates by only 50-60 bps, accounting for not even half of the repo rate cut by the RBI.

To ensure effective transmission of rate cuts to the borrowers by the banks in the form of lower lending rates, the RBI came up with a methodology, namely Marginal Cost of Lending Rate (MCLR), in place of base rate regime for floating rate housing loans disbursed on or after 1 st April, 2016. However, base rate still applies on loans before the said date. Those who are under the base rate can also be benefitted from lower interest rates by switching to MCLR. However, there is no provision of shifting back to base rate once the switch to MCLR is done.

Banks calculate the MCLR based on the marginal cost of funds that indicate the interest rate at which they borrow. Other factors that determine the MCLR include return on equity, operating costs, tenor premium and cash reserve ratio (CRR), a cost that banks have to bear while keeping the cash reserves with the RBI. Lenders can finance housing loan at either MCLR or add a mark-up to it. They are mandated to publish MCLR each month subsequent to its review on a quarterly basis. Moreover, the lenders are required to mention the dates on which the resetting of interest rate has taken place. You can avail a loan with reset rates linked to the date of either MCLR review or sanction. The interest rate chargeable to a borrower will continue to apply till the next rate reset date.

Components of MCLR at a Glance

  • Operating Expense- It tells the amount of expenses incurred by the banks to carry out the day-to- day operation.
  • Cash Reserve Ratio (CRR)- The CRR indicates the cost that banks have to pay while maintaining the reserves with the RBI. Banks do not earn any interest on the reserves parked with the RBI. The cost of maintaining these idle funds are usually passed on to the loans for the end consumers.
  • Tenure Premium- It arises in the case of loans with longer tenures.
  • Marginal Cost of Funds- It includes the marginal cost of borrowing as well as the

return on net worth. Based on the points mentioned below, the calculation of the marginal cost of funds is done.

(a) Interest rate offered by banks on deposits like savings, foreign currency, term deposit, etc.

(b) While borrowing from the RBI, banks incur a cost of 'Repo Rate', often called as a short-term interest rate. Moreover, the long-term borrowing rate also adds to the calculation of marginal cost of banks.

(c) Return on net worth- in compliance with the capital adequacy norms

The marginal cost of borrowings must account for a weightage of 92% of the marginal cost of funds, with return on net worth having the remaining 8%.

Factors Determining Housing Loan Interest Rates

The housing loan interest rates are greatly influenced by a host of factors such as income, loan amount, tenure, credit score, to name a few. Below are the factors that you should look before negotiating with the lender for a better interest rate.

Income- The setting of interest rates, to a larger extent, is contingent upon the income of the borrower. Banks keep their eyes firmly on the salary drawn by the working class or the revenue generated by self-employed to fix the interest rate on a housing loan. Other factors that play their parts are the industry in which you work and the employer's name. If you have an income that can easily bear the pressure of EMIs, then you can bargain for a better interest rate on your housing loan.

Loan Amount- The quantum of finance also plays a vital role in the setting of interest rates. The scope for lower interest rates is more in the case of higher loan amount compared to lesser one. When the loan amount is higher, invariably the interest rates get lowered by the lenders.

Loan Tenure- The term chosen by the borrower also impacts the interest rate. The longer loan tenure more often than not lowers the interest rate. You need to check with the bank as to whether the longer tenure is bringing down the interest rate or not. If it is the case, then go ahead. Else shop for a lower rate at other lenders.

Loan Type- The rates are subject to change based upon the type of housing loans you are availing. Housing purchase loans can be offered at a lower interest rate compared to home improvement loans.

Type of Interest Rate- Floating rates are generally cheaper than the fixed rates.

Profession- The interest rate for salaried and self-employed can show variation based on the level of risks involved in the said professions.

Property Location- If the property, you want to purchase, is located in a mainstream area and bought from a reputed developer, chances are high that the interest rate can get lowered in your case.

Credit Score- Last but not the least, it's the boss credit score that will dictate the interest rates offered by the lenders on a loan. Doesn't matter how higher the income you have if the credit score is low, the interest rate could go up substantially.

Housing Loan Interest Rates of All Banks

Banks Interest Rate
State Bank of India (SBI) 8.60% (For Women)
8.70%(For Others)
Punjab National Bank (PNB) 8.45%-8.95%
Bank of Baroda (BoB) 9.05% - 9.55%
Bank of India (BOI) 9.25%
Indian Overseas Bank (IOB) 9.55% - 9.80%
Corporation Bank 9.60% - 9.85%
Syndicate Bank 9.45%
Punjab & Sind Bank 9.55%-9.8%
IDBI Bank 9.30% - 12.30%
Union Bank of India 9.40%-12.65%
United Bank of India 9.55%
Allahabad Bank 9.45% - 11.45%
Andhra Bank 9.50% - 9.70%
Vijaya Bank 9.65%
UCO Bank 9.45%
Canara Bank

9.15% - 9.20%

Oriental Bank of Commerce(OBC) 9.40% - 9.90%
Indian Bank 9.55% - 9.75%
Dena Bank 9.30%-9.55%(floating)
HDFC Bank 8.65%
ICICI Bank 8.65%
Axis Bank 9.15% - 9.35%
Kotak Mahindra Bank Starting from 9.10% onwards
Yes Bank 9.50%-10.75%
IndusInd Bank 9.40% p.a.
South Indian Bank 10.25%-10.75% p.a.

Housing Loan Interest Rate Calculator

The interest rate calculator or so to say EMI calculator will show the monthly installments you need to be ready with for the smooth repayment of a housing loan. In addition, you can get to know the interest payment amount as well as the overall outgo for each year of the loan term. If you know the EMI in advance, you can plan better and have a seamless repayment experience. The EMI is calculated with the help of a formula stated below.
EMI=[P x R x (1+R)^N]/[(1+R)^N-1]
Where, P= Principal Amount
R= Interest Rate
N= Number of Monthly Installments

Suppose you have finalized a property and got a 20-year housing loan of ₹ 25 lakhs at an interest rate of 8.60% p.a. You can look below to find the EMIs, interest outgo and total payment on the said loan.

Table Showing Home Loan EMI, Interest Amount and Total Repayment Amount

Loan Amount (in ₹) Tenure (in Years) Interest Rate (in p.a.) EMI (in ₹) Total Interest (in ₹) Total Payment (in ₹)
25,00,000 1 8.60% 2,18,165 1,17,983 26,17,983
25,00,000 2 8.60% 1,13,754 2,30,086 27,30,086
25,00,000 3 8.60% 79,035 3,45,251 28,45,251
25,00,000 4 8.60% 61,739 4,63,465 29,63,465
25,00,000 5 8.60% 51,412 5,84,714 30,84,714
25,00,000 6 8.60% 44,569 7,08,978 32,08,978
25,00,000 7 8.60% 39,717 8,36,232 33,36,232
25,00,000 8 8.60% 36,109 9,66,448 34,66,448
25,00,000 9 8.60% 33,330 10,99,594 35,99,594
25,00,000 10 8.60% 31,130 12,35,635 37,35,635
25,00,000 11 8.60% 29,352 13,74,529 38,74,529
25,00,000 12 8.60% 27,891 15,16,235 40,16,235
25,00,000 13 8.60% 26,671 16,60,707 41,60,707
25,00,000 14 8.60% 25,642 18,07,894 43,07,894
25,00,000 15 8.60% 24,765 19,57,745 44,57,745
25,00,000 16 8.60% 24,011 21,10,206 46,10,206
25,00,000 17 8.60% 23,359 . 22,65,219 47,65,219
25,00,000 18 8.60% 22,790 24,22,726 49,22,726
25,00,000 19 8.60% 22,292 25,82,666 50,82,666
25,00,000 20 8.60% 21,854 27,44,977 52,44,977

Amortization Calculator

The calculator shows the break-up of principal & interest repayments along with the outstanding balance at the end of each year till the loan term. Take a look at the amortization calculator below to find out the repayment at each year below.

Year Principal (in ₹) Interest (in ₹) Outstanding Balance (in ₹)
1 49,156 213,092 2,450,844
2 53,553 208,695 2,397,291
3 58,345 203,903 2,338,946
4 63,567 198,681 2,275,379
5 69,252 192,996  2,206,127
6 75,449 186,799 2,130,678
7 82,199 180,049 2,048,479
8 89,553 172,695
1,958,926
9 97,566 164,682 1,861,360
10 106,297 155,951 1,755,063
11 115,807 115,807 115,807
12 126,167 136,081 1,513,089
13 137,457 124,791 137,457
14 149,755 112,493 1,225,877
15 163,156 99,092 1,062,721
16 177,752
84,496 884,969
17 193,657 68,591 691,312
18 210,984 51,264 480,328
19 229,861 32,387 250,467
20 250,623 11,822  0