Home Loan Interest Rate 2021

Salaried floating reference rate: 12.90%*

Interest rates for self-employed applicants

Self-employed floating reference rate: 13.30%*

Bajaj Finserv home loans come with attractive interest rates starting at 6.65%**. The attractive structure of fees and charges allows you to repay comfortably and lower your EMIs to Rs. 642/Lakh*. By meeting our simple eligibility parameters and with minimal documentation, you can get ample funds to buy, construct, or renovate your home.

Use our online home loan EMI calculator to plan your repayment with ease. You can select a tenor of up to 30 years and an interest rate starting at 6.65%** to determine the EMIs that suit you.

You can also choose to transfer your existing home loan to us by following a simple process. Our home loan balance transfer facility comes with an array of features including competitive interest rates and a high-value top-up loan. What’s more, it comes with nil part-prepayment and foreclosure charges.

Apply online now for a home loan and get a step closer to fulfilling your dream of owning your house.

There are two types of home loan interest rates. Read on to get a detailed insight into both.

a. Fixed rate of interest

A fixed home loan interest rate remains constant for the entire loan tenor. It allows you to estimate the total repayment liability and interest outgo at the beginning of the loan tenor. Availing of a home loan at a fixed rate of interest helps in planning repayment and managing finances efficiently.

A fixed lending rate on home loans is suitable during times when there is a possibility of an increase in interest rate in the future. However, a fixed rate of interest may not be suitable under circumstances that predict a decreasing trend in interest rates.

b. Floating rate of interest

Unlike fixed rates, floating home loan interest rates are variable and change over the loan tenor. Based on the benchmark rate linked to housing finance, the floating interest rate on home loans increases or reduces.

You can opt for a floating interest rate on home loans when the market changes indicate a trend of falling rates. A floating rate of interest, however, may not be suitable during high market volatility as the risk of rising rates exists and can result in increased interest accumulation over time.

Remember, fixed rates are usually 1–2.5% higher than floating interest rates. However, you can also switch from fixed to floating interest rate and vice versa during the loan tenor based on your requirements.

There are three different methods that you can use to calculate your home loan interest rate. Here is a step-by-step guide.

1. Using the interest formula

This is a manual process that requires you to use the following formula.
EMI = [P x r x (1+r)^n]/[(1+r)^n-1]

Here, ‘P’ is the principal or loan amount, ‘r’ is the rate of interest on offer and ‘n’ is the tenor of the loan in months.

2. Using Microsoft Excel

A simpler option is to use Microsoft Excel and calculate EMIs using the ‘PMT’ function, which is = PMT(RATE,NPER,PV,FV,TYPE)

Here, ‘RATE’ is the interest rate offered divided by 12, ‘NPER’ is the number of EMIs, and ‘PV’ is the principal amount. Set the value of both ‘FV’ and ‘TYPE’ to 0.

3. Using a home loan EMI calculator

Using an home loan EMI calculator is the simplest option and guarantees error-free results every time. These are the steps to follow.

• Enter the loan amount in the field marked ‘Loan Amount’
• Input the interest rate under ‘Interest Rate’
• Choose a tenor under the ‘Tenor’ field
• Click ‘Calculate’ to get your results

Several factors affect the interest rate on home loans, and it is important for you to learn about them as they impact how easily you can repay the loan. These factors also impact your EMIs as any change in interest rate is directly proportional to a change in the instalment amount you pay.

• Type of interest rate

You can avail of a home loan at any of the three types of interest rates, fixed, floating or mixed. Fixed rates remain constant throughout the loan tenor, and floating rates are affected by policy rate changes introduced by the RBI.

A reduction in the RBI’s key policy or repo rate and market competition pulls down the housing loan interest rate and vice versa. Home loan borrowers can opt for a floating rate during trends of falling market rates. Fixed rates, on the other hand, can be suitable when the lending rates are set to rise in the future.

Mixed rates of interest result in interest levied at a fixed rate at the onset of the home loan tenor and converted to floating rates after a set period.

• Benchmark rate of lending

Benchmark lending rates can either be Marginal Cost of Funds based Lending Rate (MCLR) or Repo-Linked Lending Rate (RLLR). Financial institutions decide a reset period for MCLR for durations of 3 months, 6 months, 1 year, or 2 years across the home loan tenor and levy interest rates accordingly. RLLR is directly linked to the RBI’s repo rate and bears a quick adjustment with every change in the policy rates.

The RBI has decided to phase out MCLR-based lending over time to introduce a more transparent and repo rate-receptive RLLR to offer affordability to customers and improve the overall financial system.

• LTV or Loan-to-Value ratio

LTV is the maximum loan amount a lender extends to home loan applicants as a percentage of the property’s current market value. A high LTV, while bringing suitable financing value, also translates to a higher loan amount and increased risk of lending. This results in an increased interest rate. Borrowers can increase their down payment amount to reduce the total loan amount for an affordable housing loan interest rate.

• Property’s location and condition

The location of a property, its current condition, and amenities available determine its resale value. The age of a property also commands its resale prospects. A high resale value means a lucrative opportunity for financial institutions, incentivising them to offer lower interest rates to borrowers and vice versa.

• Repayment tenor

The repayment duration of home loans is directly linked to the risk of lending for financial institutions and the time value for the money extended as advance. A borrower’s housing loan interest rate is thus set to be higher for a longer tenor and lower for a shorter period of repayment.

Home loan EMIs are inversely related to the repayment term, making instalments dearer for a short tenor, but keeping interest accumulation in check. On the other hand, a long tenor results in easy and affordable EMIs, but higher interest accumulation.

• Applicant’s financial profile

The financial profile of an applicant also indicates the margin of risk a financial institution undertakes when lending. Salaried borrowers with a suitable job at a reputed organisation or self-employed individuals with stable income and a high credit score attract competitive interest rates as the risk involved is limited. Such applicants can also negotiate for an affordable interest rate to make repayment more convenient. Interest rates are usually higher for applicants with unstable income or job or a lower credit score as they pose a higher risk.

Make sure to consider all these factors before applying for a home loan to secure the best interest rate.

To repay affordably over the tenor of your home loan, you can put certain strategies into action. These will help you lower your interest rate or help you reduce your overall interest payment.

• Select a short tenor for repayment

A shorter tenor keeps your interest accumulation in check as the interest rate is levied for a fewer number of years. In addition, a shorter repayment timeline helps you get a more affordable interest rate from the lender.

• Opt for a balance transfer facility

A home loan balance transfer facility allows you to switch your loan to a financial institution offering a reduced home loan interest rate. This is the easiest way to get a lower rate, but ensure you do a cost-benefit analysis before going ahead and this does include some fees and charges.

The home loan refinancing facility from Bajaj Finserv also comes with high-value top-up loan that you can use without restrictions.

• Request annual EMI revisions

You can also opt for annual EMI revisions with each increase in income or a salary hike as higher EMIs mean quick reduction of the outstanding loan liability. Early repayment of the principal also cuts down the loan tenor and helps reduce the total interest accumulation. You can ideally increase your EMIs by 5% with every 10% increment in income.

• Prepay with surplus funds available

Prepayment is another useful facility to utilise for an overall reduction in your interest burden. Part-prepay your home loan at any time before the tenor ends with the amount you have available, be it as a salary bonus or returns on investment. Part-prepaying helps reduce the outstanding loan principal and limits the overall interest accumulation.

You can also choose to foreclose the loan altogether to cut down on any new interest accumulation on the outstanding principal. Bajaj Finserv extends part and full prepayment facilities on floating rate home loans at nil charges to increase your affordability.

Other ways to limit the interest outgo include making a higher down payment when borrowing, negotiating the rate with the lender, and documenting all sources of income to secure a competitive home loan interest rate.

*Conditions apply