How Home Loan Interest Rates Work: Key Insights for Borrowers

Learn what the interest rate on home loans means, the factors influencing it, and how to secure the best rate.
Home Loan
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2 min
18 December 2024
When planning to buy a home, understanding the interest rate on home loans is key. Simply put, the interest rate is the cost you pay to borrow money. It is expressed as a percentage of the loan amount and calculated on a monthly or annual basis. A lower interest rate means you pay less over time, making your loan more affordable.

Types of interest rates on home loans

Home loan interest rates are generally of two types:

  • Fixed interest rate: The interest rate remains the same throughout the loan tenure. You can predict and plan your EMIs easily. Ideal for borrowers who want stability and avoid market fluctuations.
  • Floating interest rate: The rate varies based on changes in the market or central bank policies. It can be lower than fixed rates at times, offering potential savings. Best suited for those comfortable with market-driven fluctuations.

How is the interest rate determined?

Several factors influence the interest rate on home loans:

  • Credit score: Lenders assess your creditworthiness through your credit score. A high score, typically above 750, often secures a lower interest rate.
  • Loan amount: The amount you borrow can affect the rate. Larger loans might come with slightly higher rates, depending on the lender’s policy.
  • Loan tenure: A longer repayment period may result in higher interest rates, although it reduces the EMI.
  • Employment and income: Steady employment and a good income profile can help you qualify for better rates.
  • Repo rate: Changes in the Reserve Bank of India’s (RBI) repo rate directly affect home loan interest rates.

Current home loan interest rates in India

Home loan interest rates in India typically start between 8.50% to 9.50% per annum. However, these rates can vary depending on your chosen lender, loan amount, and personal profile. For example, Bajaj Housing Finance offers affordable home loan interest rates starting from 8.25%* p.a, with EMIs as low as Rs. 741/lakh*, owning your dream home becomes easier.

How to secure the best interest rate on home loans?

If you are searching for the best interest rate, follow these steps:

  • Maintain a good credit score: Regularly check your score and take steps to improve it. Pay your dues on time and reduce your credit card usage.
  • Compare lenders: Do not settle for the first offer. Compare multiple lenders to find the best deal. Online comparison tools make this easy.
  • Negotiate with lenders: If you have a strong financial profile, use it to negotiate a lower rate.
  • Opt for a shorter tenure: Although shorter tenures mean higher EMIs, they usually come with lower interest rates.
  • Consider prepayment: Making partial prepayments reduces the principal, helping you save on interest.

Benefits of choosing a home loan with low interest rates

Choosing a home loan with a low interest rate has several advantages:

  • Affordable EMIs: Lower rates reduce your monthly outflow, freeing up your budget.
  • Faster loan repayment: You can pay off your loan quicker without straining your finances.
  • Reduced total cost: A lower rate means you save a significant amount over the entire loan tenure.

Why Bajaj Housing Finance for your home loan?

If you are planning to take a home loan, consider Bajaj Housing Finance. With flexible repayment options and low interest rates, you can make your dream home a reality while managing your finances smartly.

Here are a few key benefits of choosing Bajaj Housing Finance Home Loan:

1. High loan amount: Secure funding up to Rs. 15 crore* to turn your dream home into reality.

2. Low interest rates: Enjoy interest rates starting 8.25%* p.a, and EMIs as low as Rs. 741/lakh*.

3. Quick approval: Get approved within 48 Hours* of applying – sometimes even sooner.

4. Flexible repayment tenure: Choose a repayment term of up to 32 years for comfortable EMIs.

5. Simple application: Take advantage of doorstep document collection for a smooth process.

6. Balance transfer facility: Move your existing home loan and get a top-up loan with better terms.

Take the next step toward owning your dream home with Bajaj Housing Finance Home Loan and enjoy a seamless borrowing experience tailored to your needs.

Frequently asked questions

Can I get a home loan with zero interest?
No, home loans with zero interest are not available. However, some lenders offer special schemes with low-interest rates or subsidized rates for specific categories, like affordable housing or government-backed programs. Always check the terms and conditions for clarity.

Is the home loan interest rate the same for all borrowers?
No, home loan interest rates vary based on factors like credit score, income stability, loan amount, and employment type. Lenders assess each borrower’s profile individually to determine the applicable rate. A strong financial profile often leads to lower rates.

Can I reduce my home loan interest rate after approval?
Yes, you can reduce your home loan interest rate post-approval by opting for a balance transfer to another lender offering lower rates or negotiating with your current lender for a rate revision, often subject to fees.

Can I get a home loan with a co-applicant?
Yes, you can apply for a home loan with a co-applicant, such as a spouse or family member. Co-applicants can improve loan eligibility and repayment capacity, often leading to better loan terms or higher loan amounts.

Can I change my home loan interest rate after signing the agreement?
Yes, you can change the interest rate type (e.g., from fixed to floating or vice versa) after signing, but it depends on lender policies. Charges may apply. A loan transfer to another lender is another option for securing lower rates.

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