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Everything You Should Know About Home Loan Interest Rates

To choose the finest bank for a home loan, you must first understand what each bank has to offer, which includes the interest rate charged to borrowers, processing costs, and taxes. The interest rate is what makes the difference, even though the processing fee and taxes are generally the same.

One of the most important considerations when applying for a house loan is the accuracy of the loan amount. This is because knowing exactly how much you require is critical. And once you’ve decided on the loan amount, you’ll need to figure out how much interest you’ll have to pay. It can be tough to complete all of this with precision, but you don’t have to worry because a Home Loan EMI Calculator can assist you with this.

Types of home loan interest rates

Fixed-Rate of Interest:

The interest charged on your house loan at a fixed rate of interest remains consistent during the loan term, ensuring that your home loan EMI remains constant throughout the repayment schedule. The benefit of choosing a fixed rate of interest for your house loan is that you may arrange your money accordingly because your home loan EMI will be debited in a specific amount every month. The disadvantage of doing so is that when market rates are low, you will be forced to pay a higher interest rate.

Floating Rate of Interest:

The interest rate on a house loan with a floating rate of interest is not fixed and can fluctuate depending on market conditions. The floating rate’s interest rate is determined by external benchmarks. As a result, the floating interest rate fluctuates in response to these circumstances. Your home loan EMI may increase or decrease based on the above-mentioned circumstances because the interest rate is not fixed. When the market is down, however, choosing a floating rate of interest is advantageous. If the rate rises, though, you will have to pay a higher EMI on your house loan.

Repo Rate

The Repo rate is another important aspect in determining your home loan interest rate. The Reserve Bank of India (RBI) has decided that interest rates on house loans given by banks would now be tied to an external benchmark. This requires all commercial banks, with the exception of regional rural banks, to connect interest rates on all retail loans, including home loans, to an external benchmark rate.

Following the RBI’s decision, most banks have chosen the repo rate of the RBI as their external benchmark. As a result, all floating rate loans are still tied to the RBI’s repo rate. RLLR is the interest rate that is related to the repo rate. The repo rate and the bank’s margin have a direct impact on the RLLR. Banks, on the other hand, are still allowed to charge margin and risk premiums over the external benchmark rate. The bank’s margin or spread is the same for everyone, but the risk premium differs from borrower to borrower based on the risk factor and whether or not they meet the eligibility criteria.

How does the RLLR home loan work?

  • You could be perplexed by all of the preceding statements, so let us simplify things for you: Banks must borrow money from the RBI in order to lend you money. The repo rate is used when banks borrow funds from the RBI.
  • Banks lend you money at a lesser rate when the RBI lowers the repo rate.
  • For RLLR-based lending, such as home loans, the repo rate will increase or decrease the interest rate.

Home loan EMI calculator

A home loan EMI calculator, as the name implies, helps you figure out how much your home loan will cost, including the interest you’ll have to pay. The calculator will also tell you what your anticipated EMI for your home loan will be. Home loans are long-term loans that might last for decades, and using a Home Loan EMI Calculator will help you figure out how much you’ll have to pay back on your loan. This aids you in planning your budget and determining your affordability.

An EMI calculator for a home loan can also assist you in comparing different home loan plans offered by different lenders. The calculator also allows you to alter your repayment time to fit your budget. So, if you’re unhappy with your loan offer, you can modify the loan size, interest rate, tenure, and even your home loan provider to find one that’s right for you.

  • Manually performing complex calculations can be time-consuming; instead, use an online home loan EMI calculator to save time.
  • It provides you with an accurate estimate, allowing you to better organize your budget.
  • The online EMI calculator is available for free and can be used continuously.

EMI calculation formula

home loan emi calculator formula

Here P stands for the principal amount. R is the rate of interest every month and N denotes the tenure of the home loan.

One crucial aspect to remember about your house loan repayment is that the monthly payment amount remains constant, but you will need to pay less interest and more principal over time.

Factors affecting home loan EMI are:

  • Principal Amount
  • Interest Rate
  • Loan tenure
  • Processing Fee
  • Prepayments

Benefits of using a home loan EMI calculator

Easy to use: 

The home loan EMI calculator is simple to use; all you have to do is enter the loan amount, interest rate, and repayment duration to get your anticipated EMI, total payable interest, and total cost of borrowing. You don’t have to do any difficult math to get an accurate result.

Compare different loan offers:

You may use the home loan calculator to compare different loan offers from different institutions. This is simple since you can enter the loan information and offerings of each bank to see which is the greatest fit for you.

Get the breakups:

The home loan calculator not only calculates your home loan but also breaks down the expenditures associated. So, if you meet any hidden charges while applying for a house loan. You may ask your lender directly about it because you know the breakdowns of the full cost involved.

Plan Pre-Payment:

You can use the house loan EMI calculator to prepare for a pre-payment or part payment whenever you have sufficient finances when paying your house loan EMIs. In this scenario, using an EMI calculator will allow you to see the variation in your EMI before and after the prepayment. Allowing you to quickly decide whether to prepay or not. And, more importantly, how effective it will be.

Choosing the right tenure:

As we all know, the EMI for any loan is directly proportional to the interest rate and the length of the loan. Using a house loan EMI calculator will also help you figure out your projected EMI. So you can change your loan term to fit your budget.

Helps to plan finance:

An EMI calculator can help you figure out how much your monthly EMIs would be for your house loan. As a result, keeping your EMI amount in mind might help you plan your budget. You can also control your other financial responsibilities, such as loans and investments, in this manner.

Conclusion

Check the repo rate and interest rate offered by several banks before applying for a house loan. To figure out how much you owe on your house, use the home loan calculator. To make it easy for you, use the Home Loan EMI Calculator.

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