How to Calculate the Interest Rate on Home Loans?-Banner_WC
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One of the most fundamental parts of any loan transaction, the interest rate is a percentage of the principal loan amount that the lender charges the borrower as an additional charge for borrowing funds.
The Bajaj Housing Finance Home Loan starts from 8.60%* p.a. for eligible salaried and professional applicants, which means that we charge 8.60%* of your principal loan amount, compounded monthly.
The important thing to note for Home Loan interest rate is that it is compounded interest and not simple interest. In other words, you don’t pay interest only on the principal amount, but you pay interest on the principal amount plus the interest accrued.
With compound interest, it is imperative to note the compounding frequency. For instance, Home Loan interest rate is compounded monthly, which means the interest payable is for the principal amount as well as the interest accumulated monthly.
To summarise, your Home Loan interest rate determines the EMI payments you will need to make and how expensive your entire Housing Loan may be.
While the interest rate you get on your Home Loan is unique to you, there will always be a going rate based on which market lenders sanction Home Loans to borrowers during the period. Here are some factors that impact your final Home Loan interest rate:
- The External Benchmark: Bajaj Housing Finance offers borrowers the option to link their Home Loan interest rate to an external benchmark, such as the RBI repo rate, currently at 6.25%*. It lends a degree of transparency to borrowers, letting them gauge the factors that impact their cost of borrowing.
- The Internal Benchmark: Borrowers also have the option to borrow Home Loans with a floating interest rate linked to our internal benchmark, the BHFL FRR. When there is a change in this rate, it directly impacts your Home Loan interest rate.
- The Spread: This is the additional margin that a lender adds to either benchmark rate to calculate your final Home Loan interest rate. While the benchmark rate is fixed at an institution level for a loan category, the spread is determined based on the individual’s profile, considering the risk factors attached to your Home Loan application.
There are two ways you can calculate the interest you will likely pay on your Home Loan:
- Manual Home Loan Interest Calculation: This calculation is based on the textbook interest rate formula. This mode is more prone to errors, thanks to how complex the calculations may get.
- Online Home Loan Interest Calculation: With the easy availability of online tools such as the Housing Loan EMI Calculator, your Home Loan interest calculations can be made simpler. Here’s how:
- Use calculator slider to select your desired Home Loan amount
- Use the next slider to select your ideal Home Loan repayment tenor
- Use the last calculator slider to select the current Home Loan interest rate
The calculator then displays your Home Loan EMI calculation, your total repayment amount, and the principal and interest break-up. Through these calculations, you will be able to realistically assess how much the Home Loan interest may cost you at the end of your repayment tenor.
Here is a ready table for your reference:
|Home Loan Amount (Principal Amount)||Tenor||Interest Rate||Home Loan EMI||Total Interest Payable||Total Repayment Amount (Principal + Interest)|
|Rs. 2,00,00,000||20 years||10%||Rs.1,93,004||Rs.2,63,21,233||Rs.4,63,21,233|
|Rs. 3,00,00,000||20 years||11%||Rs.3,09,657||Rs.4,43,17,230||Rs.7,43,17,230|
Before you complete your Home Loan application process, there are some tips you can employ to boost your chances of getting a competitive Home Loan interest rate.
- Enhance your Credit Score
- Borrow a Home Loan amount that you can repay comfortably
- Apply with a co-applicant to pad up your Home Loan application
*Terms and conditions apply
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