How to Calculate the Interest Rate on Home Loans?-Banner_WC

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The interest rate on a Home Loan is the percentage charged on the principal amount borrowed, representing the cost of borrowing. This rate affects the EMI (Equated Monthly Instalment), with higher rates leading to higher EMIs. The interest rate is an important factor in determining the overall cost of the loan.

Bajaj Housing Finance offers Home Loan interest rates starting from 8.50%* p.a. for eligible salaried applicants. You can also make use of our Home Loan EMI Calculator to get an accurate idea of the total cost of borrowing. ​

The important thing to note about the interest rate for a Home Loan 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.

Home Loan interest rate determines the EMI payments you will need to make and what will be your total cost of borrowing the housing loan.

There are two ways you can calculate the interest you will likely pay on your Home Loan:

1. Interest Rate Calculation Formula: This calculation is based on the textbook interest rate formula. You can use this simple formula to calculate Home Loan interest:

Interest = (Principal Amount x Rate of Interest x Time)/100.

Let's say you borrowed Rs.3,00,000 for a Home Loan with an annual interest rate of 8.50%* for a period of 20 years. To manually calculate the interest on your Home Loan, you would use the formula as follows:

Interest = (3,00,000 x 8.5 x 20)/100

= 5,10,00,000/100

= 5,10,000

So, the total interest payable on your Home Loan over a period of 20 years would be Rs.510,000. By using this formula, you can calculate the interest on your Home Loan manually and get a clear idea of how much you'll be paying in interest over the loan term.
2. Online Home Loan Interest Calculation: With the easy availability of online tools such as the housing loan EMI calculator, your interest calculations can be made simpler. Here’s how:

• Use calculator slider to select your desired loan amount
• Use the next slider to select your ideal repayment tenor
• Use the last calculator slider to select the current interest rate

The calculator then displays your 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 housing loan interest may cost you at the end of your repayment tenor.

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 8.50%* Rs.1,73,565 Rs.2,16,55,515 Rs.4,16,55,515
Rs. 3,00,00,000 20 years 8.50%* Rs.2,60,347 Rs.3,24,83,273 Rs.6,24,83,273

Before you complete your Home Loan application process, there are some tips you can employ to boost your chances of getting a competitive interest rate.

• Borrow a loan amount that you can repay comfortably
• Apply with a financial co-applicant to enhance your loan application

*Terms and conditions apply.

Low interest rates allow people to borrow from lenders with more comfort. This significantly boosts the supply of funds in the economy and the demand. Eventually, prices of commodities rise and cause inflation. To balance this out, RBI increases the interest rates to curb the fund supply. A high inflation rate tends to increase the interest rates on Home Loans, consequently increasing the EMI. Hence, interest rate and inflation are inversely related. Inflation plays a significant role in the interest rate of Home Loans.

A down payment is the amount a borrower pays upfront while buying a property and is typically sourced from their personal finances or savings, and not a Home Loan. A large down payment potentially reduces the amount you owe to the lender, the interest rate, and EMIs. The borrower’s ability to put down a sizeable down payment offers lenders a sense of security. A larger down payment can position you as a less risky borrower. It also decreases the loan amount, which eventually reduces the interest rate. Hence, if you can afford a large down payment, it can help you in the long term by lowering the interest rate component.

Your credit score is a number ranging from 300 to 900, which is an indicator of your creditworthiness. The higher your credit score, the better your chances of securing a loan with beneficial terms. One’s credit score is based on their credit history, number of open accounts, dues, defaulted payments, debt, etc. All these factors make up your credit score and can significantly impact your financial standing. A ​good credit score can help reduce your interest rate.

​​The interest rate on ​Home L​oans can be calculated using the​ formula: Interest = Principal x Rate x Tenor​/100, or you can simply use the Bajaj Housing Finance EMI Home Loan Calculator to get the interest amount.​ ​

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