How to Calculate the Interest Payable on Your Home Loan

The interest rate on a Home Loan is the percentage charged by the lender on the borrowed principal amount and represents the cost of borrowing. This rate directly influences the Equated Monthly Instalment (EMI), with higher interest rates generally resulting in higher EMIs. It is also a key factor in determining the total repayment amount over the loan tenure.

Bajaj Housing Finance offers Home Loans starting from 7.25%* p.a. for eligible salaried applicants. You can use the Home Loan EMI Calculator to estimate your monthly instalments and evaluate the overall borrowing cost.

One important aspect to understand is that Home Loans are typically based on compound interest rather than simple interest. This means interest is calculated not only on the principal amount but also on the accumulated interest over time. As a result, the applicable housing loan interest rate has a direct impact on both your EMI amount and the total cost of the loan.

When exploring home financing, one of the most important decisions is choosing the type of interest rate. Broadly, there are two options—fixed interest rate and floating interest rate. A floating interest rate changes over time depending on market conditions and benchmark rates such as the Repo Rate. If rates fall, your payable interest reduces, making EMIs lighter.

A fixed interest rate, on the other hand, remains unchanged for a specified period or until a reset date. This means your EMI stays constant during that time, regardless of fluctuations in the market. The biggest benefit here is predictability—you know exactly how much you will be paying every month, which makes financial planning simpler.

Ultimately, choosing between fixed and floating interest rates depends on your financial outlook. If you value stability and prefer consistent EMIs, fixed rates may be the right fit. If you’re comfortable with some fluctuation and want the potential to save when rates fall, floating rates could serve you better.

You can calculate the total interest amount payable with the following formula:

EMI = P x R x (1+R)^N / [(1+R)^N-1]

Where,
P is the principal loan amount
N is loan tenure in months
R id the monthly interest rate

The rate of interest (R) is calculated per month:

R = Annual rate of interest/12/100

If the rate of interest is 8.5% p.a., then:

R = 8.5/12/100 = 0.00708

For example, if you avail of Rs.15,00,000 at an annual interest rate of 8.5% for a tenure of 180 months (15 years), then your EMI will be calculated as follows:

EMI = 15,00,000 x 0.00708 x (1+0.00708)^180 / [(1+0.00708)^180-1] = Rs.14,771

The total payable amount will be:
Rs.14,771 x 180 = Rs.26,58,797

The principal amount is Rs.15,00,000 and the total payable amount is Rs.26,58,797. That means the total interest payable is:

Rs.26,58,797 - Rs.15,00,000 = Rs.11,58,797

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 is how:

1. Enter the required loan amount.


2. Enter or select the tenure.


3. Enter the applicable rate of interest rate.

The calculator then displays the EMI amount, total payable amount, and the total interest payable along with the principal and interest break-up. Through these calculations, you will be able to realistically assess the feasibility of the loan.

Home Loan repayment follows an amortisation structure, where each EMI consists of two components — principal repayment and interest payment. At the beginning of the loan tenure, a larger portion of the EMI goes toward interest, while a smaller portion reduces the principal.

As the outstanding principal gradually decreases over time, the interest charged also reduces. This causes the principal component in the EMI to increase progressively during the later years of the loan tenure. Using our Home Loan EMI Calculator, you can view the amortisation schedule to understand how your EMI payments are distributed between principal and interest throughout the loan tenure.

Home Loan interest rates are categorised as:

Fixed Interest Rate

Under a fixed interest rate, the rate remains unchanged for a predefined period until reset by the lender. Since the interest rate stays constant, the EMI amount and amortisation schedule remain predictable from the beginning of the loan.

Floating Interest Rate

A floating interest rate is linked to an external benchmark, typically the repo rate. As the benchmark rate changes, the applicable Home Loan interest rate may also increase or decrease accordingly. This means the EMI amount or loan tenure may change during the repayment period, depending on market conditions.

The interest rate applicable to your Home Loan can be influenced by several factors, including the following:

Credit Score
Your credit score plays an important role in determining your creditworthiness and repayment capability. It is calculated based on factors such as repayment history, existing debts, credit utilisation, and overall financial behaviour. A higher credit score may improve your chances of loan approval and help you secure a more favourable interest rate.

Employment Profile
Your employment profile is another key factor considered by lenders. This includes your occupation type, income, employer or business stability, and overall repayment capacity.

Market Conditions
Home Loan interest rates are also affected by broader economic and market conditions. During favourable economic conditions, interest rates may remain stable or relatively low. 

Before completing your Home Loan application, there are a few measures you can take to improve your chances of securing a competitive interest rate:

Improve Your Credit Score

Maintaining a healthy credit score can strengthen your credit profile and demonstrate responsible repayment behaviour to lenders. Paying EMIs and credit card bills on time, reducing outstanding debt, and maintaining a balanced credit utilisation ratio may help improve your score and increase the likelihood of receiving favourable interest rates.

Opt for a Home Loan Balance Transfer

If you already have an existing Home Loan with another lender, transferring the outstanding balance to a lender offering lower interest rates may help reduce your overall borrowing cost. A Home Loan Balance Transfer may also provide access to better repayment terms or additional loan features, depending on eligibility.

*Terms and conditions apply.