With the repo rate being hiked to 6.25% on December 7, the rate of interest for housing loans has also undergone some changes. So, if you are planning to take a loan in 2023, you must be familiar with the current home loan interest rate and the factors affecting it. A little sneak-peek into the various rates offered by different lenders in 2023 will help you make an informed decision. Read on to know more.
Current Home Loan Interest Rate
The top banks and financial institutions offer attractive home loan interest rates starting at just 8.60% depending on the type of interest rate chosen and the occupation of the borrower. Here is a look at the current home loan interest rate for the year 2023.
| Parameters | Details |
| Type of Loan | Home loan |
| Type of Interest Rate | Floating |
| Rate for Salaried Borrowers | 8.60% to 14% |
| Rate for Self-Employed Borrowers | 9% to 14% |
The table below shows the current rate of interest on home loan top-up plans.
| Parameters | Details |
| Type of Loan | Top-up loan |
| Type of Interest Rate | Floating |
| Rate for Salaried Borrowers | 9.55% to 15% |
| Rate for Self-Employed Borrowers | 9.75% to 15% |
Type of Home Loan Interest Rates in India
Lenders in India generally offer two types of interest rates on home loans – a fixed rate of interest and a floating rate of interest.
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Fixed Rate of Interest
A fixed home loan interest rate is one where the rate of interest charged on home loans remains the same throughout the repayment tenor. Thus, such loans come with constant EMIs that allow a borrower to plan the repayment in advance.
A fixed rate is ideal when the market rates are expected to rise in the future. However, on the other hand, if the market rate drops, one has to pay a higher interest leading to higher EMI obligations. Based on the loan type, the rate of interest may be fixed for the whole tenor or at least partially as per the policy terms of the lender.
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Floating Rate of Interest
A floating rate of interest, as the name suggests, refers to when the home loan interest rate keeps fluctuating depending on the changes in the market conditions throughout the repayment tenor. In such cases, the rate also varies based on underlying external benchmarks, like the repo rate proposed by the Reserve Bank of India from time to time. As the interest rate goes up, so does the loan amount and vice versa.
The floating rate is composed of an index and spread. The index is the measure of interest rates depending on an underlying benchmark, such as the repo rate. The spread, on the other hand, refers to the additional amount charged by the lender to cover profit markup and credit risks.
For example, with an underlying index rate of 6% and the lender charging an additional 2% rate, the total lending rate applicable will stand at 8%. A floating rate of interest is usually recommended when there is a decline in the market rates. However, one must keep in mind that if the standard rate of interest increases, so will the monthly EMIs.
Factors Affecting Current Home Loan Interest Rate
The rate of interest offered on housing loans are largely determined based on the following factors.
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Benchmark Lending Rate
The financial institutions offering home loans can have different types of benchmark lending rates. While most of the banks in India follow the Repo Rate proposed by RBI as an external benchmark, Non-Banking Financial Corporations use Prime Lending Rate (PLR) to decide on the housing loan interest rate.
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Credit Score
The credit score or CIBIL score allows the lender to assess the borrower’s overall creditworthiness based on the repayment history and previous debts. On a scale of 300 to 900, a high credit score implies that the borrower is likely to repay the loan on time while a poor score means they are likely to default on payment. Depending on the scenario, the lender determines the rate of interest. Ideally, a score of 750 and above is desirable to get affordable home loan interest rates. However, if your CIBIL score is below 650, you will have to take the necessary steps to improve your score, such as making timely payments and clearing existing loans and credit card dues etc.
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Income and Occupation
Applicants with a steady source of income and occupation are more likely to get affordable interest rates since banks and financial institutions see them as low-risk borrowers. This is the reason why most lenders offer home loan interest rates starting at 8.60% to salaried borrowers with relevant experience working at a reputable government or private company.
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Property Location
The age, location and overall condition of the property in question also determines the rate of interest offered. A property with high resale value is often viewed as lucrative in the eyes of the lender and consequently, the borrower is charged a relatively lower interest rate.
How to Calculate Current Home Loan Interest Rate
Calculating the current home loan interest rate is now easy with the help of a home loan calculator. Such a tool available online helps with the easy calculation of loan EMIs and also provides a detailed breakdown of the payable interest. The top lenders and financial institutions offer this facility free of cost. The steps to calculate the rate of interest on home loans in India are:
- Access the home loan calculator on the lender’s website
- Enter the loan amount, tenor and the rate of interest
- Wait for the online tool to give you an estimate of the EMI
The calculator will provide the result instantly following a mathematical formula:
EMI = [P x r x (1+r)^n]/[(1+r)^n-1] where,
P = principal
r = rate of interest
n = tenor
The best part of using a home loan eligibility calculator is that one can rest assured that the results are 100% accurate, Besides, it also saves the borrower from tedious calculations.
Summary
With the current home loan interest rate in India changing from time to time, it is always advisable to study the market trends before opting for a loan. Knowing about the different factors affecting the rate of interest and spending considerable time researching and comparing various rates offered by lenders can prove helpful in the long run.