A Comprehensive Guide on Lowest Home Loan Interest Rate in India

Getting a home loan is now made easy with all the digital advancements in the banking sector. After rising steadily from May 2022 to February of this year, the RBI has now maintained the repo rate for the third consecutive time. Thus, when getting a home loan, you need to ensure you get it at the lowest home loan interest rate. Keep reading to learn about the home loan rates banks and financial institutions offer in India. 

Lowest Home Loan Interest Rate in India

Home loan interest rates depend on many factors, such as your CIBIL score, employment, loan amount, loan tenure, and more. They also depend on the lending institution. The interest rate for home loans in India varies between 8% and 14% per annum. 

Types of Home Loan Interest Rates

There are three types of home loan interest rates in India. However, the first two are the most prevalent. 

1. Fixed Interest Rate 

This type of interest rate remains constant throughout the loan, which ensures the stability of the amount payable. The advantage lies in predictable interest payments up front, protecting against rate fluctuations and financial complications in the event of a rate hike. However, the downside is that if standard loan interest rates are reduced, there is no benefit as the frozen interest component remains.

2. Floating Interest Rate

In this case, your home loan interest rate is determined by the bank's current interest rates. This type of interest rate is influenced by factors such as RBI's monetary policy, interest rate revisions and bank reactions. 

Choosing a floating rate will allow you to take advantage of the latest rates; you can get the cheapest home loan interest rate if it goes down. However, in rare cases of rate hikes, your loan may be subject to higher fees.

3. Hybrid Home Loan

Hybrid home loans combine fixed and variable interest rates. They start with a fixed rate for a period before changing to a floating rate. Ideal for those securing a low fixed rate who intend to prepay or foreclose before the floating rate is introduced.

Home Loan Interest Rate All Banks

The table below contains the latest and lowest home loan interest rates: 

*Data given as of 8 December 2023

Top 6 Banks with Current Lowest Home Loan Interest Rates 

Here are the top 6 banks offering cheapest home loan interest rates in India. The table is in descending order:

*Data valid as of 8 December 2023

How to Calculate Home Loan Interest?

Home loans are essentially extended over a longer period of time, which requires a clear understanding of the total interest liability from the outset. To find out, use one of the following methods:

• Manual EMI Calculation Formula

You can use the EMI Calculation Formula - EMI = [P x r x (1+r)^n] / [(1+r)^n-1] where P represents principal, r denotes the interest rate, and n denotes the number of instalments or the duration of the loan in months.

• EMI Calculator

Prospective borrowers can use the Home Loan EMI Calculator by entering basic details like home loan amount, loan repayment period and interest rate. After entering these details, click ‘Calculate’ to get a comprehensive breakdown defining the amount to be paid as interest and principal.

Factors Affecting Home Loan Interest Rates

Here are some factors that significantly impact your home loan interest rates. Hence, you need to check them out before applying for a loan: 

• Credit Score

A numerical reflection of your credit history, a credit score (750 and above from CIBIL and other bureaus) signifies responsible credit behaviour, increasing home loan favourability. Lenders and financial institutions use credit scores to determine home loan interest rates, often offering lower rates to those with higher scores.

• Income and Employment

Lenders assess home loan eligibility by considering income, type of employment and employer profile. Individuals employed by the government, PSUs or reputed private sector organisations are preferred due to higher job and income security, leading to lower home loan interest rates. Conversely, irregular or insufficient income can result in higher interest rates or difficulty securing a loan.

• Type of Housing Loan

Different types of home loans attract different interest rates. Regular home loans have standard rates, while any special type of loans may have higher interest rates.

• Loan Amount

The required amount of the loan affects the interest rates of the housing loan. Loans up to Rs.30 lakh usually have lower rates, and making a substantial down payment can further reduce the interest burden, resulting in a lower interest rate.

• Interest Rate Type

The chosen type of interest rate (fixed or floating) affects repayment. Fixed-rate loans maintain a constant EMI throughout, while floating-rate loan EMI fluctuates depending on factors such as the repo rate. Fixed-rate home loans often have higher interest rates due to increased interest rate risk.

• Concession on Interest Rate for Women

Some lenders offer female borrowers a 0.05% interest rate relief. Couples can improve eligibility and enjoy tax benefits by opting for a joint home loan with the spouse as the primary applicant.

• Property Location

The location of your property greatly affects the interest rate on your home loan. Homes in desirable neighbourhoods with sufficient amenities tend to attract lower interest rates, while properties in less desirable areas can command higher rates. Lenders favour homes with good resale value, which impacts the interest rates assigned.

• MCLR Rates

MCLR rates, or marginal cost of funds lending rates, are the minimum interest rates banks can offer a loan at. These rates, determined by factors such as operating costs, CRR and tenure premium, are not fixed and may change. Banks usually conduct an annual review on a designated reset date to assess the current home loan interest rate and adjust as needed.

How to Get the Lowest Interest Rate on Home Loan?

Interest rates on home loans depend on a lot of factors. Hence, you can follow these given tips to get the lowest home loan interest rate in India: 

• Maintain a high credit score with a goal of at least 750.
• Existing home loan borrowers can potentially lower their interest rates by transferring their outstanding balance to another lender that offers lower rates. The process is known as home loan balance transfer. 
• Consider applying for a joint home loan, especially with a family member, as some lenders offer interest rate concessions to female applicants.
• Home loan applicants can benefit from lower interest rates by aiming for a lower Loan-to-Value (LTV) ratio. To achieve this, contribute as much as possible in the form of a down payment, which can result in a lower loan amount and subsequently lower home loan interest rates.

Getting the lowest home loan interest rate in India may not be an easy task. But with these tips mentioned above and careful considerations, you can get your home loan at the best interest rate possible according to your financial scenario. Also, for the latest interest rates, contact the nearest branch of your preferred bank.