Home loan interest rate 101
While one opts for a home loan and after the eligibility is cleared through the home loan eligibility calculator the loan amount is sanctioned. Thereafter the repayment is made with the interest amount in EMIs (Equated Monthly Installments). Home loan interest rates are broadly classified as ‘fixed’ and ‘floating’.
A fixed interest rate will not vary during the tenure of the loan. A floating interest rate may go up or down depending on factors like changing loan market scenario or a change in government policies pertaining to the housing loan market. Both these kinds of loan interest have their pros and cons.
With a fixed rate of interest;
l You can’t be affected by interest rate increase. Thus, you can pre-decide your interest amount which will remain constant during the loan tenure
- A fixed interest rate can be lower than a floating interest rate
- If the floating interest rate falls below the fixed interest rate, you pay as per the pre-decided ‘fixed’ rate.
As for the floating interest rate;
- it may go up or down
- If the interest rate falls, you can pay off your loan faster by keeping your repayment at the same level
- If the rate goes higher, your repayments can affect your budget.
Home loan EMI calculator
To save your time in calculating the EMI, there is interest rate calculator, home loan emi calculator an online tool which lets you know the monthly interest rate when you input the annual home loan interest rate.
The formula to calculate home loan EMI is;
EMI = [P x R x (1 + R) ^ N] / [(1 + R) ^ N – 1]
P – Principal amount borrowed as loan, R – Rate of interest calculated monthly, N – Tenure of repayment (in months), ^ means ‘raised to’.
Here it’s also worthwhile to include certain home loan features and benefits as follows;l Home loan is a secured preposition
- A wide choice of budget and lenders is available
- You can save tax
- You can avail the Central Government led Pradhan Mantri Awas Yojana (PMAY) through which you may enjoy interest subsidy on your EMI
- You can take a home loan insurance that suits your requirement
The interest rates for home loan are much affordable compared to other types of liabilities like personal loans, credit cards etc. When you go for a home loan, you are left with a home that you can call your own which makes it a prudent choice.