Summary: Many people turn to home loans to finance their homeownership but do not know the nitty-gritty of calculating the interest rate. Therefore, this article discusses home loan interest rates at length.
The main point of concern for potential borrowers of a home loan is the interest rate and affordability. A higher interest rate directly impacts the EMI you have to pay monthly and vice versa. Since your interest rate not only determines your repayment capacity but your long-term financial planning during the loan tenure, knowing what it is beforehand can be a huge source of comfort to potential borrowers.
The home loan interest rate calculator will be the perfect tool to determine an approximate interest rate on the loan amount and tenure you are leaning towards. But even before that, you will have to decide whether you want to go for a fixed or floating interest rate.
The main features of a fixed-rate loan include:
- Under a fixed-rate loan, the interest rate remains constant throughout the tenure of the loan.
- You know exactly how much EMI you will have to pay for the entire tenure, hence, giving you a sense of certainty.
- It allows you to plan your finances accordingly and in a much more precise manner.
- A fixed-rate loan is also a good option if you expect the interest rates to increase shortly.
The main features of a floating rate loan include:
- A floating-rate loan is also known as an ‘adjustable-rate home loan’. It is linked to the market’s benchmark interest rate, which changes based on the economic conditions.
- The interest rates are reviewed periodically. These may occur quarterly, half-yearly or annually.
- If there is a change in the interest rates, it is adjusted per the home loan tenure. Changes to the tenure ensure that your EMI is not tweaked too frequently.
- A floating-rate loan is a good option if you think the interest rates will drop in the future.
It is important to bear in mind the features of both kinds of interest rates to make a sound decision on which one suits you the best.
The Formula for Calculating EMI
The formula behind online calculators for EMI is as follows:
( P * I ) * ( 1 + I ) ^ N
[ ( 1 + I ) ^ N – 1 ]Calculate Interest Rates o
P = Amount of Money borrowed.
I = Rate of Interest
N = Number of instalments
When using the tool online, one does not need to apply this formula, and it is easy to use. It is important to remember that the actual EMI you will pay after the loan is approved might differ from the bike EMI calculator’s results.
All lenders have a few standard conditions for granting housing loans, and they have others that differ from organisation to organisation. These eligibility criteria are set in place to analyse the creditworthiness and repayment capacity of the borrower.
These are some basic eligibility criteria for getting a home loan:
- Must be a resident of India
- You must be at 21 years old at the time of application
- You must be less than 65 years of age before the loan matures
- Minimum monthly salary of INR 25,000 for Mumbai and Delhi residents
- Minimum monthly salary of INR 20,000 for all other cities
- Know must have been employed at the current job for a one year, minimum
- Your annual turnover and yearly profit post taxation must meet a minimum standard amount based on the industry if you are self-employed.
- Have been in charge of your current business for at least three years.
- You need to have a CIBIL score of at least 700
- All the paperwork for the property needs to be in place and certified
You must cross-check the eligibility criteria before applying for the loan. If you are thinking about which scheme to commit to, you must access the website for the lender and make sure you fit the criteria.
Keeping all the documents handy is also important, apart from checking whether you can apply for the home loan. You can check the lender’s website for information on the same. A thorough background check helps avoid a poor reflection on your credit score and a situation where your application might get rejected.
With the digitisation of loan taking, it has become easier for potential borrowers to access financing opportunities. Evaluate the points mentioned above and make a wise decision that ensures your financial health in the long run.