Home Loan Interest Rate Calculation: The Reserve Bank has not made any change in the interest rates in its monetary policy for a long time. The repo rate remains at 6.50 percent. Before this, interest rates were increased by 2.50 6 times between May 2022 and February 2023. And since then the repo rate has remained at 6.50 percent. The result of this was that most of the banks have not increased the interest rates on home loans for a long time. Actually repo rate is the rate at which banks take loan from the Central Bank. Due to expensive interest rates, home loan customers have to pay huge amount as interest against the loan from the bank and the price of their house is almost double. This can be seen in easy calculations.
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Home Loan: How much interest is being paid on the principal amount
Here we have done the calculation in two types of cases, in which the loan amount is Rs 30 lakh and Rs 40 lakh. Everyone’s tenure has been fixed for 20 years. The interest rate charged by SBI on home loan has been taken as the basis. At present, the annual interest on home loan in SBI is 8.50 percent to 10 percent. Here we have considered the average to be 9 percent.
Case 1- Total Home Loan: Rs 30 lakh
Interest Rate: 9%
Loan tenure: 20 years
EMI: Rs 26,992 monthly
Total interest in 20 years: Rs 34,78,027
Total payment to the bank against loan: Rs 64,78,027
Case 2- Total Home Loan: Rs 40 Lakh
Interest Rate: 9%
Loan tenure: 20 years
EMI: Rs 35,989
Total interest in 20 years: Rs 46,37,369
Total payment to the bank against loan: Rs 86,37,369
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What was the result from the calculation?
Here we saw in both the cases that we are paying more interest in 20 years than the loan we are taking from the bank, while paying the principal amount separately. For a loan of Rs 30 lakh, more than Rs 34.50 lakh interest has to be paid, while for a loan of Rs 40 lakh, about Rs 46.50 lakh has to be paid separately. Therefore, whenever you plan to take a home loan, first of all you should see which major bank is charging you how much interest on the loan. After that, you must calculate how much total interest you have to pay to the bank for the tenure for which you are taking the loan.
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Starting home loan rates of major banks
SBI: 8.50%
HDFC: 8.75%
Kotak Mahindra Bank : 8.75%
ICICI Bank: 8.75%
Union Bank of India : 8.35%
Bank of Baroda : 8.40%
Central Bank of India: 8.50%
Bank of India: 8.40%
LIC Housing Finance : 8.50%
Axis Bank: 8.75%
Canara Bank: 8.40%
IDFC First Bank : 8.85%
PNB: 8.40%
HSBC Bank: 8.50%
South Indian Bank : 8.50%
Federal Bank: 8.80%
Karnataka Bank: 8.85%
Yes Bank: 9.00%
(source: www.bankbazaar.com)
Note : The interest on home loan starts from the rates given here, that is, this is the initial rate. The loan rate can be higher than this under different conditions.
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Choose a Fixed Rate Loan: When interest rates are rising, choosing a fixed-rate home loan over an adjustable-rate home loan is often a better option. With a fixed rate mortgage, your interest rate will remain the same throughout the tenure of the loan.
Keep tenure short: Keep the loan tenure short. If you take a loan for 15 years instead of 20 years, the interest on the overall loan can be much less.
Make more down payment: If you can make more down payment then choose this option. Increasing the down payment can help you structure your home loan to cope with rising interest rates.
Refinance Loan: If interest rates have increased since the loan was taken, refinance can be a good option. Refinancing at a lower interest rate will help you reduce your monthly EMI.
