Buying a home is a huge financial commitment. With soaring property prices, most people opt for a home loan to buy a house. Typically, people avail of a home loan for a longer tenure like 15/20 years to keep the monthly installments affordable. Since the loan tenure is high, the interest component plays a major role in determining the total repayment amount. In this article, we will share everything that you need to know about interest on home loans.

Interest on home loans

When you opt for a home loan, you have to pay interest to the bank or financial institution offering the loan. Home loan interest rates are primarily determined by the Repo Rate declared by the Reserve Bank of India (RBI), the margin determined by the bank, and the risk premium.

Types of interest on home loans

There are two types of interest rates charged for home loans:

1. Fixed Interest Rate: As the name suggests, in this type of home loan, the interest charged remains fixed throughout the tenure of the loan. Since home loan rates change based on the change in the Repo Rate, when you opt for a fixed-rate home loan, your interest payable remains unchanged.

2. Floating interest rate: In these types of home loans, the interest rate of your loan changes with the changes in the benchmarked Repo Rate. Hence, if the Repo Rate increases and the bank raises the home loan rates, then your EMI increases too. On the other hand, if the Repo Rate falls and the bank lowers the interest rate, then your EMI can decrease.

Many banks allow customers to switch from fixed to floating interest rate and vice-versa. While fixed-rate loans allow you to plan your finances well in advance, floating-rate loans can help you benefit from a falling interest rate regime.

Factors affecting home loan interest

Here are some factors that banks consider to determine the home loan interest rate:

• Location of the house: Since a home loan is for a long tenure, banks look at the location and surroundings of the house before offering the loan. If it is located in a good neighborhood and/or constructed by a reputed company, then the bank offers low home loan interest rates.

• Income of the buyer: The bank will look at your monthly income and the industry you work for. If you are working for a reputed company and have a high salary that allows you to pay the installments with ease, then the bank might offer the loan at a lower rate. Also, most banks offer home loans at a higher interest rate to self-employed individuals compared to salaried ones.

• Credit score: Your credit score is checked before your loan application is approved. People with a low credit score might be asked to pay a higher interest.

• Amount: If you are looking for a high loan amount, then the bank might offer a lower interest rate.

• Tenure: Most banks offer a range of options in home loan tenure. Loans taken for a longer period usually have lower interest rates compared to short-term loans.

• Type of interest: Usually, fixed home loan interest rates are slightly higher than variable rates.

• Offers and discounts: Most banks run promotional campaigns to attract more customers by offering a discount on the interest rate.

• Women-specific loans: These types of home loans are designed for women.

If you are looking to buy a house in Pune, then make sure that you research the options available to you. While there are several developers in the city, BramhaCorp is well-known for its high-quality construction and modern amenities. Among residential properties, some popular projects are THE COLLECTION by BramhaCorp and BRAMHACORP SMART at New Kalyani Nagar. You can also look at our newly-launched BRAMHACORP TOWNHOUSE which offers pre-leased residential units.