If borrowers are confused about how to calculate their Home Loan interest rate, they can also make use of a wide variety of Home Loan EMI Calculators which can give them an accurate idea of their total cost of borrowing.
The Bajaj Housing Finance Home Loan starts from 8.50%* p.a. for eligible salaried applicants, which means that we charge 8.50%* p.a. of your principal loan amount, compounded monthly.
The important thing to note for Home Loan interest rate is that it is compounded interest and not simple interest. In other words, you don’t pay interest only on the principal amount, but you pay interest on the principal amount plus the interest accrued.
With compound interest, it is imperative to note the compounding frequency. For instance, a Housing Loan interest rate is compounded monthly, which means that the interest payable is for the principal amount as well as the interest accumulated monthly.
To summarise, your Home Loan interest rate determines the EMI payments you will need to make and how expensive your entire housing loan may be.
There are two ways you can calculate the interest you will likely pay on your Home Loan:
- Interest Rate Calculation Formula: This calculation is based on the textbook interest rate formula. You can use this simple formula to calculate Home Loan interest:
Interest = (Principal Amount x Rate of Interest x Time)/100.
Here's an example to help you understand how the formula works:
Let's say you borrowed Rs.3,00,000 for a Home Loan with an annual interest rate of 4.5% for a period of 20 years. To manually calculate the interest on your Home Loan, you would use the formula as follows:
Interest = (300,000 x 4.5 x 20)/100
= 270,000/100
= 2,700
So, the total interest payable on your Home Loan over a period of 20 years would be Rs.2,700. By using this formula, you can calculate the interest on your Home Loan manually and get a clear idea of how much you'll be paying in interest over the loan term. - Online Home Loan Interest Calculation: With the easy availability of online tools such as the Housing Loan EMI Calculator, your interest calculations can be made simpler. Here’s how:
- Use calculator slider to select your desired loan amount
- Use the next slider to select your ideal repayment tenor
- Use the last calculator slider to select the current interest rate
The calculator then displays your EMI calculation, your total repayment amount, and the principal and interest break-up. Through these calculations, you will be able to realistically assess how much the housing loan interest may cost you at the end of your repayment tenor.
Here is a ready table for your reference:
| Home Loan Amount (Principal Amount) | Tenor | Interest Rate | Home Loan EMI | Total Interest Payable | Total Repayment Amount (Principal + Interest) |
|---|---|---|---|---|---|
| Rs. 2,00,00,000 | 20 years | 10% | Rs.1,930 | Rs.2,63,210 | Rs.4,63,210 |
| Rs. 3,00,00,000 | 20 years | 11% | Rs.3,097 | Rs.4,43,176 | Rs.7,43,176 |
Before you complete your Home Loan application process, there are some tips you can employ to boost your chances of getting a competitive interest rate.
- Enhance your Credit Score
- Borrow a loan amount that you can repay comfortably
- Apply with a co-applicant to pad up your loan application
*Terms and conditions apply
Frequently Asked Questions
Low interest rates allow people to borrow from lenders with more comfort. This significantly boosts the supply of money in the economy and the demand. Eventually, prices of commodities rise and cause inflation. To balance this out, RBI increases the interest rates to curb the money supply. A high inflation rate tends to increase the interest rates on Home Loans, consequently increasing the EMI. Hence, interest rate and inflation are inversely related. Inflation plays a critical role in the interest rate of Home Loans.
Down payment is a chunk of money a borrower pays upfront while buying a property and is typically sourced from their personal finances or savings, and not a Home Loan. A large down payment potentially reduces the amount you owe to the lender, the interest rate, and EMIs. The borrower’s ability to put down a sizeable down payment offers lenders a sense of security. A larger down payment can position you as a less risky borrower. It also decreases the loan amount, which eventually reduces the interest rate. Hence, if you can afford a large down payment, it can help you in the long term by lowering the interest rate component.
Your credit score is a number ranging from 300 to 900, which is an indicator of your credit worthiness. The higher your credit score, better are your chances of securing a loan with beneficial terms. One’s credit score is based on their credit history, number of open accounts, dues, defaulted payments, debt, etc. All these factors make up your credit score and can significantly impact your financial standing. A good credit score can help reduce your interest rate.
The interest rate on Home Loans can be calculated using the formula: Interest = Principal x Rate x Tenor/100, or you can simply use the Bajaj Housing Finance EMI Calculator to get the interest amount.
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