The Indian residential property sector is expected to grow to 30% by FY22, in terms of the overall sale of floor space, the India Ratings and Research predicted in a report. Besides the easy availability of credit, the low-interest rates are also responsible for this growth in sales.
Since the affordability of a housing loan depends on its interest, individuals need to know how to calculate home loan interest before deciding on any particular lender. Several top financial institutions offer online home loan EMI calculators that offer monthly instalments and overall interest payable to streamline this application process.
How to calculate home loan interest?
Home loan interest calculation depends primarily on the type of rate chosen. For instance, individuals can choose between fixed and floating interest rates, and the calculation process varies.
In case of a fixed interest rate, the EMI remains the same throughout the tenor. It allows borrowers to stay aware of the applicable interest rates and plan their finances better.
On the other hand, as the name suggests, floating interest rates tend to change with market conditions. Hence, if you can predict that the market lending rate will reduce in the near future, you can opt for this home loan interest rate.
Therefore, to calculate your interest, first, you need to know how to choose between floating and fixed interest rates.
Irrespective of the interest rate type you choose, you can always use a home loan interest rate calculator to make computing the interest amount faster and more accurate.
Following are the steps to use this home calculator –
Step 1: Visit the official website of your preferred lender and open the calculator page.
Step 2: Enter home loan amount, tenor and interest rate.
Step 3: On entering these details, you can see the results immediately on screen.
You can adjust the loan amount and tenor to get your desired EMI and interest accrual.
Besides knowing how to calculate interest, individuals should also stay aware of the factors that affect housing rates.
Factors influencing home loan interest
Following are the pointers you need to consider to enjoy a competitive home loan interest rate.
- External benchmark
For individuals servicing a linked with an external benchmark like repo rate, the interest rate varies with its increase or decrease. For instance, if the repo rate increases, the interest rate will increase accordingly and vice-versa.
Top financial institutions extend it against a competitive interest rate.
Such HFCs may also bring pre-approved offers that simplify and expedite credit availing process. Apart from home loans, such offers are also available on other financial products like loans against property. All you have to do is mention your name and contact number to check your pre-approved offer instantly.
Home loan tenor also plays a vital role in determining total interest outgo. While a longer tenor reduces the home loan EMI burden, it increases the interest payable. Thus, you should know how to reduce your home loan tenor and save lakhs. It will help you to get rid of the debts faster, keeping your credit score intact.
- Loan corpus
The loan amount or principal also influences the total interest outgo. You have to pay more interest on a high loan amount. Hence, if you want to reduce the interest payable, you should go for a bigger down payment. Otherwise, you can also choose to prepay as and when possible to decrease the interest outgo.
Hence, besides knowing how to calculate home loan interest, individuals also need to know about the fees and charges that lenders levy from time to time. Knowledge of these factors results in faster repayment and better finance management.