How Are Home Interest Rates Calculated?

How Are Home Interest Rates Calculated

Getting a home loan at the lowest interest rate is a dream for many homebuyers. However, different financial institutions have different rates of interest, which depend on various internal and external factors.

Here we will find out the different kinds of home loan interest rates offered by providers and factors that affect the calculation of interest charges on your home loans!

Calculation Of Home Loan Interest Rates

Home loan interest rates depend on the base rate, followed by all financial institutions, and a markup, which is an additional interest rate added to the base rate, depending on various factors.

You can easily calculate the amount of interest payable based on different interest rate quotations that various providers may have offered you using the free digital tool – home loan EMI calculator.

This tool works on the formula EMI = [P x r x (1+r) ^n]/[(1+r)^n-1] where :

  • P = Loan Amount
  • R = Interest rate offered by the home loan provider
  • N = Home loan tenure in months
  • EMI = Monthly home loan instalment that is payable after the home loan is sanctioned and disbursed

You can use various permutations and combinations with different interest rates, and find out, which offer is the most feasible and affordable for you, considering other important elements like loan amount, tenure, and monthly EMI.

Besides the comparison, this tool also helps you with an amortization schedule that gives you a breakup of each monthly EMI and its principal and interest amounts.

Different Types Of Interest Rates Offered By Financial Institutions

Home loan providers offer two types of interest rates:

Fixed Home Loan Interest Rates

In this category, the rate is fixed by the provider and remains constant throughout your home loan tenure. You do have the option to switch to a floating rate of interest if the terms and conditions of the financial institution allow you to.

Floating Home Loan Interest Rates

As the name suggests, this interest rate depends on the provider’s current highest lending rates, which are determined by various internal and external factors like RBI interest rates, monetary policies, government regulations, and other market-related changes.

In this case, the interest rates keep fluctuating, which means you could be paying a very low amount of interest for some months and vice versa.

Factors That Affect Home Loan Interest Rate Offers

Besides the base rate, an additional interest rate can be levied for various homebuyers, depending on various factors. Here are the top 5 factors which can influence home loan interest rates:

Credit Rating

Suppose you have a high credit score and a solid repayment history. In that case, you can acquire some of the most competitive interest rate offers from various financial institutions.

It can range from 7.99% – 12%, depending on how prudently you manage your debt and how diligent you are with your payments.

Income And Employment Stability

If you have a stable job or a business with additional sources of income, you stand a good chance of procuring a low-interest rate on home loans. Apply for home loans when you are at the peak of your employment income and stability, which can get you the lowest interest rate offer.

Type And Location Of Property

Suppose you are purchasing a home from a reputed builder located in an urban area. In that case, the interest rate is low, as the chances of an appreciating property value are possible.

Thus, your property’s type, amenities, neighbourhood, locality, and features directly impact the interest rates offered.

Loan Amount And Loan Tenure

Simply put, the higher your loan amount, the higher your interest rate will be. If you make a heavy down payment, the loan amount, interest charge, and rate automatically reduce.

On the contrary, the higher your loan tenure, the lower will be your interest rate. This shows a long-term commitment to the provider, which benefits you from a lower charge.

Home Loan Offers

There are various seasons or offers, or even depending on your existing relationship with a financial institution, that you may benefit from a lower home loan interest rate. Keep an eye on such offers and make the most of them.


This concise guide helps you with all the home loan interest rate information. Apply for a home loan at the lowest and most affordable interest rate. Financial institutions offer home loan interest rates as low as 7.99%, depending on your personal and professional factors.

It is highly recommended to conduct thorough research and make wise comparisons using the home loan EMI calculator before you choose the best home loan provider.

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