The cost of your home loan is calculated by the interest rate charged by banks and non-financial institutions on home loans. The interest rate levied defines how much you have to pay your lender on your loan per month as you pay your home loan in EMI (equated monthly installment). Interest rates are typically linked to the repo rate, but they can differ from one lender to the next. A home loan is one of the most affordable loans available, and it is also the only option for an individual to purchase a home. Although interest rates provided by banks can change at any time, Kotak Mahindra Bank is currently offering its customers the lowest home loan interest rate starting from 6.65 percent per annum. The top ten banks that are currently offering the best home loan interest rates are listed below.
Factors that influence home loan interest rates
A home loan allows you to purchase your dream home anytime and anywhere. The Equated Monthly Installments (EMI) that you will have to reimburse decide the loan's viability. EMI allows you to repay the principal and interest in a manner that does not put more strain on your personal finance. That being said, the interest rate will have a major impact on this. The interest rate is influenced by a number of variables that differ from one lender to the next. Some of these variables are as follows:
Type of interest rates:
You have the option of a fixed, floating, or mixed interest rate. Floating interest rates fluctuate in response to the adjustments made by Reserve Bank of India (RBI). Your EMIs will be lowered if the current RBI guidelines result in lower interest rates, and conversely. A fixed interest rate means you'll pay the same rate of interest for the entire period of your loan. The rates you are provided with are often determined by the type of home loan you have applied for.
Loan to value ratio (LTV):
The loan-to-value (LTV) ratio determines the value of a loan you want to take out to the measured value of the house you want to purchase. LTVs are used by lenders to decide how unsafe a loan is and whether or not to accept it. It will even help you figure out whether you'll need a mortgage benefit or not. A loan-to-value ratio determines how much of a property you currently own and how much you owe on the loan you used to buy it.
Your credit score is thoroughly scrutinised during the loan processing. It entails credit checks from the past and present. You're more likely to get a decent deal if you're active on your payments and have a strong credit score. A strong credit record also gives you the right to face for a cheaper rate. Your loan interest rates will be affected significantly as a result of this.
Along with the income aspect, the sector you work in and the employer both have an influence. A reasonable interest rate will be offered to those who have a steady and strong salary, which is necessary to repay the loan. Due to the uncertainties involved, salaried employees are likely to receive a marginally lower rate than self-employed applicants. Separate slabs are maintained by banks for salaried and self-employed employees.
Loan tenure and loan amount:
When the bank agrees on the interest rate to be given to you, the loan tenure you select plays an important role. If you're able to commit to a longer period, the interest rate provided is likely to be lower. The loan amount proposed has the potential to stabilise the rate. The general concept is that the higher the loan amount, the lower the interest rate.
Tax benefits on home loans
Here is a list of all the tax advantages that a taxpayer can get on home loan EMI payments if they choose the old tax regime. Note that for the current fiscal year, a person will continue to use the old tax system and claim tax exemptions such as HRA and various deductions under sections 80C, 80D, and so on. Individuals can still choose to operate under the new tax regime, which includes a reduced tax rate with no tax exemptions:
Exemption for repaying the principal loan amount
The EMI you pay is made up of two parts: principal amount and interest charged. For self-occupied property, the amount repaid as principal part in the EMI can be counted as a deduction under section 80C of the Income Tax Act, 1961. Please remember that if you have another home that is either vacant or where your parents live, that home will be called a self-occupied residence. The stamp duty and registration fees charged after purchasing a home can also be deducted under Section 80C.
Exemption for repaying the interest of a home loan
A taxpayer can claim a deduction on the interest accrued on a home loan in addition to the principal amount repaid on the loan. In the case of a self-occupied house, a deduction on interest paid on a home loan is applicable under section 24 for a limit of Rs 2 lakh in a specified fiscal year. In the case of self-occupied property, interest payments above Rs 2 lakh will not be taken forward or offset against any other income heading such as capital gains, salary, and so on. If you own two homes and one of them is vacant or owned by your parents, interest on the second house's home loan is also included under section 24. Please remember that in a given financial year, the overall deduction for interest paid on a home loan on both houses cannot surpass Rs 2 lakh.
Additional exemption on purchasing an affordable home
If you have purchased a property in the subsidised housing category, you can exempt the interest paid on the home loan you used to purchase it. This exemption can be claimed up to Rs 1.5 lakh per financial year under section 80EEA. It is available in addition to the section 24 deduction for a limit of Rs 2 lakh. Thus, if a taxpayer purchases an affordable home, he or she can claim a deduction of up to Rs 3.5 lakh in a fiscal year. Please remember that you cannot claim the same amount under two different sections. To qualify for this deduction, you must apply for a housing loan from a financial institution such as a bank or a housing finance company for the purpose of purchasing a residential home, the home loan must be undertaken between April 1, 2019 and March 31, 2021, with a stamp duty of not more than Rs 45 lakh on the house property. Budget 2021 has extended the timeline for receiving a home loan by another year, from March 31, 2021, to March 31, 2022, in order to seek an additional deduction for interest paid on a home loan.
Exemption under section 80EE
For first-time home buyers who availed home loans, this benefit was reinstated in FY 2016-17. Section 80EE enabled taxpayers who took out a home loan in FY 2016-17 to seek an additional tax deduction of up to Rs 50,000. Under Section 24, a home loan borrower who pays interest on the loan can exempt the interest paid from his or her gross income up to a limit of Rs 2 lakh per year. To be eligible for this deduction, the house for which the loan is taken must be worth more than Rs 50 lakh, the loan amount must be less than Rs 35 lakh, and the loan must have been approved between April 1, 2016 and March 31, 2017.
Home Loan Interest Rates
Below are the top 10 banks which are currently providing the cheapest rates on home loans. Please keep in mind that the interest rates are considered for a loan amount of Rs 30 lakhs with a tenure of 20 years.
|Sr No.||Banks||ROI in %|
|1||Kotak Mahindra Bank||6.65 to 7.3|
|2||HDFC Bank||6.7 to 7.2|
|3||ICICI Bank||6.7 to 8.05|
|4||State Bank of India||6.75 to 8.2|
|5||Punjab National Bank||6.8 to 8.9|
|6||Union Bank of India||6.8 to 8.4|
|7||Bank of Baroda||6.85 to 8.7|
|8||Central Bank of India||6.85 to 9.05|
|9||Punjab & Sind Bank||6.85 to 7.35|
|10||Bank of Maharashtra||6.9 to 9.65|
|Source: Bank Websites|