Owning your own home can be a big and impossible dream, but very often that dream does come true. If you are looking for a new home loan, there is a huge array of possibilities available in the market. You will need to look at the interest rates, the loan amount you are eligible for, and the tenure of the loans on offer and compare the benefits and features. Once you identify a property, finding a suitable home loan to enable you to buy it should not be a problem.

What are the interest rates on a home loan?

The interest rates on a new home loan generally vary between 9%-11% per annum. Of course, the rate depends on a variety of factors including if you have an existing relationship with the bank, your credit score, and your CIR (Credit Information Report). In general, banks give the most attractive terms and conditions on the loan to customers who have a credit score of at least 750 or above. 

If you have a score of 750 or better, you might be eligible for a lower interest rate on your new home loan, a longer repayment period and perhaps, a larger loan amount. A high credit score demonstrates responsible repayment behaviour in the past and banks and other lenders are more inclined to offer favourable terms to such customers.

If you have a credit score of less than 750, it might be advisable to improve your score before you apply for a new home loan, so that you qualify for the best repayment terms.

What are the types of interest rates?

There are two basic types of interest rates on a home loan and you need to study all the interest rate options carefully before deciding which one to choose.

Fixed rate: You pay one fixed interest rate for the entire tenure of your loan and you have a fixed EMI for the entire duration of the loan.

Floating rate: The interest rate you pay varies during your loan tenure, depending on external market conditions.  You would choose this option if you are confident that interest rates will go down during your loan period.

There is also the option of a partially fixed and partially floating rate. You need to learn about all the options or consult a professional to see which option suits your needs the best. 

What is an EMI?

EMI stands for Equated Monthly Installment. It is the amount you need to pay on a monthly basis to repay your entire loan. It consists of principal plus interest due, spread over the entire tenure of your loan. If your loan period is 20 years, then you will be paying an EMI every month for 20 years.

If your monthly EMI burden is very high, you can reduce it by lengthening the tenure of the loan.  However, if you extend the tenure of your loan, you will be paying out more in interest amount since your repayment obligation is over a longer period.