Mortgage Loan Interest Rate: Everything You Want to Know

Availing of a loan against property or a mortgage loan is an important financial decision as a mortgage loan against property means putting your asset on the line. Therefore, it takes a lot more than comparison shopping to get a good mortgage rate. Before applying for a mortgage loan, you must research and be informed about the various interest rate options available for this loan type as well as how each rate can affect your monthly budget. Here’s everything you must know about the mortgage loan interest rate.
 
How is the mortgage loan interest rate calculated? 
 
When you take a mortgage loan, you must repay the portion of the borrowed principal amount along with interest every month. The lending institution employs an amortisation calculation to calculate your monthly commitment. They divide the principal and interest portions of the loan to generate a payment schedule.
 
Making timely EMI payments as per the amortisation plan allows you to repay your debt in full and within the specified time frame. However, keep in mind, based on the mortgage loan interest chosen, the mortgage loan rate of interest may fluctuate over time. Furthermore, the loan term, or repayment tenure, also plays a critical role in determining your home mortgage loan rates and monthly instalment. As a thumb rule, the longer the mortgage loan against property term, the lower will be the monthly EMI. But the downside of longer repayment terms is that at the end of your loan term, you will discover that your entire loan cost in the form of interest rate has increased.
 
               Also Read: Getting a Mortgage Loan in India-How to Apply
 
What are the types of mortgage loan interest rates available in India? 
 

• Fixed interest rate: 

When you apply for a fixed-rate mortgage loan, the interest rate is locked in for the whole term. Whether you check your mortgage loan interest rate today or after 5-10 years, it will remain unchanged. In addition, the EMI is fixed for the duration of the loan. To develop a better understanding of this rate, let's use an example.
 
Assume you have taken a Rs 15 lakh mortgage loan with a 10% interest rate and a 15-year repayment period. In this instance, you must pay Rs 10,476 as EMI. The interest rate component in the first month's EMI would be Rs 8,333, and for the next month, it will be Rs 8,313. The interest component of your EMI decreases month after month without changing the overall EMI amount. This is because the interest is calculated on the outstanding balance. 
 

• Adjustable interest rate:

Also referred to as floating interest rate, under this type of mortgage loan, the interest rate fluctuates over time. This interest rate moves in response to changes in the Reserve Bank of India's (RBI) benchmark rate. It means that after two or three years, you will rarely find interest rates that are equal to your current mortgage interest rate. To deal with this fluctuation, few lending institutions establish an upper limit for such mortgage loan interest. 
 
In a fluctuating interest rate, when interest rates change, your EMI is recalculated by the lender at the time of the change, and it remains steady until the next rate change. 
 
Suppose you have opted for a fluctuating mortgage loan of Rs 15 lakh with an interest rate of 10% and repayment tenure of 15 years. Here, depending upon the benchmark rate, the interest rate might start with 10% for the initial three years and might change by 0.25% for the next few years. The change in interest rate also modifies your monthly instalments.
 
               Also Read: Beginner’s Guide For Taking A Loan Against Property
 
What is a mortgage loan APR and how is it different from the interest rate?
 
The mortgage loan APR or annual percentage rate reflects the overall cost of your loan. The APR takes into account not only the loan's interest rate but also any fees and other charges associated with getting the loan. APRs are generally higher than the loan's actual interest rate. APR includes expenses such as processing fees, pre-closure charges, insurance costs, loan rescheduling charges etc. To calculate the actual monthly obligation, you can also use a mortgage loan EMI calculator. Some of the common loan charges are detailed below. 
 

• Processing fees:

It is a one-time fee that must be paid to the lender separately by the mortgage loan borrower. The fee is minimal and is charged to cover the costs of loan processing.
 

• Foreclosure charges: 

In case you want to pay all your dues before the binding due date, the lender will charge you a fee based on a percentage of the total outstanding amount to be paid. However, according to the RBI guidelines, you do not have to pay these fees if you have a floating property mortgage loan interest rate.
 

• Loan rescheduling charges: 

If you are having trouble repaying your debts, you may ask the lender to extend the repayment period. The loan rescheduling charge is an additional fee towards a mortgage loan extension.
 

• Legal charges: 

The lender charges legal fees to verify the validity of your property and related paperwork. The legal fees could be anywhere between Rs 5,000 and Rs 10,000.
 
               Also Read: Home Loan vs Loan Against Property: What should you choose
 
What is a mortgage loan interest rate calculator and how is it used? 
 
A mortgage loan interest rate calculator is an online tool that helps borrowers in knowing their EMI before availing of the loan. Borrowers can quickly calculate their monthly obligations for various loan amounts and terms, and select the best mortgage rates in India. The mortgage loan EMI calculator works on three variables—the principal amount, loan term, and interest rate.
 
The mathematical formula on which this online tool is based is,
 
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
 
Here, P stands for the loan amount, R stands for the mortgage loan rate of interest, and N stands for the loan tenure.
 
Using an online calculator is a simple process. Here are the steps to do it:
 

• Step-1: Choose a loan amount from the range you're eligible for by dragging the slider.

 

• Slide-2: Input the interest rate.

 

• Slide-3: From the slider, choose the length of your loan, and click on the submit button. The tool will show the EMI amount.

 
The mortgage loan interest rate calculator is a customised tool, and you can reset the input as many times as you want. 
 
               Also Read: Your Guide To Tax Benefits On Loans Against Property