Interest on Mortgage Loans: How to Calculate and Minimize Your Costs

When you understand how much interest you are paying for the loan you got to pay for your dream house that you have always wanted, you understand the value of money. Mortgage loans accounting more on costs can actually be done away with — thus, saving up to a lakh rupees over its period. 

This article will show you how interest is computed and, in addition to this, shall be providing tips on how to cut down your expenses and use tools such as a joint loan eligibility calculator, which would make everything easier.

What is interest on mortgage loans?

Interest on mortgage loans refers to money that borrowers give lenders when borrowing from them in order to buy property. Depending on whether it is a fixed or variable rate, as well as the status of the real estate market, this may differ considerably within India: typically expressed yearly rates in percentages with monthly EMI payments showing significant changes.

How to calculate interest on mortgage loans?

The total amount of interest on mortgage loans one pays depends on three main factors:

1. Loan amount — The more you borrow, the higher your interest.

2. Interest rate — The market interest rate or constant through out depends on loan tenure, with the fixed rates and floating rates (where floating rates are usually linked to benchmarks like the RBI’s repo rate).

For instance, if you have taken a loan of ₹50 lakh at 8% p.a. for 20 years; your approximate EMI would be ₹41,822. In 20 years you will have repaid interest of almost ₹50 lakh equaling double the original loan sum.

How to minimize your mortgage loan interest costs?

In order to reduce the total interest paid on your housing loan, here are some strategies:

1. Make a higher down payment — Paying more upfront reduces the loan amount, directly cutting down interest.

2. Opt for a shorter tenure — While shorter tenures mean higher EMIs, they also reduce the total interest paid.

3. Regular prepayments — Most Indian lenders allow partial prepayments without penalties. Prepaying reduces the outstanding principal, lowering your interest burden.

4. Negotiate interest rates — If you want lower interest rates in India, then maintain above 700 as your credit score always. Also bank has been cherishing but rewarding loyalty lately

5. Switch to a lower interest rate — You can consider opting for home loan balance transfer to another lender offering lower interest rates. Meanwhile, don’t forget about hidden charges or processing fees.

6. Choose the right lender — Compare rates across banks and housing finance companies. Public sector banks like SBI and private lenders such as HDFC often have competitive rates.

Joint loan eligibility calculator — A helpful tool

If you are buying a home along with another family member or partner, then you can increase the amount of money you borrow using this joint loan eligibility calculator that looks into how much you earn when combined with others.

Here’s how it works:

1. Input the co-applicants income —  Add the incomes of all applicants (you and your spouse, for instance).

2. Check eligibility — The calculator assesses your combined repayment capacity and suggests a loan amount.

When you apply for a joint loan, you end up with more money as well as sharing the responsibility of repaying it — this makes EMI charges more affordable. Both parties can also qualify for deductions under Sections 80C and 24(b) of the Income Tax Act.

Key statistics on home loans in India

As of 2024, the current interest rates for most borrowers in India are between 7.5% and 9.5%.

The average home loan tenure is 15 years to 20 years, but borrowers can extend it to up to 30 years.

According to RBI data from 2023, mortgage loans accounted for 11% of bank credit in India.

The Bottom Line

Informed financial decisions require knowledge on the subject such as interest on mortgage loans, and ways in which they can be calculated, or lowered if necessary among other things. You can greatly reduce your borrowing costs through early repayment installment bargaining better rates as well as tools like the joint loan eligibility calculator.

To get the best out of your home loan journey, it’s important to plan and compare the available options so as to consult with your lender at some points. However, when you manage your mortgage responsibly there is nothing financially intimidating about owning a home.