The reasoning behind the fluctuations of Home Loan Interest Rates

A home loan can bring your dream of owning your own home to life. The principal and interest amounts of these home loans are paid back in the form of EMIs or Equated Monthly Instalments so that your monthly budget does not get stressed out. Your home loan’s affordability depends on the monthly EMIs you have to pay. However, there are many other reasons behind home loan interest rate fluctuations. While some of these factors are fixed, others are variable. Let’s look at the different factors that result in fluctuations in home loan interest rates. 

An EMI calculator is a great resource for those looking to buy a house. It can help you understand your monthly repayments so that you make an informed decision about your future. Home Loan EMI Calculator is an easy-to-use and intuitive home mortgage calculator. Use it to calculate your monthly payment, or as a financial planning tool for home buyers.

Seven reasons behind the fluctuations of interest rates of home loans

The fluctuations of home loan rate interest depend on many different factors, including: 

  1. MCLR Rates

The full form of MCLR is the Marginal Cost of Funds based Lending Rate. This is the minimum rate of interest at which a bank can lend. It also varies according to other factors like the marginal cost of funds, operating cost, the tenor premium, and the CRR. MCLR has an annual reset date when the rate of existing home loan borrowers is reviewed by the banks. 

The MCLR on the reset date applies until the reset date of next year, even if there are fluctuations in the MCLR in between. All this means that your home loan rate of interest can decrease or increase on the basis of the MCLR rate changes.

  1. Interest Type

You can choose between floating, fixed, and mixed interest rates. The changes in the floating interest rates depend on the change by the RBI. If the latest Reserve Bank of India norms lead to lower interest rates, your Easy Monthly Instalments will be lower and vice versa. You get the same home loan rate of interest throughout your loan tenure when the interest rate is fixed. Loans with fixed interest rates start with a fixed interest rate for a specific period of time and then switch over to a floating rate of interest.

  1. Loan-to-Value (LTV) Ratio

Loan-to-Value Ratio refers to the percentage of property value that the loan can finance. A higher interest rate is attracted by a larger quantum of loans. This is because it is a higher credit risk. Paying a larger down payment for your home loan can help decrease the loan quantum, which will lead to a decrease in the home loan rate of interest.

  1. Credit Score

This factor impacts your home loan interest rate significantly. Your credit score is an important indicator of your repayment ability and, thus, your creditworthiness. There is a higher credit risk associated with a lower credit score which would make lenders charge a higher interest rate to cover the risks. On the other hand, a higher credit score indicates a lower credit risk, which makes lenders offer lower interest rates on home loans. 

  1. Property Location

The location of your chosen property also plays a significant role in determining your home loan interest rate. Properties in localities that have good connectivity and amenities have higher resale value. On the other hand, properties which are placed in a less desired area may be cheaper but don’t have a favourable resale value. 

Similarly, newer homes are considered more valuable than older ones which are considered to have a less favourable resale value. Lenders consider homes with favourable resale value as lucrative investments, therefore, tend to charge lower interest rates for them. The interest rates tend to be higher for properties with a lower resale value.

  1. Job Profile

Borrowers with a stable income source are considered low-risk investments, while those with an unstable income source are taken to be high-risk investments. Therefore, lenders tend to offer lower home loan interest rates to individuals with a stable income source. These include PSU, salaried professionals, and government and private employees. Chartered accountants and doctors are considered to be low-risk among individuals in the self-employed category.

  1. Loan Tenure

Loans with a shorter repayment tenure attract lower interest rates than loans with a longer repayment tenure. You can easily find the best tenure for your home loan by using an online EMI calculator for home loan, as you can notice the fluctuations in the home loan EMIs and interest rates with the change in the repayment tenure.


Considering all these factors and using an EMI calculator for home loan when deciding on a home loan helps you get the best interest rates on home loans according to your budget and requirements. The factors mentioned above are the main reasons behind the fluctuation in Home loan rate of interest. While some of these factors are within your control as a borrower, others are decided by the economy.


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