ROI for Home Loans and How to Calculate It

Buying a home is a big step. For many Indians, it’s a lifelong dream. But dreams come with price tags. That’s where Home Loans help. While applying, you’ll often hear a term called ROI. It may sound technical. But understanding it can save you a lot of money in the long run.

In this article, we’ll break it down for you. We’ll explain what is ROI, especially in the context of Home Loans. We’ll also show you how to calculate it in a simple way. Let’s begin.

What is ROI and Why Does it Matter?

ROI stands for Return on Investment. In general finance, it helps you see how much return you get on the money you’ve put in. For Home Loans, it means something slightly different.

In simple words, what is ROI in Home Loan terms? Well, it refers to the interest rate you’re charged by the lender on the amount you borrow. A lower ROI means you’ll pay less interest over time.

For example:

• If you take a Home Loan of INR 50 lakh at 8.5% ROI for 20 years, your total interest outgo will be much higher than if the ROI was 7.5%.
• Even a 1% difference in interest can lead to lakhs in savings.

Also Read: Home Loan: All You Need to Know – Godrej Capital

Understanding Home Loan ROI

Home Loan ROI is what determines how affordable your loan is. It also tells you whether your investment in property is financially smart.

Here’s why it’s important to track this:

• It affects your EMI (equated monthly instalment).
• It influences how much interest you will pay in total.
• It can help you decide whether to prepay the loan or switch lenders.
• Your House Loan ROI is usually either fixed or floating:
• Fixed ROI stays the same throughout the loan term.
• Floating ROI changes based on market trends and RBI policies.

Tips to Reduce Your House Loan ROI

Want to save on interest? Here are some practical ways:

• Compare ROI across lenders before applying. Even a 0.5% drop can make a big difference.
• Improve your credit score. A score above 750 can get you better offers.
• Opt for a shorter tenure. You pay less interest, though EMIs will be higher.
• Make part prepayments. This lowers your outstanding principal.
• Switch to a better offer. If you find a lower ROI elsewhere, consider a balance transfer.

Also Read: How to Choose the Right Home Loan Tenure?

The Bottom Line

Your Home Loan ROI isn’t just a number. It affects your monthly budget, long-term savings, and your peace of mind. A little research and planning can help you save lakhs over the years.

Always ask your lender:

• Is the ROI fixed or floating?
• What will be my total interest outgo?
• Are there any processing charges?

Remember, your House Loan ROI should work for you, not against you.

Apply for a Home Loan now if you’re looking to buy your dream home. Understand your options and calculate your ROI smartly. Apply now and take your first step towards home ownership with confidence.

Moreover, to accurately calculate your EMIs using an EMI calculator. This way, you save time and effort on calculations while also being able to plan your finances well!

FAQs

Q.1. How do lenders decide the Home Loan interest rate?

A. Your credit score plays a crucial role in determining the interest rate on a Home Loan. A higher credit score often results in a more favorable (lower) interest rate, as it reflects positively on your creditworthiness. Moreover, the loan amount you borrow can impact the interest rate.

Q.2. How does your credit score affect the interest rate on a Home Loan?

A. Your Home Loan’s interest rate depends on your credit score and financial circumstances. A higher credit score indicates that there's a better likelihood you'll repay the mortgage, which translates to less risk for the lender and a lower rate for you while borrowing.

Q.3. How is the interest rate calculated on Home Loans?

A. Home Loan interest rates are calculated as a percentage of the principal loan amount over a specific period — usually annually. Banks use a formula based on the principal amount, interest rate, and loan tenure to determine the EMIs that have to be paid on your loan amount. This calculation considers factors like the principal (P), rate of interest (R), and number of monthly instalments (N).

Q.4. How to reduce the interest rate on Home Loan?

A. To reduce your Home Loan interest rate, you can make a larger down payment upfront. This will result in less overall interest throughout the loan’s tenure. Moreover, you can choose a shorter loan tenure to avoid paying excessively on interest. Another thing you can do is improve your credit score.

Q.5. What is the golden rule of a Home Loan?

A. The golden rule to follow when availing of a Home Loan is that you should always pay less than 40% or 50% of your monthly income as your Home Loan's EMI. Of course, this can vary depending on your financial situation and goals.

Disclaimer:

The contents of this article are for information purposes only & not a financial advisory. For more details, please refer to the product or service document and/ or connect with our customer representative prior to making any financial decision. The information is subject to update, completion, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

Financing through Godrej Finance/Godrej Housing Finance Limited. Product Terms & Conditions apply, for details visit www.godrejcapital.com