Opting for a mortgage loan means pledging your house or office as security to access funds from a bank or NBFC. The rate of interest you are offered plays a big role in how much you will end up repaying over the years. Before you start the process, it’s worth understanding how these rates work and what factors might influence the deal you get.
Current Interest Rates
The mortgage loan interest rate goes up and down each day based on the economy. As of May 2025, fixed-rate mortgage loans in India generally range from around 8% to 12% per annum, though actual rates can vary depending on the lender, loan tenure, and borrower profile. Adjustable-rate mortgages (ARMs) start with lower rates. But an ARM's rate can climb higher over the tenure of the loan. So even though ARMs seem like a better option at first, you could end up paying much more over time as the rates increase.
Comparing Lender Rates
While published mortgage loan interest rate ranges give an idea, actual interest rates can vary significantly by the financial institution. Comparing mortgage rates from multiple financial institutions is important to ensure you get the lowest mortgage rates for your situation. Focus first on large banks and reputable non-banking financial companies (NBFCs). Getting pre-qualified also allows you to see customised rate quotes.
Factors That Influence Your Specific Rate
The mortgage rates you see offered by financial institutions are just general guidelines. As an individual borrower, the exact rate a lender offers you depends on certain factors:
● Your credit score - The higher your score, the lower the rate.
● Loan amount - Borrowing more money means more risk for the lender.
● Understanding Property Value in Mortgage Lending - The value of the property is assessed relative to the loan amount requested.
● Your down payment amount. Larger down payments mean less risk.
● Good Credit Behaviour- Maintaining good credit behavior is essential for favorable mortgage offers.
Financial institutions assess these factors to decide if you are a good or risky borrower. This gives you a “risk grade,” which then determines the exact rate you get offered.
In general, borrowers with high credit scores, low loan-to-value ratios (LTVs), and a strong history of repaying debts tend to get the best mortgage interest rates.
Types of Mortgage Rates
There are two primary options when it comes to mortgage interest types:
1. Fixed-rate mortgages: Your interest stays constant for the entire loan term, offering stability as your monthly payments do not fluctuate.
2. Adjustable-rate mortgages: Your mortgage loan interest rate begins at a lower level but may increase over time because it is linked to market indexes. This results in lower initial payments but carries the risk of higher payments in the future.
Fixed-rate loans offer predictable payments, while ARMs may be suitable for borrowers who anticipate changes in market rates or plan to repay the loan within a shorter period.
Setting Your Interest Rate
During the loan process, be aware of the timing for securing your interest rate. This sets your rate for a period of time, often 60 days. Locking in your interest rate early can help you secure a lower rate, even if market rates increase shortly afterward. You may also have the option to pay discount points to reduce your rate further.
Consult your loan provider to confirm if they offer rate lock options and to understand the related terms. This ensures your quoted rate remains unchanged until your loan is finalized.
Making Extra Pre-Payments
One smart strategy is to make extra pre-payments to pay your loan faster. Most loans allow paying up to a certain percentage of the remaining principal annually without large penalties. This can significantly reduce your repayment period and lower the total interest paid. Ask potential loan providers about their pre-payment flexibility and if they charge any pre-closure penalties. Factoring this in can optimise savings.
The Bottom Line
Conducting thorough research before taking out a mortgage loan is important to get the best mortgage interest rates. Compare multiple lenders and review actual rate quotes instead of general ranges, and pay close attention to lock-in policies. Optimising variables under your control goes a long way to reducing the rate you pay. Over the long run, this creates sizable interest savings that make homeownership more affordable.
