IDFC First Bank Home Loan Interest Rates
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About IDFC First Bank

IDFC First Bank Limited is a new banking entity in the Indian banking structure. This bank specialises in providing debt financing to MSME units and consumers in India. In the initial stages, IDFC First Bank Limited was into the business of wholesale funding and asset management. Between 2010 and 2012, the bank changed its business model to retail financing. The company also acquired a new name, IDFC First Bank. The bank started concentrating on MSME finance and consumers in the unbanked and under-penetrated segments. With effect from December 18, 2018, Capital First merged with IDFC First Bank to provide all types of retail and business loans.

IDFC First Bank Home Loan

IDFC First Bank is one of the prominent Home Loan financers in the banking industry today. The bank offers a range of Home Loans to cater to every requirement. The bank caters to salaried individuals and self-employed persons, as well. Home Loans ranging from 5 Lakhs to 5 Crores are on offer at IDFC First Bank. The bank has around 57 branches in India through which it approves Home Loans at competitive interest rates. Some of the notable features of IDFC First Bank Home Loan are its rate of interest, flexible loan tenure, and the facility to apply for Home Loans online. IDFC First Bank is also a member lending institution under the (Pradhan Mantri Awas Yojana PMAY).

IDFC First Bank Home Loan Interest

IDFC First Bank Ltd offers a Home Loan on fixed as well as the floating rate of interest. The bank follows the MCLR structure. The bank will soon switch over to the RLLR method, as Reserve Bank of India (RBI) has urged banks to switch over to the RLLR by October 01, 2019.

Marginal Cost of Funds-based Lending Rate (MCLR)

The MCLR is in force since April 01, 2016. Before the concept of MCLR, the banks were following the Base Rate system with effect from July 01, 2010. The Base Rate system was also a market-related rate system. However, banks were slow in passing on the benefits of market fluctuations to their customers. Therefore, the concept of MCLR came into being.

MCLR comprises of the following key aspects:

  • Marginal Cost of Funds: The marginal cost of funds involves the marginal cost of borrowings and the return on the net worth of the bank.
  • Tenor Premium: This factor does not have any connection with the borrower type or category. It is the same irrespective of the type of borrower financed by the bank.
  • Operating Cost: This aspect deals with the cost incurred by the bank in mobilising enough funds for financing. It excludes the charges that are recoverable by the bank by way of processing fees.
  • CRR Negative Carry: There is a negative carry on the CRR when the returns on CRR are less than the cost of funds.

All these factors combine to decide the MCLR of the bank. Each bank has its MCLR. Usually, banks announce their MCLR monthly. However, the resetting of the MCLR linked to the loan accounts do not take place immediately. It depends on the reset frequency decided by the individual bank. If the bank goes for an annual reset, the benefit of the market rate fluctuation does not reach the ultimate beneficiary until the reset date.

In the meanwhile, the market rates can go up again as well. Therefore, RBI observed that banks were lagging in passing over the benefit to their customers. This reluctance on the part of the bank forced RBI to come up with a solution in the form of linking the interest rates to an external benchmark rate. The repo rate is one such vital rate.

Repo Rate Linked Lending Rate (RLLR)

The RLLR is a better indicator of the market rate because of its direct link with the repo rate.

RLLR comprises of only three factors:

  • Repo Rate: The Reserve Bank of India announces the Repo Rates from time to time. The latest announcement envisages the reduction of repo rates from 5.75 to 5.40%.
  • The Average Net Interest Margin: Banks add the average net interest margin of the last ten years to the repo rate as the interest spread. In doing so, the banks round off the net interest margin to the nearest '5 basis points'.
  • The Credit Score of the Borrower: The CIBIL score or the internal credit rating of the borrower is an integral factor of RLLR. The lower the score, the more will be the spread. Therefore, borrowers with good CIBIL scores benefit from the concept of RLLR.

IDFC First Bank has not announced any RLLR-linked interest rates for its retail loans. It might do so in the future.

IDFC First Bank Home Loan Interest Rate Structure

IDFC First Bank follows the MCLR concept for determining the Home Loan interest rate. The bank had recently revised the MCLR with effect from September 09, 2019.

The MCLR structure of IDFC First Bank is as follows:

Tenor Overnight One month Three month Six month One year Two year Three year

MCLR

8.85%

8.85%

9.00%

9.15%

9.30%

9.40%

9.55%

 The Home Loan interest rate of IDFC First Bank is as follows:

Product Minimum Rate on offer Maximum offered rate

Home Loans

9.00%

12.50%

IDFC First Bank Home Loan Interest Rate - Points to Consider

  • IDFC First Bank links its Home Loan to the MCLR-3M rate
  • The spread on the Home Loan ranges up to 3.50%
  • The following factors decide the rate of interest on the Home Loan for the individual borrower:
    • The amount of loan
    • The loan tenure
    • The nature of security on offer
    • The credit history of the borrower
  • The rates of interest for the PMAY Home Loans are the same. The only distinction is in the determination of the EMI for the Home Loan.

IDFC First Bank - Home Loan Interest Calculation

IDFC First Bank calculates Home Loan interest on the daily reducing balances method. This method is the best one that offers the best benefits to the borrower.

IDFC First Bank - Modes of repayment

The ideal mode of Home Loan repayment is the EMI.

Calculation of EMI

  • IDFC First Bank has an EMI Calculator on its official website. Use this calculator to determine your EMI. The borrower has to enter the loan amount, the rate of interest, and the loan repayment tenure to get the EMI instantly.
  • MyMoneyMantra has a similar EMI Calculator on its website. Browse the official site of MyMoneyMantra and select the Financial Tools option.
  • Choose the EMI Calculator and enter the data requested. You get your EMI and the breakup of the principal and interest repayment for the entire loan repayment tenure.

Payment of EMI

There are various ways of paying the IDFC First Bank Home Loan EMI:

  • The best way to pay your EMI is to register for the ECS mandate with IDFC First Bank. You can also deliver post-dated cheques as an alternate mode of repayment. In case of default in the repayment, the following options are available to pay the overdue amount:
    • You can pay online using your net banking channel or your debit card
    • The best alternative is to walk into the nearest branch of IDFC First Bank and pay your dues in cash or cheque.
    • It is also possible to pay your overdue instalment at Axis Bank by cash or by cheque
    • The nearest Novopay retailer can also accept the repayment of your IDFC First Bank Home Loan EMI.
    • Payment using your Paytm wallet is also permissible

IDFC First Bank Home Loan - PMAY Subsidy

PMAY Home Loans are unique because of the upfront subsidy factor. The Government of India releases the PMAY subsidy that is to be credited upfront to the borrower loan account. Therefore, the loan liability of the borrower decreases by the amount of grant. The calculation of EMI is done based on the reduced principal amount.

The benefits accruing to the borrower because of PMAY upfront subsidy are as follows:

  • The EMI reduces considerably because of the upfront crediting of subsidy into the loan account
  • The interest liability of the borrower also decreases because of the reduction in the principal loan amount.

Calculation of PMAY Subsidy

The calculation of PMAY subsidy is a complicated one:

  • Take out the amortisation schedule of the Home Loan at the contracted rate of interest for the entire loan tenure.
  • The loan amount eligible for a subsidy depends on the category of the borrower
  • Calculate the ''Net Present Value' of the interest amount for 20 years at a notional interest rate of 9%.
  • Ensure that this amount does not exceed the maximum eligible subsidy for the borrower. It depends on the category of the borrower.

 Alternatively, use the PMAY subsidy calculator provided on the PMAY official website to determine the subsidy amount.

Category of borrower EWS LIG MIG-I MIG-II

Maximum annual family income

3 Lakhs

6 Lakhs

12 Lakhs

18 Lakhs

Loan amount eligible for a subsidy

6 Lakhs

6 Lakhs

9 Lakhs

12 Lakhs

Rate of subsidy

6.5%

6.5%

4%

3%

Maximum grant

2.67 Lakhs

2.67 Lakhs

2.35 Lakhs

2.30 Lakhs

IDFC First Bank Home Loan Interest - Frequently Asked Questions

Has IDFC First Bank shifted to the RLLR-linked Home Loan rate of interest?

As on date, IDFC First Bank does not have a Home Loan product linked to the RLLR. It can have one in the future.

If both the MCLR and RLLR are market-rate linked rates of interest, how are they different?

Banks were lagging in passing on the benefit of the market rate fluctuations to the customer. The MCLR structure has a link with the market rates, but there is a reset clause in every loan contract. The provision ensures that the resetting of the MCLR will take place on a fixed date. Some banks have an annual reset clause. Consider the following example.

The MCLR reset date is July 01. There is a downward swing in the MCLR announced by the bank in October. The reset does not happen until next July. Therefore, the customer loses the benefit for about nine months. In the meanwhile, there could be an upward swing, as well.

The position in the case of RLLR is different. If there is a downward swing in October, the customer gets the immediate benefit of the market rate fluctuation.

At what rate does the bank charge interest on a PMAY loan?

Banks charge interest at the contracted rate. There is an element of upfront interest subsidy. As this subsidy is credited to the account upfront, the customer gets the benefit immediately. Hence, there is no reason for the banks to offer additional benefit by reducing the interest rates to accommodate the subsidy amount.

Can I avail a loan for an amount higher than the maximum loan amount eligible for subsidy in PMAY loans?

In PMAY loans, there is a restriction on the maximum amount of loan eligible for calculation of the subsidy amount. There is no ceiling on the loan eligibility amount for the borrower. A borrower having an annual income of up to 18 lakhs can avail PMAY loan. The maximum amount of loan will depend on the borrower's ability to repay.

Under such circumstances, what will be the subsidy amount?

The subsidy amount will be calculated depending on the category to which the borrower belongs. If the borrower belongs to MIG-II category, the subsidy amount is calculated on a maximum loan of 12 Lakhs. The loan amount more than 12 Lakhs will classify as an unsubsidised loan.

In the event of a rate revision during the loan tenure, does it affect my EMI?

IDFC First Bank prefers to change the loan repayment tenure instead of altering the EMI. However, borrowers can request the bank to change the EMI and maintain the tenure constant. It is beneficial to the borrowers if they go for a change in the EMI rather than the tenure.

How does it benefit the borrower to change the EMI?

In the case of an upward revision in the interest rates, the EMI should also increase accordingly. However, if you keep the EMI constant and increase the tenure, you end up contributing more towards the interest repayment portion, as compared to the principal repayment. The same situation carries forward to the subsequent months, as well. Hence, you end up paying considerably more throughout the entire loan tenure.

Why do banks prefer to increase the tenure rather than the EMI?

It is comfortable for the banks to increase the tenure as compared to increasing the ECS demand every month. Banks cater to many customers. Therefore, the easy way out for the banks is to increase the tenure.

Is it possible to switch over from the MCLR to the RLLR at any time?

Yes, the borrower can switch to the RLLR from the MCLR and vice versa.

Is it better to opt for a floating rate of interest or a fixed rate of interest?

Housing loan is priority sector finance in India. The banks have stipulated the fixed rates at considerably high levels as compared to the floating rates. The chances of the market fluctuations crossing the fixed rate of interest are remote. Hence, it is better to opt for a floating rate of interest on your Home Loans.

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