Compare Home Loan Interest Rate In Nepal

Compare home loan interest rates in Nepal and the different types of rates currently on offer.

When looking for a home loan, the interest rate matters quite a bit as it is a long-term debt, so even a slight difference in interest adds up significantly over time.

Table Of Content

Which bank offers the best interest rate on home loans in Nepal?

This Home Loan Interest Rate table shows the best interest rates currently on offer by the 27 commercial banks in Nepal. The interest rates are updated on a monthly basis.

Last updated: August 17, 2021

What is a variable interest rate home loan?

A variable rate home loan is, as the name suggests, a home loan with an interest rate that can vary or change over time.  It is also known as a floating interest rate.

So, if you have a home loan on a variable rate, then when interest rates drop, your monthly payment drops and when they rise, your monthly payments also rises. It’s also generally easier to switch loans later, if you find a better deal.

Generally, the variable rates are published as the base rate of the bank plus a premium. 

Interest rates are decided by market competition and influenced by the Nepal Rastra Bank. So, they can change frequently. This makes it difficult to know exactly what you’ll end up paying for your loan if you’re on a variable rate. It also means that borrowers need to make sure they’re getting a good deal from their bank.

One of the key advantages variable rates have over fixed rates is that they are generally cheaper compared to fixed rate loans.

What is a fixed interest rate home loan?

A fixed interest rate home loan is a home loan with a fixed interest rate for a pre-defined period of time (say 10 years); during this period the interest rate on your home loan doesn’t change. 

Many prefer to have a fixed rate home loan because they prefer the certainty and peace of mind that comes with knowing exactly what their monthly payments will be. 

However, it may cost you more if you find a better deal and wish to switch loans (refinance) later on.

For example, Nabil Bank charges a Prepayment fee of 0.75% of the loan amount for its Fixed Interest Rate Home Loans. This fee is much lower for variate rate loans.

How is interest calculated on a home loan?

Interest is calculated on the outstanding balance of your home loan at the end of each day.

Each day, your loan balance is multiplied by your interest rate, and divided by 365 days. This is your daily interest charge.

At the end of the month, the daily interest charges for each day are added together which is the interest that you have to pay.

The interest rate, your loan amount, and the length of your loan will determine how much interest you’ll have to pay.

EMI Calculator

How much will you be borrowing?

What will be the term of this home loan (in years)?

What will be the interest rate?

Instructions: Enter numbers and decimal points. No commas or other characters.

This is your monthly EMI or, in other words, principal + interest payment that you need to pay the bank each month. Please note that this doesn’t take into consideration any fees or charges that the bank may apply.

What is EMI on a home loan?

EMI stands for Equated Monthly Installment. It is the total amount of interest and principal repayments that you need to make each month. 

The EMI is an installment plan that fully amortizes with equal payments and constant interest rates over a set period of time. This means that when the loan matures, you will have paid off all your debt and be left with nothing but your home.

EMI is calculated as:

P x R x S/12, where, P is the principal amount (the amount you need to borrow), R is the annual interest rate (in decimal) and S is the number of months in a year (12). 

With a few banks, the EMI cannot exceed 50% of the borrower’s Gross Income after deducting other loan obligations.

How can I get the lowest home loan interest rate?

Home loan rates vary for borrowers based on factors such as your creditworthiness, loan purpose and how much you’re contributing from your side. 

Nepali banks have a wide margin of interest rates that they can offer based on your financial situation.

For example, interest rates are calculated as the bank’s base rate plus up to 1.00% – 5.00%. Taking a base rate of say, 8.00% plus up to 1.00% -5.00% p.a. your interest rate can be anywhere from 9.00% to 13.00% p.a. 

In general, banks prefer borrowers with good income, assets and good credit history so borrowers in a strong financial position will almost always get a better interest rate. 

The interest rate also depends on which banks you can qualify with as generally, Class A commercial banks offer better interest rates than development banks and finance companies. The latter generally have a more flexible lending policy.

Look beyond interest rates…

There is more to home loans than just interest rates.

Tip 1: Get the shortest loan term you can manage/afford

The loan term is how long you have to pay off the loan. It impacts both the size of your monthly home loan repayments (EMI) and how much interest you’ll pay over the period.

For example, going for a shorter loan term, e.g. 20 years, means higher monthly repayments (EMI), but you’ll pay less in interest over the life of the loan.

Whereas, a longer loan term, e.g. 30 years, means lower monthly repayments (EMI), but you’ll pay more in interest .

Tip 2: Compare fees and not just interest rates

Most banks charge a few fees such as an Loan Commitment Fee, Loan Administration Fee, and other fees. These fees can be quite expensive, some costing as much as 1% of your loan amount.

These fees can add up to a significant amount over the loan term. So, make sure that you compare fees and not just the interest rate.

We’ll dive deeper on what affects home loan interest rate in Nepal soon. So, keep an eye out.