A home loan is a long-term financial commitment spread over a time span of 15-30 years and one misstep could cost you both money and peace of mind. If you plan to buy a house with the help of a loan, choosing the right lender and the most appropriate loan options are strategic decisions.
Things To Know Before Selecting Your Home Loan
As a first step, understand the various aspects of the loan. The aggregate cost of the loan will depend on your loan tenure and the ancillary services. Important variables to focus on are as follows:
Rate of Interest
The interest is factored into the equated monthly instalment (EMI) along with the principal component. The interest is charged on a reducing balance basis, which means the principal outstanding comes down with each EMI payment. Currently, home loan rates of interest are as low as 8.35%- 9% per annum. Women borrowers are offered a 0.05% discount, so it makes sense to take a joint home loan with a woman as a co-borrower.
Always choose the floating rate of interest to avail benefits of change in RBI repo rate. Also prefer RBI repo rate linked home loan from any bank’s rather than NBFC’s.
Maximum Loan Amount
The maximum amount one can borrow for a house is governed by two attributes: the value of the property and your income level. Banks usually fund around 75-80% of the value of the property, though some aggressive lenders can go up to 90% as well.
There is another consideration here: your repayment capacity. Before extending credit, the bank will assess your current cash inflow and existing liabilities, thereby determining your monthly repayment capabilities.
Unless there are extraordinary considerations, it is advisable to limit home loan EMIs within 40% to 65% of your net household income. Customer may add financial co-applicant to enhance the loan amount.
Processing Charges
These are charges for processing the loan application and the expenses incurred by the bank on assessing property value and on verifying other details mentioned by the borrower. The charges vary across lenders, and can be between 0.25% and 1% of the borrowed amount for self-employed borrowers. For the salaried, the charges are much lower ranging from INR 2,000 to INR 10,000.
There is always scope for negotiation with your lender.
Prepayment Charges
The central banking authority, the Reserve Bank of India (RBI), does not permit banks and housing finance companies to levy prepayment charges on floating-rate home loans, but in case of fixed-rate home loans, they can impose pre-payment penalties.
In the course of your loan tenure, your cash surpluses could be utilized towards full or partial prepayment of your outstanding loan. It is, therefore, important to minimize or totally eliminate any future expenses on pre-payments.
Compare banks before applying a dream home loan and also track the past record.
Go for banks instead of NBFC’S, some time NBFC’S have tendency to increase the existing customer rates as they are not linked with RBI repo rate. NBFC’S have a tendency to offer the best rates to new customer, so always tack the past record of these NBFC’S.
Current Interest rates of leading banks (as on 20.11.23)
👉HDFC Bank – 8.35% onward
👉SBI bank -8.40% onward
👉Bank of Baroda -8.40% onward
👉 ICICI Bank -8.60% onward
👉 Bandhan Bank -8.65% onward
👉Bank of Maharashtra -8.50% onward
👉 Union Bank -8.35% onward