One of the most commonly used funding source for procurement of a home is housing loan. This is available in India and it’s promoted by the government with low interest rates. Bank officials will visit the property to check if the loan request is genuine and also will make sure the money taken from home loan is utilized for housing purpose itself. Banks will check the market value of the property and based on this upto 85% of the property value will be approved as the home loan amount. Home loans are usually taken for the below reasons and the specific usage of the loan amount is very important in case of home loans unlike other types of loans:
- Loan is taken for purchasing a constructed house
- Loan for procurement of plot/ land
- House construction loan
- Balance transfer loan
- Home improvement loan
Some of the top lenders of home loan in India are SBI, Standard Chartered, ICICI bank, HDFC bank and LIC. There are home loans offered for women applicants with reduced interest rates starting from 8.35% and 8.40%. This helps in women having the privilege to own a house.
What Factors Affect Home Loan Interest Rates?
Home loans are decided on the basis of these parameters thus is to very crucial to meet the eligibility criteria for these.
- Income: Income requirement different from bank to bank and it will be different for salaried individuals versus self-employed people.
- Credit Score: Credit score for applying for a home loan should be at least 700 score. If the CIBIL score is below this level, banks will not be ready to take the risk of losing money.
- Loan Amount: The loan amount approved by the banks is based on the eligibility criteria, need and repayment capacity of the borrower. Thus the loan amount varies from one borrower to the other.
- Property Location: This holds very high value in getting the loan approved. In case if you are looking to procure a property that has legal issues, banks will not approve such loans and the same will be rejected.
- Type of Loan: A lot of concentration is given to the decision of whether the applicant is choosing floating interest rates or fixed interest rates. For home loans it is advisable to go for floating interest rates as there is less chance of government increasing the housing interest percentage drastically.
- Tenure of the Loan: The longer the tenure of the loan is lesser will be the interest percentage and vice versa.
- Any Promotional Offers: Apart from all the indicators mentioned above, there are chances of getting special offers if you are applying for a loan when there are promotional discounts.
The interest rates on home loan is different from bank to bank also the rate interest will differ as per applicants credit worthiness, repayment capacity, lender’s risk and so on. This is the very reason why home loans interest rates have a range.
Are there any Additional Charges Involved with Home Loans?
When availing a home loan there are some addition costs involved apart from the interest rates. These charges vary from lender to lender. These are the charges which a lender charges to overcome the costs involved with the processing of a home loan application.
- Processing Charge: This charge in other words is known as administrative charges. Each bank charges certain percentage on the total loan amount as processing fees. This is a one-time payment and is not refundable. Usual calculation of processing fee is 0.50% – 1% of the loan amount or ₹ 2000 whichever is higher + applicable Service Tax and Surcharges.
- Prepayment Charge: Prepayment penalties differ from one bank to another, often, from loan to loan as well. These fees are charged either at flat rate, or at the interest percentage of certain months. There are of course banks that do not charge any fees on pre-payment of the loans. Finding such loans with other acceptable factors is a challenge. Usually the banks that do not charge on pre-payment have high interest rates.
- MoDT Charges: The Memorandum of Deposit of Title deed is the full form of MODT. This is charged for any undertaking that is submitting your official papers to bank with applicant’s own will. This usually cost around 0.1-0.5% of total home loan amount.
- Legal Verification Charge: Every property and individual details has to go through legal verification before being processed further. This is to check if the property is legal and the ownership of the property along with the credibility of the individual. Unless this verification is complete and approved, banks will not sanction the loan. Banks will have to pay legal advocated to get this information.
- Loan Conversion Charge: There are plenty of conversions options available to borrowers from different banks, but each of these are offered at an additional charge. Usual conversion options are switching loan to low interest rate, moving from fixed to floating interest rates and vice-versa, switching from low rate to dual rate option, etc.
- Repayment Mode Swap Charges: This is when the borrower decides to switch the repayment mode or ECS bank from one method to other. This calls for an additional processing from banks end and thus it has additional costs that should be borne by the borrower.
- Late Payment Charge: This is a most common and crucial charge that can be avoided by each borrower. Being mindful and prompt about making payments is essential to avoid this charge. Apart from being charged extra for defaulting or delaying the payment, this will also affect the credit worthiness of the borrower.
- Other Miscellaneous Charges: Apart from the above mentioned ones, there are quite a few miscellaneous charges charged by banks. Each applicant is expected to go through the terms and conditions to understand every aspect of these charges. Having knowledge of this information will help the borrower to avoid payment hard earned money for simple mistakes or ignorance.
It is the responsibility of a borrower to be aware of the home loan interest rates and the charge involved even before applying with a particular lender. This prevents future shocks and surprises and one can remain prepared for it all the time. A proper research done before applying for a home loan will ensure that the borrower ends up receiving the best deal in terms of discounts, low interest rates and lesser charges.
