The stepping stone of availing a home loan is to start comparing home loans provided by different banks on the basis of interest rate. We do so as we think that interest rate is the only criteria to compare the home loan. However, we need to stop just for a while and think again! Interest rates are not the only factor/criteria on the basis of which home loan should be compared!
An interest rate is an important criterion but it is definitely not the only one on which one can make a decision. There are some other factors too that should be considered while comparing home loans before making a decision. Let us know these factors in detail.
Factors to Consider while Comparing Different Home Loans
- Interest Rate
This is one of the most important factors on basis of which home loan is compared. This is considered important as your EMI is totally dependent on the interest rate although there are some other factors like the tenure period on which your EMI depends. However, let’s consider on interest rate first.
There are two kinds of interest rate
- Fixed interest rate– When you go for a fixed interest rate for your home loan the interest on your loan will be fixed throughout the tenure. It means that your EMI amount will also remain the same throughout the tenure.
- Floating interest rate– When you go for a floating interest rate for your home loan, the interest rate on your loan can vary as per the market fluctuation and hence there may be a change of your payable EMIs or the tenure too.
Let’s understand this with the help of an example-
Yogin went on a home loan with a fixed interest rate of 9% per annum, on the other hand, Rajan went on a home loan with floating interest rate which was initially 8.50%. So, there will be no change in the Yogin’s interest rate throughout the tenure and he will be paying the same amount as the EMI. Whereas there will be fluctuation in Rajan’s EMI as it will depend on the market fluctuations.
- Processing Fees
When you apply for a home loan you need to submit certain documents. These documents needed to be verified and processed. Applicants are charged certain amount termed as ‘processing fees’ regarding these processes.
These charges vary from bank to bank and may vary within the same institution depending on the loan amount.Most of the banks charge this amount as a percentage of the loan amount or may be a fixed amount. It mostly depends on the loan amount. So, if you are comparing home loan don’t forget to consider this factor.
- Pre-closure Charges
Home loan is generally a long tenure loan and paying it for long-term can cost much. One has a big amount in terms of interest payment. So many borrowers want to pre-close their home loan to save on it. But, some banks charge some amount to pre-close the loan. Hence, if you are going for a home loan it is important to check with your provider whether they charge for the pre-closure or not. A preclosure charge is generally not applicable for a floating interest rate home loans.
- Insurance Cover for your Home Loan
Insurance cover for your home loan is an essential thing. This covers your home and makes you tension free for the repayments when you are not there. You need to choose it as per your requirements. Some banks may provide this insurance along with your home loan and add the cost to the EMI. If you go for it separately you may get a choice about but it may cost you more. Hence, it becomes important to check to check with your home loan provider, whether they are proving the insurance for your loan or not.
- Loan to value (LTV) ratio
Loan to value ratio is the proportion of your property value that bank will finance through the home loan. The remaining amount is known as down payment. One need to finance the down payment from their own pocket. As per guidelines of RBI, banks can finance up to 90% of the property value as a home loan. But generally, LTV ratio varies from bank to bank and can go up to 80% and 75% respectively.
Above aspects will help you to compare home loans in a better way! Check! Compare! Analyse! And then decide.