Interest Rates of Home Loan

Additional Charges Involved With Home Loans

Unfortunately, things are not as straight forward as it looks to be. Most of the times, banks will be charging additional charges on the services rendered. Here is the glimpse of few such charges:

• 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 Rs. 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.

Home Loan Interest Rates of Banks/NBFCs – Jan, 2017

Factors Deciding Interest Rates on Home Loan

• Credit Score: Without any doubt, this is a crucial factor. The credit worthiness will directly impact on the rate of interest charged. Thus is important to keep a good track record of financial obligations.
• Home Location: The state or city you live in will decide the rate of interest. According to the rural and urban set up of the property the price and interest rate varies.
• House Price and Loan Amount: The basic calculation is House price- down payment = Loan amount. Either looking for a too small or too big amount of loan will call for high interest rates. Thus avail for loan according to the necessity and try to make the best amount as down payment.
• Down-Payment: The more you have made down payment, the lesser is the interest charged and vice-versa. Any down payment above 20% of your property amount will help you in getting low interest rate. Try to strike a balance between down payment and interest rate to save some money.
• Tenure: This plays a key role. To simplify things on this factor - shorter term loans will have low interest rates; similarly reduces overall cost, but this calls for higher EMI payments. Choose a loan term that best sinks with your requirements.
• Interest Rate Type: The two main types of interest explained previously is another core factor to determine the interest rate. Fixed and floating rate of interest has its own share of rate percentages.

Ways to Calculate the Interest Rate on Home Loan Taken Some Time Back

Irrespective of what was agreed as interest rates for a home loan, it is important that the borrower should be conducting periodical check of interest rate on home loan taken some time back. This is possible through various online applications called Loan repayment calculator. It also helps in clarifying, how much percentage of amounts is totally paid towards interest vs. loan amount and the total time required paying off the debt. This will help in understanding the interest rate moved over the period of time when the borrower started repayment of the loan.

a. In case of Fixed Rate Loan: All you need to do is to give the outstanding loan amount, interest rate and EMI amount, this will auto-calculate the total interest due and how much of your amount has moved towards the principal of the loan amount.

b. In case your of Floating Rate Loan: in this case, you need to share the same information as in the case of fixed rate loan like outstanding loan amount, interest rate (average over the period of time) and EMI amount. This information will be used to calculate the interest paid and due and how much is the total percentage of interest paid by the borrowers for total due amount.

Impact of Interest Rate on Home Loan Eligibility

Home loan interest-rates certainly have an influence on borrower’s loan amount eligibility. It’s because the interest constituent can raise the equated monthly-installment on a new home-loan. Such EMI is calculated at the time of sanctioning the loan. The information such as age of borrower, income of borrower, years in employment, previous tax returns, dependents count, dependents’ age, other sources of income, etc. are also used to calculate interest rates.

Factors to be Considered Apart from Interest Rates

The six main factors that affects home loan apart from interest rates are explained below. These are just few factors from the whole big list. It is important to consider each of these while applying for a home loan.

• Age isn’t Just a Number: The younger the applicant is, more money will be sanctioned. Also this increases the probability of getting the loan approved quickly. Though the maximum limit to apply for loan for a salaried individual is 60 years, the tenure of the loan will be too less. Usually for home loan, people look for a decent amount with at least 3- 5 years tenure.
• Earn a Sizeable Income: How much you earn will determine how much you can get. Bank will scrutinize every aspect of your income and expenditure to check what percentage of your income is available to repay the loan amount. For this they need your salary slips, bank statements, employer authentication and more.
• City: The place you live in will determine what should be your loan amount and EMI value. Living in expensive cities will help you gain larger loan amounts and vice versa. Cities like Mumbai and Delhi are considered as Tier- 1 (expensive cities) and Agra and Meerut are Tier-2 (not so expensive cities).
• Credit Score: Apart from applicant’s company performance, individual credit rating holds a lot of value. Having good credit rating increases the probability of getting loan with more flexible options on tenure, amount, EMI and interest rates. In case of any default payment records, huge outstanding loan, fraudulent track records, the banks has every right to cancel the loan or charge higher interest rate.
• Existing Debts: Be smart to clear off your outstanding debts and expenditures before applying for a fresh loan. These outstanding will reduce the probability of getting the new loan sanctioned with hassles. Yes, it is not always possible to clear off all debts, but making regular payments without any defaults can make a difference in your life.
• Try Clubbing Incomes: Just like how too many sticks put together will be stronger than a single one, club income of different members in the family. It is possible to club husband’s, wife’s and son’s salary while applying for home loan. However, clubbing salary of unmarried daughter is not allowed. Make use of the resource pool in option to get better facilities and offers on the home loan application. Before approaching banks, sit back and decide within the family- ways to club incomes and EMI payment part. It is also critical to make sure each person’s financial credit score is high enough to avail a loan.

There could be a time in everyone’s life when you decide you are done living in a rented house. Home loans are always available as a great option for this decision and can lend hands during tax payments too. Though the amount paid by the bank has to be repaid, it is worth spending this money on a property that is expected to appreciate at all times. Investment in land or property is always a safe and smart move!