Home Loan Interest Rates updated Mar, 2019

No matter at what stage of life you are, the desire to own a house keeps dwelling the heart at all times. Especially if you are planning to have a first property, there is no reason why you shouldn’t take a home loan. Everything from renovating your house to building new one needs money, not necessarily everyone will have enough money for the same. This is when home loans come into play. It is essential to consider the interest rates at which these loans are offered, some banks offer low and attractive interest rates while others have too high and unaffordable rates. Rate of interest is calculated considering various factors by each bank. Let’s take a deep dive into this information.

There are mainly two types of interest rates namely, floating & fixed interest rates. Just as the name states, fixed interest rate has rate of interest locked throughout the life of the home loan, this cannot be changed at any time even if the market rate goes up or falls in future. The latter is the right opposite, where the rate is subject to market volatility.

Base Rate in any loan is a minimum rate of interest that is levied on the borrower. Reserve Bank of India sets this rate that every commercial bank has to maintain. Many a time commercial banks or NBFCs charge lower rate of interest to their customers to ease the loan business and attract more borrowers. But it destroys the clarity and transparency of the credit market as a whole. RBI sets this minimum rate of interest rate flooring to maintain clarity in credit market and restrict the credit to an extent.

Commercial banks can lift up the rate of interest if the current weather of the market demands that. But the base rate cannot be changed and banks have to maintain that minimum rate set by the central bank of the country.

As said that base rate is the minimum interest rate, changing in base rate always affects the home loan interest rates. If the base rate cuts down the interest rate for home loan lowers down too. Generally banks reset the interest in every three months according to the home loan agreement. For the existing customers cutting down the Base Rate will be good news whereas increase in Base Rate increases their interest payment in three months. Same happens with new borrowers. At the time of borrowing if RBI cuts down the BR then they get a chance to avail a home loan in much lower interest rate.

Stamp Duty is a form of tax. The home owner has to pay Stamp Duty within mentioned time period like other tax payments. It can be called as property tax as well. Stamp Duty payments can be used as the proof of property dealing.

The stamp duty charge is a variable factor. It varies from one state to another. For example in Mumbai the stamp duty charge is 5% of the total market value of the property agreement. The rate is different in other states. Stamp Duty does not consider the transaction value of the property. There are some of the factors that are important in calculating stamp duty charges. They are gender of the owner, age of the property (new or old), and nature of the property (agricultural or non-agricultural, residential or commercial) and so on.

When a customer is buying a house it is required to be registered properly under the court of property law. Paying the stamp duty ensures that the property deal is legal and the property is registered under the name of the correct owner. If the stamp duty is not paid then the owner might face devaluation of the property in future.

After paying the stamp duty the owner will get an official document. Within 4 months of receiving the documents the owner has to register the property under the court of property law. There is a fee of registration which is charged over the stamp duty. Generally the rate is 1% of either the agreement value or the market value. Among these two values whichever is more is considered as the registration fee.

There is a need of two photocopies and one printed copy of the original document along with ID proof of both the buyer and the seller and stamp copy proof. The buyer and the seller both are required to be present in front of the registrar of the Jurisdiction where the property is purchased. Once the verification and paper work will be done a unique serial number will be generated for the buyer and that will be his/her registration number for the property he / she own.  

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.

• 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.

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.

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.

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!