Whether it is your first step towards owning that dream home for your family or transferring your existing home loan from another lender for better terms or buying a property for investment, it is very essential to get the right loan that is best suited to your requirement at the right cost.
A little knowledge about home loan and what is being currently offered in the market will go a long way in getting that best deal on your home loan.
But before you proceed to meet the lender, it is beneficial to have some knowledge about the product, even though you may have an earlier experience of availing the home loan. Some of the key points are listed below for your consideration before you approach the lender for home loan.
Purpose of Home Loan
Lenders generally finance for –
1. Buying under-construction / new or resale residential property
2. Construction of house
3. Buying a plot of land for construction of dwelling unit
4. Renovation and Extension of exiting residential property
5. Refinance of existing home loan
Normally financial institutes finance maximum up to 80% (90% for loan amount below Rs. 20 lakhs) of the agreement value of the property. As per RBI notification, banks do not fund stamp duty and registration charges anymore. This means that your down payment will have to be atleast 10% – 20% of the agreement value of the property plus 100% of other costs such as stamp duty, registration charges, etc
The final loan amount is dependent on host of other factors like income and regular outgoings, existing loans, repayment track record, valuation of the property by the lender, etc.
To increase the eligibility amount, you can add your earning parents / spouse / children and in some cases brothers as co-borrowers to the loan.
Very few financial institutes offer pure “Fixed” interest rate that remains fixed for the entire duration of loan. Nowadays, some lenders offer “Dual Rate” where the interest rate remains fixed for duration 1 – 10 years and then gets converted to floating rate of interest.
In “Floating” rate, the interest rate fluctuates with market conditions. The rate of interest is tied up with the Base Rate (BR) of the bank or Prime Lending Rate (PLR) of the Housing Finance Companies and gets affected whenever there are changes in the repo rates announced by RBI or any changes in Base Rate / PLR of the lender.
Normally, the interest rate is calculated as certain point above Base Rate for Banks and certain point above or below PLR ( Prime Lending Rate) for Housing Finance Companies. This difference is popularly known as spread.
You can periodically review your loan account to ensure that whenever there is a reduction in Base Rate / PLR, corresponding changes happen in your home loan interest rate. The lender tends to provide the benefit of lower rates selectively to new borrower by changing the spread rather than by decreasing the Base Rate / PLR.
Therefore, you should ideally consider the spread (preferably lowest or nil in case of banks and highest in case of housing finance companies) along with the BR / PLR, if you want to get the benefit of lower interest rate on par with new customers.
Most lenders offers maximum tenure of 30 years but it is also restricted by the borrower’s age at the end of the tenure so as to ensure that the loan repayment ends on or before the retirement age of the borrower which is usually 60 years for salaried and 65 years for self employed borrowers.
Fees and Charges
Every loan has a costs attached to it like Processing Fees or Administrative fees which are non refundable, Legal fees payable to the lender or to the legal consultants of the lender, Stamp duty on creation of mortgage, etc.
Foreclosure charges are applicable only on fixed rate loans taken from bank, whereas housing finance companies levy prepayment penalty only on fixed rate loan if prepaid from other than own sources.
It is very important that you as a prospective borrower do your own research or take help of online price and feature comparison like Apnaloan to compare the latest interest rates, features, fees, etc. and shortlist the lenders that will offer you right loan at right cost.