Tips to Help You Find the Best Home Loans in India

Tips to Help You Find the Best Home Loans in India

Investing in real estate is an elaborate affair, and quite an expensive one too. But you don’t have to be a crorepati in order to start building your real estate portfolio. There are a number of banks and financial investments that are ready to lend you the capital you need, so you can purchase your desired property.

A home loan can be availed from banks and financial institutions by someone who wants to construct, purchase or modify their place of living. The home loan will be a long-term liability with the interest rates fluctuating during the period of repayment. The loan is basically secured on the property itself, and the bank/financial institution can take possession of the property and sell it if the loan payments are not made on time.

This article is actually part two of the housing loan series. I would suggest you to read part 1 (Housing loans in India ) before you read further.

Funding Criteria

Not everyone can avail a home loan for whichever amount they please. Banks and financial institutions have some strict funding criteria that have to be met by the individual seeking the loan. This criteria also varies depending on the purpose of the loan and the credentials of the borrower.

Listed below are some of the major classifications of home loans, and their respective loan criteria.

Purchase of home/apartment: Eligible for a loan of 70% – 80% of the cost of the property, including registration charges.

Purchase of land and construction of house: Eligible for a loan of 50 – 60% of the land cost, and 60% – 70% of the estimated cost of construction.

Construction of house on land owned by the borrower: Eligible for a loan of 70 – 80% of the estimated construction cost.

Home improvement or extension: Eligible for a loan of 90- 100 % of the estimated cost, after an assessment of the property is done and the borrower’s credentials are verified.

Calculation of Interest

The RBI has set guidelines based on which banks and other lending institutions calculate their home loan interest rates. The prevailing methods used to calculate the interest on home loans in India are given below.

Annual Reducing Method: The principal loan amount will be revised on an annual basis. The interest computations, and EMI amount will be based on the principal amount fixed for the given year.

Monthly Reducing Method: The principal amount (or outstanding loan amount) will be revised and reduced on a monthly basis. This means the interest and EMI calculation will vary, as the amount reduces every month.

Daily Reducing Method: The principal amount will be reduced from the day on which payment or EMI is received. This is the most beneficial for the customer in terms of interest calculation.

Home Loan Schemes

Home loans are broadly classified into two schemes. The person availing the loan has to finalize on a scheme after considering different factors such as repayment tenure, interest rate fluctuation and the overall market scenario.

1. Fixed rate of interest

In this scheme, the rate of interest remains unchanged throughout the tenure of the loan. This means you will not lose anything if interest rates increase, but you will also not benefit if interest rates drop in the market.

Fixed interest rates vary from 11.25% to 13.75% depending on factors such as the loan amount, tenure of the loan, the borrower’s credentials and the policies of the respective lending institution.

2. Floating rate

In this scheme, the rate of interest that fluctuates based on the market lending rate. So, if the lending rate goes up, there is a high chance that you will be paying more for your loan repayment than what you budgeted for.

Floating interest rates vary from 10.10% to 11.75% depending on factors such as policies of the lending institution, loan amount, tenure and credentials of the borrower.

Information on the prevailing interest rates offered by leading financial institutions, comparative reports and EMI calculations are available in the following websites.

EMI Calculator

BankBazaar Home Loan EMI Calculator

Deal 4 Loans

CIBIL Loan Calculator

Rupee Times Home Loan EMI Calculator

Processing Charge

Most banks and financial institutions that offer home loans also charge a processing fee. This has to be paid by the borrower on applying for a loan. The processing charge may be either a fixed amount, or a percentage of the loan amount being applied for. This processing charge can also vary according to the policy of the financial institution, loan tenure and the type of loan. The rate typically usually varies between 0 .25% – 0.5 % of the loan amount.

Foreclosure of Home Loan

While a loan may be a liability for the borrower, it is listed as an asset in the account books of banks and financial institutions. If the borrower chooses to close the loan before the tenure ends, the lending institution will experience a loss in their projected income. So, some banks/ financial companies demand a pre-payment charge if the loan is going to be paid back before the end of the agreed duration. The foreclosure charge is usually between 1% – 2% of the amount being pre-paid.

I hope this article has given you an overview of what home loans are, and how they work. If you’re planning to purchase a property, and you need to avail a housing loan, do not hesitate to contact one of our real estate consultants. We’ll be happy to assist you!

Comments

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4 Comments
  1. thankyou for sharing valuable information

  2. Really nice post

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