Apply for Home Loan in India
Home Loan: Overview
Home loan is a loan product where the lender provides funding for purchase or construction of a house/ residential property. The housing loan may be availed either for buying a new house or resale of residential house. One can also avail a housing loan product, for the purpose of buying a plot of land and carrying out construction on the same, which is called composite loan.
Home loans in india are provided by the lenders up to maximum of 80% (90% for loan amount below Rs 20 lakhs) of the agreement value of the house. In case of home loan for resale flats, most lenders get the property valued independently and they will provide the housing loan based on their value rather than the cost mentioned in the purchase agreement. Frequently, the valuation as determined by the banker's valuer for the purpose of home loan is significantly lower than the actual cost and hence the requirement of the borrowers for down payment for the loan goes up.Also note that banks do not consider other charges like Stamp Duty, Registration Charges, etc. while considering the home loan amount eligibility.
Home loans are repaid through monthly installments (EMI) spread over up to 20 years. Some of the banks provide housing loans even for a tenure extending up to 25 - 30 years. The maximum tenure of any loan and home loan specifically is also restricted by the borrower's age at the end of the tenure so as to ensure that the loan gets fully paid by or before the retirement age.
Home loan India can primarily be classified into two categories on the basis of interest rates i.e. fixed rate and floating rate of interest. There are very few lenders in India who offer pure fixed rates where the rate of interest remains constant for the entire tenure of the home loan, while most lenders have a reset clause of 3-5 years. In floating home loan type, the rate of interest on such loans is subject to change whenever there are changes in the repo rates announced by RBI or any changes in base rate of the bank. Borrower should opt for fixed interest rates only if she/he is certain that the rate of interest is the lowest in the interest cycle.
The home loans in india are provided by banks and housing companies. The popular ones being SBI, HDFC, ICICI, etc. In turn RBI and National Housing Bank regulate these respectively, which issues guidelines governing home loans in India from time to time.
In recent times, some lenders have come up with innovative home loan products like dual rate of interest where the interest rate on such loans remains fixed for initial 1-5 years and thereafter it automatically moves to a normal floating rate of interest. Here one should be aware that loan taken under dual rate, which starts as a fixed type of interest in the initial stages are treated as fixed rate home loan for the purpose of levy of penalty for prepayment of loans.
In case where you prepay your housing loan the lender cannot levy any penalty for prepayment of such loan where the loan is taken under floating rate of interest as per the guidelines issued by RBI and National Housing Bank (NHB).
Home Loan Compare
Home Loan : Compare Quote
Want to compare Home Loan interest rates offered by various banks in India like SBI, HDFC, ICICI, PSU banks and many more ? www.Dhanlaxmifinance.com has most comprehensive Compare Quotes presented in a user friendly manner. You should use this for comparing various rates across various banks and HFCs as there are different rates offered by different banks. Not only rates, you can refer our compare quotes for salient features of the particular loan product along with the lender's profile.
To know that which lenders will be able to meet your accurate requirement, please fill in the enclosed form stating all your details.
You can fill up the get offers form to get competiting offers from various providers post which you can compare home loan offers based on various comparisons of home loan interest rates, EMIs, eligibility factors for various providers, compare home loan rates, other fees, etc.Compare it to believe IT!
Home Loan Interest Rates
The interest rate in general on home loans is also dependent on interest rate cycle as well. Home Loan interest rates in particular are dependent on the home loan amount, loan tenure and the profile of the borrower. The borrower's credit history and score under credit information bureau like CIBIL also has an impact on the home loan interest rate. The home loan interest rates can vary from lender to lender. Lenders like SBI offer different home loan interest rate for its new customers against its existing customers.
Housing Loan interest rates can primarily be classified into two categories i.e. fixed rate and floating rate of interest. There are very few lenders in India who offer pure fixed home loan rates where the rate of interest remains constant for the entire tenure of the home loan, while most lenders have a reset clause of 3-5 years. In floating home type, the rate of interest on such loans is subject to change whenever there are changes in the repo rates announced by RBI or any change is there in base rate of the bank. Borrower should opt for fixed rate of interest only if he is certain that the rate of interest is the lowest in the interest cycle. HDFC home loan interest rate is fixed for the entire tenure of loan, whereas SBI home loan interest rate is floating.
Some lenders even offer hybrid home loan interest rates. In recent times, some lenders have come up with innovative home loan products like teaser / dual rate of interest where the interest rate on such loans remains fixed for initial 1-5 years and thereafter it automatically moves to a normal floating rate of interest.
In case when the borrower prepays the housing loan taken under floating rate of interest, the lender cannot levy any penalty for prepayment of such loan as per the guidelines issued by RBI and National Housing Bank (NHB).
The borrower can exercise an option of converting from fixed interest rate to floating interest rate and vice versa by without paying any fee or penalty.
Normally, the home loan interest rate for banks is expressed as certain point above Base Rate and certain point above or below PLR (Prime Lending Rate) popularly known as spread.
The banks follow base rate system for calculating their interest rate, whereas the housing finance companies like HDFC Limited, LIC housing finance, etc. follow PLR system
The bank cannot lend below its base rate to any borrower. Any reduction in Base Rates automatically benefits all existing borrowers of the bank in their home loan interest rate. No such compulsions exist for the HFC's and hence banks that follow the Base rate systems are likely to be forced to pass on the benefits of drop in rates to its existing customers whereas no such system exists for Housing Finance Companies.
Hence, when there is a downward revision in the interest rates, the benefit, which has a certain degree of ambiguity in the PLR system, happens with a greater degree of transparency in the Base Rate system.
Guide to Home Loan Interest Rates
There are 2 kinds of lenders. Banks (State Bank of India (SBI), ICICI Bank, Axis Bank, etc.) and housing finance Companies or HFCs (HDFC, LIC housing finance, ICICI Home Finance Ltd. , Dewan housing finance, GRUH, etc)
Between them there are many kinds of Home Loan interest rates.
Fixed Home Loan interest rates
In true Fixed Rate Home Loans the rates remain fixed throughout the tenure of the loan no matter what. These kind of rates are very expensive (13.50%+ for a 20 year home loan in November 2010) and are offered by a limited number of lenders in the market.
Resettable Fixed interest Rates
Most of the so called Fixed Rates available in the market are of this variety. Here the interest rate is fixed for a period of 2-5 years and is then reset for a further period of 2-5 years and so on. These rates are more reasonable than the true fixed rates dealt with above. You just need to be clear about the nature of fixed rate contract you are getting into.
Floating Home Loan interest rates
(also called variable rate loans or adjustable rate loans)
For Banks : The effective rate is linked to the Bank's Base Rate. The base rate would have to be declared by the banks at least once every quarter. It is open to each bank to decide its own methodology for fixing the base rate but it is not allowed to change the methodology after selecting one methodlogy. The banks will have to document how it has arrived at the base rate and follow the same system consistently. The calculation of the base rate will be open to the RBI for review (which should at least ensure that a set system is actually followed while calculating the Base Rate). This is of course a much better stipulation than the earlier system of BPLR, where no such system was required to be documented by the bank and there was no question of any calculation that could be reviewed by RBI.
So even though composition of the base rate from the customer's perspective might continue to remain opaque still it is a better situation than the erstwhile BPLR since the regulator will ensure calculation of Base rate is done in a consistent and fair manner.
RBI has banned lending below Base rates except limited categories of loans such as employee loans, loan against its own fixed deposits, Differential Interest rate loans to SC/ST, etc..
The advantage therefore from the consumer's perspective is that when markets rate soften, obviously new borrowers will not borrow at the same rate as earlier. So if the base rate is fixed at 8%, and bank lends to corporates at Base Rate (8%) and possibly even to existing home loans seekers at Base Rates (8%). When interest rates in the market soften, the banks will be forced to reduce their Base rates as now new customers will not borrow at 8% and banks cannot lend below that rate without reducing their Base Rates. Thus banks will be forced to lower its base rate in response to market forces.
Any reduction in base rates, will automatically apply to the old customer as well as new customers in their home loan interest rate without any discrimination.
For HFCs :
The Base Rate Guidelines are for banks, but unless the regulator for the housing finance companies, National Housing Bank comes up with similar guidelines, ironically two of the market leaders, HDFC and LICHF and many others will not be covered by the new regime. Their customer may still be governed under old non transparent regime.
Home Loan Interest Rates
Interest rate on home loan is something that one has to pay in lieu of the loan provided by the bank/financial institution. Home loan Interest rate is very important element when it comes to choosing a home loan for a customer & it also helps the customer on taking right decision or on pinning down that through which bank or financial institution he or she can go for. Depending on this interest rate, the loan amount and the tenure of the loan, your EMI is calculated which is how you repay your loan to the bank. In case the interest rate is higher, the EMI would be higher and in case the interest rate is lower, the EMI would be lower. Thus while choosing a bank with a lower interest rate, you can certainly increase your monthly savings. But please keep in mind that interest rate is not the only criteria to choose a loan. There are various other parameters as well. The EMI is calculated on a monthly reducing balance method.
Your home loan eligibility or how much loan you are eligible for is also calculated on the basis of the interest rates. In case you opt for a bank with a lower interest rate, then your eligibility will be higher compared to a bank that is offering a higher interest rate.
Types of Home Loan Interest Rate:-
1) Fixed Interest Rate
A rate which is set In-advance or which is predetermined for entire term of Home Loan.
Let's take an Example :
Mr. X has a taken home loan from ABC Bank of Rs. 25 lakhs for 20ys. at an interest rate of 11.50% pa.
Then his EMI will be Rs. 26661 which he needs to pay for entire term of loan that is 20 years
Please note that most of the fixed home loan interest rates products available in the market are not fully fixed. Most of them come with a reset clause of 3 to 5 years. This means that the interest rates can be reset after a period of every 3 to 5 years (as mentioned in the loan document).
2) Floating Interest Rate
A rate which is linked to a benchmark rate or the base rate of the bank or the financial institution. The floating home loan interest rate will change as and when the bank will change its benchmark rate or the base rate.
Let's take an Example :
Mr. Y takes a floating rate home loan from ABC Bank of Rs. 25 lakhs for 20yrs.
For the initial year the interest rate may be around 9.5% that may change to 10% for the first 4 months of the 2nd year and after that it may change to again. It is not that the rates are always increasing, there are many times, when the clients benefit when the interest rates go down. When the interest rates changes, the customer is given an option to either increase or decrease the tenure or the EMI. In case, the customer chooses to change the EMI, he will spend more when the interest rate increase and will save more when the interest rate decreases.
So, here we saw the simple understanding of what is Fixed Rate & Floating/Variable home loan interest rate. Generally, the interest rates for floating rates for home loans are cheaper than interest rate for fixed rates for home loan.
hence, there are several factors that need to be looked at if one ever has to compare home loan interest rates.
Home Loan Eligibility Criteria
Home Loan: Eligibility Criteria: Overview
Almost anyone and everyone with a wish to buy a property and means to repay the loan can get a home loan. Every bank or lender has a set of criteria that you need to meet before you can avail the loan. You need to have a stable source of income and have attained 21 years of age to be able to apply for the loan. Assess your on www.Dhanlaxmifinance.com.
Home Loan EMI
An equated monthly installment (EMI) is what you pay every month towards repayment of your loan. Your Home Loan EMI depends on the loan amount, the rate of interest and the tenure of the loan. For a given loan amount and interest rate, your EMI can be lower if you increase the loan tenure. Check out our home loan emi Calculator to find out by how much you can reduce your present EMI. Of course, keep in mind that banks will allow you to increase the tenure only up to your retirement age.
Your EMI comprises an interest component and a principal component. In the initial years of your home loan term, the interest component will far exceed the principal component. Use our Loan Amortization Calculator to find out how much your next EMI is going to contribute towards interest and how much it will contribute towards principal repayment. This could help you in your tax computations.
Paying your home loan EMI on time is an excellent way to build a re-payment track record. Banks love responsible borrowers and are often willing to negotiate on the interest rate if you have a great repayment history. Typically a three year track record of timely repayments could help you secure much lower than market rates on a home loan and if the time is right, you may want to consider switching your home loan. We invite you to use our Should I transfer my Home Loan? calculator to help you find out the exact costs and benefits.
Home Loan Apply
When applying for a Home Loan
Virtually every young family in India aspires to own a home. A home loan is a great way to part finance the dream home that you always wanted to own. Here are the top 6 factors to keep in mind before applying for a home loan:
1) Get your own credit report
Apply online at http://www.cibil.com/accesscredit.htm and follow the instruction given there to get a copy of your own credit report. Check your credit report thoroughly to spot errors. If need be, use our advisory services on CIBIL Report to get any errors corrected. Remember any errors in your credit report can reduce your chances of getting a good home loan offer. This report is likely to be accessed by the bank's credit department after you apply for the home loan for inputs on you credit history.
2) Finalise property first before you finalise and apply to your lender.
Lenders reserve their best rates for immediate disbursement customers and hence customers who have finalised property get the best possible home loan offers. Also if they have any issues with your property it will get highlighted before you incur too much effort and costs. Some lenders may not be comfortable with you buying a plot and self constructing on it. Some lenders will not fund under construction property unless the developer is pre-approved with them. A lot of lenders can have issues if the property you are buying is more than 15-20 years old.
3) Be prepared to lose out on the processing fee
Most companies charge a non refundable processing fee with the home loan application which will not be refunded even if you decide not to use the loan sanction. The lenders incur costs for sanctioning your loan and hence in most cases this is non refundable. If anybody is promising you that the processing fee cheque will not be put in without your prior approval or that the processing fee will be refunded if you do not accept the sanction the chances are that he is lying.
4) Fixed rates are rarely fixed:
Understand the interest rates chargeable to you. The fixed costs quoted are normally fixed only for a period of 12 to 60 months and can be revised thereafter. Understand the rates chargeable to you by seeing our detailed home loan comparison table and then decide.
5) Make a provision for higher down payment :
Lenders carry out an independent valuation of the property being bought and they will fund around 80-85% of the valuation amount as determined by their valuers. These independent valuers normally are conservative and value the property (especially property bought on resale) much lower than what you might actually be paying for it. While you can ask for a second valuation (at your cost off course) you should be prepared to shell out the difference between the actual price being paid by you and the valuation made by the bank over and above the 15-20% downpayment required from you.
6) Let your Family inherit your home not your home loan
Make sure to review your insurance requirement when you take on a home loan. If you are underinsured make sure you buy a term policy (it is anyway cheaper than a so called loan cover policy) for the entire amount of loan so that the family can pay off the loan in the event of the borrowers death during the loan tenure. Also consider buying a critical illness rider that will pay off the loan in the event of the borrower suffering from critical illnesses such as Kidney failure, paralytic stroke, cancer, etc.
Do not sign blank application forms or documents and keep a copy of all documents submitted to the lender for your future reference. Any promise made by the DSA or even an official of the lender has no value unless it is in writing or at least on email.So if you are basing your decision on any such promise make sure you get it in record in some form.