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 EMI Calculator
Are you planning to buy a home in near future and confused how much you will need to pay for your home loan every month to the bank or you have finalized the property and want to know much EMI you will have to pay to the lender.
Our EMI calculator for home loans will help you to calculate the EMI for you to service the loan. This EMI is payable to the lender every month towards the repayment of your home loans. Your EMI will depend up on the interest rate which the bank charges you for giving a loan to you, the tenure of the loan and the loan amount. You can also play around with the tenure and the interest rates and see how you can reduce the EMI or the tenure of loan.
This Calculator will enable you to plan better by giving a clear picture of your EMI payments.
How to choose your home loan lender?
Buying a home is dream for everyone but most of us are not able to achieve the dream due to many reasons. The escalating real estate prices have made buying a property a dream for most of us. It may happen that you have been thinking for quite some time to buy a property but your bank balance is not allowing you to do so. If that is the case, you can go ahead and take home loans that you can pay over a period of time and also own your dream home.
The foremost thing to be kept in mind is that one should never finalize a lender on the basis of interest rates. Most of us choose home loan lender on the basis of interest rates, cheapest the best. But actually, there are various other things that should be kept in mind while finalizing home loans.
Check your home loan eligibilty with various banks Various banks have their own methods ad standards for calculating eligibility. You should do some shopping to check which bank is offering you higher loan eligibility. Adding up your spouse income may also be a good option to increase your home loan eligibility.
Fixed or Floating interest rate: A fixed interest rate means that you will have to pay same EMIover a period of time (it may be fixed for entire tenure or it may be reset at fixed interval). Floating interest rates may change at any given point of time, which may result increase or decrease in either your home loan EMI or your tenure.
Processing fees This fee is charged by the bank for processing the home loan and is not refundable. In case you decide not to take the loan from the bank, then the entire amount you have paid towards processing fees is lost. This generally varies in the range of 0.5 to 1% of the total home loan amount. Also payment of processing fees doesn’t means that your loan is passed. It may happen that you pay the processing fees but still your loan is not sanctioned due to various other reasons. Thus before paying the processing fees, you should bargain on the same and get it confirmed from the bank in writing.
Prepayment fees Prepayment fees come in to picture in case one wants to prepay his home loan from various sources. It may be from his personal savings or if he is planning to switch the loan to a different lender. Few of the banks offer no prepayment charges in case the prepayment is done from own sources. But in case the person is shifting the loan to a different lender then most of the banks ask to pay a fee in the range of 1% to 2% of the outstanding loan amount.
All the charges should be always be taken down in written from the bank and the written document should be preserved in case the bank asks the person to pay up some different amount after sometime.
Once you are satisfied with the above clauses and the interest rate offered by the particular lender, you should go ahead and buy your dream home.
Along with that it is always said that you can get the best home loan deal only after your property is finalized. So before you start with your loan hunting, we would suggest you to finalize the property.
Home Loan: New customers
In case you have been planning to buy your dream home for very long and you are unable to do that because of the rising prices everywhere, here is some help for you. You can take a home loan that will help you to buy your dream home. All you have to do is to save enough money to make the down payment of your home that is 20% of the property value. The remaining 80% of the amount can be taken as a loan from a bank depending upon how much loan you are eligible for. The bank will decide your home loan eligibility depending upon your income and various other parameters. These home loans can be repaid to the bank every month as equated monthly installments or more popularly known as EMI over the entire tenure of the loan. A part of this EMI goes towards repaying the principal component of the loan and the other part goes towards paying the interest. The EMI is calculated on a reducing balance basis. A reducing balance home loan means that in the initial days of the loan, the interest component of the EMI is high as the loan amount is high. But gradually, when the principal amount starts becoming lesser and lesser as you keep on paying it through EMI, the interest component of the EMI goes down and the principal component increases.
Also, while you are going to take a home loan you need to decide, the type of interest rate you want to pay to the bank. The banks will offer you with an option of a fixed rate or a floating rate. Home loans with fixed interest rate mean that the interest rate is fixed for the entire tenure of the loan. But these days, most of these fixed interest rates come with a reset clause where the bank has an option to change the interest rate after a fixed period of time generally in a range of 3 to 5 years. There are also a few banks that give you a fixed interest rate for the entire term of the loan.
The other type of home loans is with floating interest rate where, the rates will depend on the base rate of the bank. As and when the bank will change their base rate, the interest rate will change for the customers. The change can either be in terms of EMI or tenure. For example, if the bank increases their base rate, the EMI will increase if the customer chooses the option to increase the EMI. Or in case the bank decides to decrease their base rate then the EMI will reduce for the customer. Generally the floating interest rates are cheaper compared to the fixed rates.
Looking at the home loan interest rate scenario, this is quite an appropriate time to buy the home you were always looking to buy. The interest rates are on a rising trend thus in case you can manage to get a home loan right now, you can expect to get a better interest compared to what you will get a few months down the line.
Home Loan: Existing customers
In case you have already bought a property and you are paying a very high home loan interest rate, then you should consider shifting your existing loan from existing home loan lender to a new home loan lender. This will decrease the monthly EMI you are paying towards your loan and will save money for you. You should consider shifting from the old BPLR system where the interest rate changes according to BPLR to the new base rate system. The base rate system is more transparent than the BPLR system. Thus the effort you put behind converting your old home from the BPLR to the base rate system will be worth devoting.
Also you should act now as the home loan interest rates are increasing and you may miss the bus in case you wait for any longer.
Home Loan: Eligibility
Home loan eligibility depends up on various factors. A few of them are listed below –
- Income – Your income determines the amount of home loan you are eligible for. Banks generally keep the EMI to income ratio at 0.45 to 0.50.
- Tenure of the loan – The longer tenure you opt for, the more is your home loan eligibility.
- Interest rate offered – If your interest rates are on a lower side, then the loan eligibility will be higher and vice versa.
- Existing loans – In case you have any existing loans, then the loan eligiblity amount will come down to keep the EMI to income ratio around 0.50.
The lender will consider all these factors along with your credit history to determine how much loan you will be eligible for.