- Home Loan provides the lump sum required to buy a property.
- Your credit history influences the Home Loan interest rate.
- Home Loan amount is dependent on the property valuation.
- Compare various offers before opting for your loan.
With real-estate prices on the rise, it is not unusual for even a home buyer with a substantial amount of personal savings to opt for a housing loan. Over the past decade, applying for and securing a Home Loan has become quicker and easier.
Consumer sentiment has also been boosted by lower Home Loan interest rates and the introduction of the Real Estate (Regulation and Development) Act, 2016. If a new property has your interest, here are a few factors to keep in mind before filling out your loan application form.
Importance of Your Credit History
The interest rate to be paid on the Home Loan amount is associated with your credit score. Lenders reserve the best rates of interest for customers holding a CIBIL score of at least 750. If your score falls below this margin, it is usual for the lender to charge a higher rate of interest.
Alternatively, with a higher credit score, you will have to pay less. Thus, it is easier for you to borrow more and purchase better properties. If you are unsure about what your credit score is, simply claim the mandatory free report provided yearly to customers by your respective credit agency.
Interest Rates Charged
Interest rates charged on your housing loan may vary depending on which financial institution you are opting your loan from. The list below will give you a general idea about Home Loan rates charged by various major nationalized and private banks and financial institutions across the country. (Please note that the rates reflected here are approximates).
|Financial Institution||Minimum Interest Rates||EMI (Per lakh)||MCLR Rates||Processing Fee|
|A||8.30%||Rs.856||7.95%||0.35% of loan amount|
|B||8.35%||Rs.859||8.20%||0.50% of loan amount|
|C||8.35%||Rs.859||16.15%||1.25% of loan amount|
The valuation of property is yet another important aspect of securing a Home Loan. The bank you are obtaining the loan from will commission the process of property valuation. The valuation report will decide the loan amount allowed to you for the purchase of the property.
Ratio of Loan Amount to Property Value
Once the property you are interested in has been evaluated in terms of market price, your bank will apply the ratio of loan to property value in order to arrive at the loan amount. For example, for any property that costs above Rs.75 lakh, lenders generally lend about 80% of the purchase price. Typically, banks would expect you to partially contribute towards the purchase from your savings.
Know Your Borrowing Capacity
As a home buyer, your financial obligations will change with time, while your income might or might not increase in proportion to your expenditures. Deciding to settle for high EMIs believing that with time the financial burden would lessen is not a wise idea. It is better to evaluate your borrowing capacity more realistically so that eventually you do not have to stretch your finances.
Compare Before Settling for a Loan
As we have seen before, Home Loan interest rates vary from lender to lender. Review EMIs, processing fees, and various other associated costs of opting for your Home Loan before arriving at a final decision.
By Anamika Verma
who loves to write on various topics related to home improvement, personal finance and etc.
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