Three things to keep in mind while taking a home loan

 Here, we discuss three important factors to consider when taking up a home loan: interest rates on various forms of home loans, choices for customising home loan EMIs, and various loan expenses.

fixed or floating

Floating rate house loans are typically offered by banks or housing finance companies (HFCs). Floating rate loans are effectively tied to a benchmark rate, and the interest rate applicable to your home loan fluctuates based on interest rate movements in the economy.

Floating rate loans issued after October 1, 2019, must be linked to external benchmarks like as the repo rate and 3-month/6-month treasury bill yield and reset at least once every three months, according to RBI guidelines.

As a result of the RBI's rate cuts during the last two to three years, bank loan rates on home loans have also dropped dramatically.

Meanwhile, certain banks and housing finance companies (HFCs) provide fixed-rate loans. The interest rate is fixed either for the full loan term or for a certain portion of the loan term. In the case of a pure fixed loan, the EMI and loan term are known ahead of time, allowing the cash outflow to be budgeted properly.

At this point, with interest rates at multi-year lows and likely to rise, locking in a house loan at a fixed rate looks like a no-brainer. Fixed-rate loans, on the other hand, attract a larger premium due to the certainty of cash outflows they provide.

A comparison of interest rates offered by banks/HFCs for both floating and fixed rate loans reveals that the latter costs 0.7 to 6 percentage points more (see table).

HDFC Housing Finance Company has a dual rate plan and charges the lowest premium on fixed rate loans at roughly 70 basis points (beginning at 7.4 percent per annum). Lending rates are first fixed for two years, then moved to a floating rate after that.

"While there is a substantial possibility that the RBI will increase the interest rate by more than 70 basis points over the next two years," said Corporate Trainer – Debt Joydeep Sen, "this choice still remains significantly as floating for the borrower." It will not be advantageous. The rate will be in effect for the remainder of the long-term mortgage."

As a result, do your homework before deciding on a loan kind. Even if you choose a fixed-rate mortgage, check to see whether there is a reset clause.

Choose your EMI type

When you take up a variable rate home loan, your EMI may fluctuate in response to changes in the benchmark rate.

To avoid a change in the EMI amount with each reset, banks may aim to keep the EMI amount constant while increasing or decreasing the loan's duration.

The consumer, on the other hand, has the option of increasing or decreasing the EMI amount or tenure.

"When the interest rate rises, and the customer can afford the increased EMI, he should choose for higher EMIs as the loan is closed on time and the total cost is lower," said Ratan Choudhary, Head of Home Loans at Paisabazaar.com. The financial burden of interest is lessened."

In a declining interest rate environment, on the other hand, Choudhary says that instead of selecting for a reduced EMI, the customer should keep paying the original EMI amount, which would help to settle the loan before the term ends.

In addition, certain financial institutions provide repayment choices that are more flexible. Step-up loans have a modest initial EMI that gradually climbs as the year passes. For example, if a loan is sanctioned for 20 years with the Step-up EMI option from Bajaj Housing Finance, only interest is payable for the first two years and the next 18 years are interest-free. – To be paid in addition to the principal.

Similarly, a step-down loan has a large starting EMI that gradually falls year after year. While the step-up loan option is ideal for borrowers who are just starting out in their careers, borrowers who are nearing retirement should consider the step-down loan option.

shop around

Before choosing a lender, consider the expenses associated with loan origination or processing, administrative fees, documentation, late payments, altering loan tenures, switching to various loan packages within the loan term, restructuring loans, and transferring from fixed to floating interest rates. Legal fees, technical inspection fees, recurring annual service fees, and document retrieval fees are all factors in determining loan rates.

If you're not sure, ask the bank about the loan's annual percentage rate (APR). The APR, which is expressed as an annual rate, takes into account not just the interest rate but also fees and other expenses that you may have to pay.

If you decide to pay off the loan early or move lenders, keep in mind that there will be no foreclosure cost or pre-payment penalty, as there would be with a floating rate loan. In 2012, the RBI required that no fees be charged for prepayment of house loans with floating rates.

Conclusion

There's no need to be discouraged if your personal loan application is turned down. To boost your chances of loan approval, simply work on improving your credit report and following the methods outlined above. Once you've completed this checklist, you're ready to submit your personal loan application.To find about the best pricing and deals, call our toll-free number +91-9477079053. They'll help you in every way they can. Please contact me at Best Home Loan In India if you have any more.

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