How to Compare and Choose Home Loans in India
The stepping stone of availing a home loan is to start comparing home loans provided by different banks on the basis of interest rate. We do so as we think that interest rate is the only criteria to compare the home loan. However, we need to stop just for a while and think again! Blog: https://financebuddha.com/blog/how-to-compare-and-choose-home-loans-in-india
The stepping stone of availing a home loan is to start comparing home loans provided by different banks on the basis of interest rate. We do so as we think that interest rate is the only criteria to compare the home loan. However, we need to stop just for a while and think again!
Blog: https://financebuddha.com/blog/how-to-compare-and-choose-home-loans-in-india
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
<strong>How</strong> <strong>to</strong> <strong>Compare</strong> <strong>and</strong> <strong>Choose</strong><br />
<strong>Home</strong> <strong>Loans</strong> <strong>in</strong> <strong>India</strong><br />
The stepp<strong>in</strong>g s<strong>to</strong>ne of avail<strong>in</strong>g a home loan is <strong>to</strong> start compar<strong>in</strong>g home loans<br />
provided by different banks on the basis of <strong>in</strong>terest rate. We do so as we th<strong>in</strong>k<br />
that <strong>in</strong>terest rate is the only criteria <strong>to</strong> compare the home loan. <strong>How</strong>ever, we<br />
need <strong>to</strong> s<strong>to</strong>p just for a while <strong>and</strong> th<strong>in</strong>k aga<strong>in</strong>! Interest rates are not the only<br />
fac<strong>to</strong>r/criteria on the basis of which home loan should be compared!<br />
An <strong>in</strong>terest rate is an important criterion but it is def<strong>in</strong>itely not the only one on<br />
which one can make a decision. There are some other fac<strong>to</strong>rs <strong>to</strong>o that should be<br />
considered while compar<strong>in</strong>g home loans before mak<strong>in</strong>g a decision. Let us know<br />
these fac<strong>to</strong>rs <strong>in</strong> detail.
Fac<strong>to</strong>rs <strong>to</strong> Consider while Compar<strong>in</strong>g Different <strong>Home</strong> <strong>Loans</strong><br />
1. Interest Rate<br />
This is one of the most important fac<strong>to</strong>rs on basis of which home loan is<br />
compared. This is considered important as your EMI is <strong>to</strong>tally dependent on the<br />
<strong>in</strong>terest rate although there are some other fac<strong>to</strong>rs like the tenure period on<br />
which your EMI depends. <strong>How</strong>ever, let’s consider on <strong>in</strong>terest rate first.<br />
There are two k<strong>in</strong>ds of <strong>in</strong>terest rate<br />
1. Fixed <strong>in</strong>terest rate– When you go for a fixed <strong>in</strong>terest rate for your home<br />
loan the <strong>in</strong>terest on your loan will be fixed throughout the tenure. It means<br />
that your EMI amount will also rema<strong>in</strong> the same throughout the tenure.<br />
2. Float<strong>in</strong>g <strong>in</strong>terest rate– When you go for a float<strong>in</strong>g <strong>in</strong>terest rate for your<br />
home loan, the <strong>in</strong>terest rate on your loan can vary as per the market<br />
fluctuation <strong>and</strong> hence there may be a change of your payable EMIs or the<br />
tenure <strong>to</strong>o.<br />
Let’s underst<strong>and</strong> this with the help of an example-<br />
Yog<strong>in</strong> went on a home loan with a fixed <strong>in</strong>terest rate of 9% per annum, on the<br />
other h<strong>and</strong>, Rajan went on a home loan with float<strong>in</strong>g <strong>in</strong>terest rate which was<br />
<strong>in</strong>itially 8.50%. So, there will be no change <strong>in</strong> the Yog<strong>in</strong>’s <strong>in</strong>terest rate<br />
throughout the tenure <strong>and</strong> he will be pay<strong>in</strong>g the same amount as the EMI.<br />
Whereas there will be fluctuation <strong>in</strong> Rajan’s EMI as it will depend on the<br />
market fluctuations.<br />
2. Process<strong>in</strong>g Fees<br />
When you apply for a home loan you need <strong>to</strong> submit certa<strong>in</strong> documents. These<br />
documents needed <strong>to</strong> be verified <strong>and</strong> processed. Applicants are charged certa<strong>in</strong><br />
amount termed as ‘process<strong>in</strong>g fees’ regard<strong>in</strong>g these processes.<br />
These charges vary from bank <strong>to</strong> bank <strong>and</strong> may vary with<strong>in</strong> the same <strong>in</strong>stitution<br />
depend<strong>in</strong>g on the loan amount.Most of the banks charge this amount as a<br />
percentage of the loan amount or may be a fixed amount. It mostly depends on
the loan amount. So, if you are compar<strong>in</strong>g home loan don’t forget <strong>to</strong> consider<br />
this fac<strong>to</strong>r.<br />
3. Pre-closure Charges<br />
<strong>Home</strong> loan is generally a long tenure loan <strong>and</strong> pay<strong>in</strong>g it for long-term can cost<br />
much. One has a big amount <strong>in</strong> the terms of <strong>in</strong>terest payment. So many<br />
borrowers want <strong>to</strong> pre-close their home loan <strong>to</strong> save on it. But, some banks<br />
charge some amount <strong>to</strong> pre-close the loan. Hence, if you are go<strong>in</strong>g for a home<br />
loan it is important <strong>to</strong> check with your provider whether they charge for the preclosure<br />
or not. A pre closure charge is generally not applicable for a float<strong>in</strong>g<br />
<strong>in</strong>terest rate home loans.<br />
4. Insurance Cover for your <strong>Home</strong> Loan<br />
Insurance cover for your home loan is an essential th<strong>in</strong>g. This covers your home<br />
<strong>and</strong> makes you tension free for the repayments when you are not there. You<br />
need <strong>to</strong> choose it as per your requirements. Some banks may provide this<br />
<strong>in</strong>surance along with your home loan <strong>and</strong> add the cost <strong>to</strong> the EMI. If you go for<br />
it separately you may get a choice about but it may cost you more. Hence, it<br />
becomes important <strong>to</strong> check <strong>to</strong> check with your home loan provider, whether<br />
they are prov<strong>in</strong>g the <strong>in</strong>surance for your loan or not.<br />
5. Loan <strong>to</strong> value (LTV) ratio<br />
Loan <strong>to</strong> value ratio is the proportion of your property value that bank will<br />
f<strong>in</strong>ance through the home loan. The rema<strong>in</strong><strong>in</strong>g amount is known as down<br />
payment. One need <strong>to</strong> f<strong>in</strong>ance the down payment from their own pocket. As per<br />
guidel<strong>in</strong>es of RBI, banks can f<strong>in</strong>ance up <strong>to</strong> 90% of the property value as a home<br />
loan. But generally, LTV ratio varies from bank <strong>to</strong> bank <strong>and</strong> can go up <strong>to</strong> 80%<br />
<strong>and</strong> 75% respectively.<br />
Above aspects will help you <strong>to</strong> compare home loans <strong>in</strong> a better way! Check!<br />
<strong>Compare</strong>! Analyse! And then decide.
Change language