A home loan endows you with the needed funds to purchase a dream home. There are various choices that you might consider for this. However, there are specific critical points that you factor in before availing of a home loan. Here in this blog, you will better understand these things in detail.
Despite the increase in repo rate, the home loan interest rate of ICICI home loan and SBI Home Loan still is low, and the real estate prices of residential properties hugely are stagnant over the past few years. For the ones looking to purchase a house of their own, present opportunity must be used to get the best benefits. However, before availing of a home loan from either SBI home loan or ICICI home loan or Axis Bank, ensure to factor in the following parameters to get the best deal.
Eligibility –
The home loan amount that you will be eligible for depends upon specific parameters like your age, income, repayment tenure, credit score etc. While income plays a massive role in determining the loan quantum, you always can show your spouse’s income and make him/her the co-applicant of the home loan. This assists in increasing the eligibility for a home loan to an extent.
Interest rate –
In case you are approaching a bank for a home loan, remember that the home loan interest constituent offered is linked to the external benchmark. For most lenders, it is the RBI’s Current Repo Rate to which the lending rate is attached. Every time there is some change in the RBI repo rate, the home loan interest rate for the borrower might see a change with a time lag of 3 months, particularly if you hold a flexible home loan rate of interest.
As a home loan applicant, ask for a financial institution’s external benchmark rate, popularly called the RLLR (repo linked lending rate), to see how much the home loan interest rate will be applicable. RLLR is the floor rate for banks, which is over and above the applicable rate based on an individual’s credit profile and may differ based on the loan amount, repayment tenure etc.
In the case of HFCs and NBFCs, the lending interest rate is primarily based upon the funds cost and still is indirectly impacted by the reserve bank of India’s repo rate movements. If you are looking for lenders with a lower RLLR (repo-linked lending rate) or lending rate, ensure to compare the home loan interest rates using the online financial marketplaces.
Impact on credit score –
Your credit profile plays a massive role and enables lenders to provide a lower interest rate. A higher credit score of anything over 750 is highly preferred by lenders, and you may save a lot on your interest constituent by taking up a home loan at a competitive interest rate. Many lenders even have begun offering lower interest rates to borrowers depending on their credit score. If the score is less than 750, you might need to take the required measures to increase it and then approach the concerned lender for a home loan.
Loan amount – It is one of the most necessary lookouts. While you may procure a huge amount if you hold a strong credit, you must not overstretch. Remember that a home loan is a long-term commitment. You must go for an amount that you can repay quickly on time without fail.
Take into consideration all your future and current liabilities before determining your amount. Remember that purchasing a home is one of the important goals. In such cases, it can be extremely challenging to serve high EMI (equated monthly instalment).
EMI that you repay towards your home loan is directly proportional to the loan amount. This means the higher the amount, the higher the EMI. Thus, choose a loan that is easy in your pocket. Note that the maximum loan proceeds that you can get entirely depend upon your income & property value. Also, lenders consider your current liabilities as well as cash flow before approving your loan amount.
Rate of interest – This is another crucial consideration as the interest rate has a direct bearing on EMIs. You can get a home loan either at a floating or fixed rate. In the case of fixed-rate, the interest rate of a home loan is constant across the loan repayment tenure. In the case of floating rate, the same differs as per the market conditions. Regardless of the rate of interest selected, ensure it is a competitive one. In simpler words, ensure to go for a bank lender who provides a competitive rate of interest. Make sure to compare the interest rates from various lenders and avail of the one that best matches your requirement. Remember that women are mostly provided with a concession on the rate of interest, and thus, it makes full sense to avail of a joint home loan where the spouse is the loan’s co-borrower.
Loan repayment tenure – Often, individuals fail to factor in this important aspect. However, you should ensure to keep a watch on this. While home loans are a long-term commitment, selecting the correct repayment tenure is crucial as this directly affects the interest outgo. If the repayment tenure is short, your loan EMIs will be high. However, the interest constituent will be low.
On the other side, if the loan repayment tenure is long, then the interest constituent will be high, and so will the overall payment. Loan repayment tenure can even be utilized to increase the eligible loan proceed and avail a higher repayment tenure. So, ensure to select a repayment tenure where you can simply your loan and keep a tight lid over interest outgo.
Processing and other fees – Bank lenders charge processing fees for processing the loan. Such charges differ throughout lenders, and it is necessary to choose a lender with a competitive fee as high fees can considerably enhance your borrowing cost. Equally necessary is to look at other crucial fees that are charged. Be extremely clear about such charges before sealing the loan deal.
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