Most lenders have reduced their interest rates on home loan by around 100 basis points in the last six months. The stagnant property rates and incentives on offer for affordable housing have made buying a home extremely conducive.
Here are some tips to select the best home loan deal.
Compare offers: To find the best home loan deals, you need to compare interest rates, charges, maximum tenure and various other factors. Many home loan seekers apply with a lender directly, without looking at other offers available to them. Even if you get a good home loan offer, compare it with what other lenders are offering to find the best home loan deal.
Opt for floating rate interest: While banks and NBFCs are not allowed to penalise pre-payment of floating rate home loans, fixed-rate home loans still carry pre-payment penalty of up to as high as 2% of the original loan amount. Opting for a floating rate of interest will provide you the flexibility to reduce your interest burden through prepayments without incurring any additional charges.
Choose highest loan reset frequency: It is compulsory to reset MLCR-based interest rates at least once a year. These rate resets can be monthly, quarterly, half-yearly or annually. The rate applicable on the rate reset date remains your interest rate till the next reset date. For example, if you have opted for a home loan with a half-yearly reset date and your last reset date was on May 20, your next reset date will be November 20. The interest rate applicable on May 20 will continue till November 20 irrespective of rate hikes or cuts announced by your lender in between. Opting for a higher rate resetting frequency will allow faster reduction of your home loan rates in the current scenario of falling interest rates. However, if interest rates are expected to rise in the near future, prefer a lender offering annual reset.
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Opt for a lower loan-to-value (LTV) ratio: This is the proportion of your property value that you can finance through a home loan. The rest has to be paid out of your own pocket. Currently, LTV ratio for home loans of up to Rs 30 lakh has been capped at 90%. For loans between Rs 30 lakh and `75 lakh, the LTV ratio can go up to 80% while for loans above Rs 75 lakh, this ratio has been capped at 75%. Opt for a lower LTV ratio if you want to reduce your interest cost.
Ajay Mishra is vice-president & business head, Paisabazaar.com