If you are looking for a home loan, here are 5 tips for choosing the best offer.
Home Loan Tips: For the first time home buyers, the real estate scenario appears to be conducive enough to take advantage of the available deals and offers. From credit-linked subsidy available on Pradhan Mantri Awas Yojana (PMAY) scheme to sub-7 per cent home loans to discount offers from builders, it’s all in the home buyer’s advantage. “This is the right time to own your dream home if you are an end-user, as the property prices are relatively subdued and the home loans are available at the lowest interest rates,” says Manish Sheth – MD & CEO, JM Financial Home Loans.
If you have already identified your home and looking for a home loan, there are a few tips that may come handy to you. These home loan tips will help you get not only the best interest rate but also keep the overall interest cost low till the end of the home loan tenure.
1. Ask for bank’s RLLR or EBR
When yo walk into the bank branch or explore home loan interest rates online, firstly look at the bank’s external benchmark rate. Some banks call it it repo rate linked lending rate (RLLR) while some may call it EBR or EBLR. All of them are same as they are linked to RBI’s repo rate. RBI had asked banks to lend at rates linked to an external benchmark and most of the banks have opted to link it to repo rate. Lower the RLLR, lower the interest rate for you.
2. Compare effective home loan rate
But wait, banks also charge a ‘premium’, or ‘margin’ or ‘spread’. This may vary depending on amount of loan, amount of down payment, your profession and even credit score amongst other factors. Therefore, the best home loan interest rate for you will be based on your specific parameters. “The home loan interest rates vary based on customer profiles. Salaried home loan customers usually get home loans at a cheaper rate than self-employed customers.” So, speak to a few home loan providers and settle for the lowest home loan interest rate after comparing them.
Effectively, home loan interest rate = RLLR plus or minus Spread ( some lenders may consider credit score also)
If you are looking for best home loan interest rate, these lenders may be explored – SBI home loans and HDFC home loans are available from 6.95 per cent while LIC Housing Finance, Union Bank of India and Bank of India are also offering home loans with rates of interest starting below 7 per cent.
3. From where to take the loan
One can take home loans from banks or housing finance companies(HFC). The HFC’s don’t have to follow RLLR mechanism and they can set their own rates based on their cost of funds. “Although the public sector banks offer the cheapest home loan interest rates to the eligible home loan applicants, their process of sanctioning and disbursing loans takes longer than that of private sector banks and housing finance companies. Therefore, going for new-age housing finance companies seems to be the wiser option for a section of housing loan applicants whose eligibility is based on assessment-based income criterion, as more than one income is taken into account.”
4. Maximize down-payment amount
No matter you choose a bank or HFC, its better to provide as much down-payment to the lender as possible. The more the down-payment amount, lesser will be the overall interest cost by the time tenure ends. On higher down-payment, lower will be the loan amount and hence lower will be the EMI.
5. Keep a prepay plan ready
The day you start a home loan, build a plan to prepay the home loan as early as possible. If one take a loan for 15 year or 20-years, the interest cost becomes a substantial portion of the loan amount. Therefore, its better to start saving to prepay every quarter or every 6-months.
The more you prepay in the initial years of the loan, the better it is. “One of the public sector banks offers a savings bank-linked home loan scheme in which the bank does not charge interest on the balance amount of the savings bank account and the credit available in the linked savings bank account will be counted for credit in linked home loan account. Such clause in the home loan scheme leads to the reduction in the overall interest burden for customers.”