What is Home Loan Interest Rate?
Home Loans have become the best medium to buy homes. Banks and NBFCs offer various home loan schemes and alluring interest rates that attract the home buyer. The key deciding factor for a customer to avail home loan from a particular financial institution is determined by the interest rate. The interest rate is charged on the principal loan amount.
What determines interest rates on Home Loan?
It is the bank that decides their lending rates. This depends on their cost of funds and NIM or Net Interest Margin which the banks need to earn a profit and cover their operation cost.
RBI decides on the repo rate and the reverse repo rate through which the banks or the financial institutes determine the lending interest rates or home loan interest rate. If RBI reduces the Repo rate, the banks also reduce the lending interest rates. If the RBI increases the Repo rate, the banks also increase the lending rates. As the repo rate and reverse repo rate control the liquidity of the funds in the economy. RBI increases the Repo rate, the rate at which the RBI lends money to the banks, to control inflation, to control the money outflow, and vice-versa with reverse repo rate.
An important point to note here is that home loans to salaried employees are offered at a lower rate as compared to those who are working in the unorganized sector; the prime reason for this is the stability of income of salaried employees.
The home loan interest rates calculation by the nationalized banks is presently based on MCLR or Marginal Cost of Lending Rate method. To this rate, the spread is added and then the final interest rate is mentioned to the customers or borrowers. And the NBFCs use Prime Lending Rate (PLR) calculation method.
Types of Home Loan Interest Rates
There are two kinds of home loan interest rates:
Fixed Interest Rate Loan- This rate of interest remains fixed and the borrower has to pay a fixed EMI during the home loan tenure. The market fluctuations don’t impact the home loan rate. A major point of concern when it comes to fixed home loan rates is they are 1-2.5% higher than the floating rate of interest. If a borrower has fixed home loan then he/she doesn’t get the benefit if the home loan rates go down. Their EMI remains unaffected by it.
Floating Interest Rate Loan- As the name indicates, floating rate loans have interest rates that change with the market condition. The are highly susceptible to market fluctuations. If the base rate changes, the floating rate also gets changed along with it. They are usually cheaper than the fixed rates but being highly influenced by the market condition they may vary as the RBI changes the rates.
Factors affecting your eligibility, home loan and interest rate –
1. Income – No matter how small your income is. It depends on your lender how much they can finance the property based on other factors.
2. Credit score – Though you are eligible with respect to every other factor, if you have a bad credit score, rest everything fails. Hence, it is a usual practice to check the credit score while checking your eligibility. Even if you have a very bad score, 6 months of good repayment again can help you get a good credit score through which you can apply for a loan.
3. Location of the property – Home loan sanction varies according to the place and state of the property located. Getting a loan for a gated community in urban India is easier when compared to the loan for a plot in rural India.
4. Loan amount – According to the property you choose, the amount that can be availed for loan is decided. Most of the national banks fund 80% of the price of the property and some of the NBFCs can fund 90% of the price of the property. You can go with national banks or private banks, if you have all the documents of the property in right place.
5. Type of loan – If you are already with a home loan and you still look for financing your expenses, there are many other loan options you can opt for but only if you meet the eligibility. You can go with home improvement loan, top-up loan or even personal loan to meet your ends. Interest rate for each loan varies.
6. Loan tenure – Loan interest rate, emi amount, tenure are the major factors to determine the loan. Everything is inter-related. Now lenders offer tenure upto 30 years so that you can have low emis according to the existing interest rate.
7. Type of interest rate – Fixed interest rate is a bit higher than the existing interest rate. Floating depends in the market trends. Hybrid interest rates are those loan products which offer fixed interest rate for the first five years and change to floating after 5 years automatically. You should be aware of how the interest rate is changing ang when it changes. If you keep your tenure constant, your emi keeps changing according to the interest rate you opted for.
8. Employment type – The interest rate, whether fixed or floating, depends on your employment type. For those of self-employed individuals, the interest rates are a bit higher when compared to the salaried individuals. Also for the women borrowers, the interest rate is 0.05% low. So, it is suggested to take loan on your wives name or mothers name or sisters name to enjoy the low interest rates.
9. On-going promo offers – To attract the loan borrowers, now lenders promote their products by no processing fees period or zero legal charges, or less interest rates for just one month, etc. It is advisable to wait for such times if you can, and opt for loan during such time. Any little amount reduced on our expenses will always pave way for something good.
Calculate your EMI.
When you apply for a home loan, the first thing you check is, calculate your budget, the expenses and surplus, etc. The same way, banks judge your repayment capacity by checking your eligibility by calculating your EMI. Loanyantra shows your approximate EMI as you enter your salary details, interest rate and tenure.
Calculate your Equated Monthly Instalment (EMI), http://loanyantra.com/Calculators.aspx, before even applying to any bank. Know different banks interest rates, and calculate and adjust exactly for your budget and fix for your favourite lender. Even Rs.1000, less also make difference when you can save on your EMI. Get expert advice from Loanyantra as to which bank provides special offers and know the right bank according to your requirements. Calculate your emi for any type of loan, personal loan, balance transfer, home loan or part payment all in one go.
Know your Tenure – Earlier were the days when home loan tenure used to be 20 years. Now, to make the home buying easy and affordable to every one, the emi should be low, so the lenders in India now increased the tenure to 30 years. So, if you want to reduce the emi, increase your home loan tenure to 30 years but try to repay before your retirement. Calculate your emi based on the tenure change. Decide on how much you need for expenses and how much you can pay for the loan based on the tenure. Tenure and emi are inversely related. If tenure is increased, emi is reduced. If tenure is reduced, emi is increased.
Check your Eligibility for Home Loan –
Home loan lenders first check your eligibility before even asking for any property documents. Usually, any lender would look for your credit score and salary to know your repayment capacity. Next step is to look at the property’s details by legally verifying the documents.
If you are not eligible for the loan from your lender, understand that either you applied for the loan amount more than you are eligible for or your credit score is bad. Pay your pending bills so perfectly at the right time for 6 months and check your credit score. This increases your credit score.
You might lose eligibility even if your property fails to clear the legal check. So, when you apply for the home loan, loanyantra can suggest you the best lender according to your requirements. You might like the property or it might fit in your budget or it is your ancestral property which doesn’t have all the required documents. So, there are lenders who might lend you for a home loan even at the best rates and at competitive home loan interest rates. So, get eligibility, know your eligibility, calculate your eligibility and get the instant loan and fastest loan disbursal from loanyantra.com.
Documentation for Home Loan –
1. Passport-size photographs of the borrower and the co-applicant if any.
2. Completely filled application issued by the financial institution.
3. The latest or the last three months salary slip as asked by the bank
4. Bank’s last six-month statement showing salary credited.
5. ID proof like Pan card, Adhaar card (mandatory), driving license, voter ID, Passport and employment ID card in case of salaried professional.
6. Proof of address
7. Proof of Age (Either of these): 10th or 12th Marks Cards, PAN Card or Voters ID Card.
8. In case you are self-employed or a businessperson, then you have to submit documents which prove the existence of your business and academic qualifications along with the financial statements.
9. Bank statements which show that home loan EMI deduction. Usually, it is of last 12 months.
10. Loan statement of the company and the entire set of documents related to the property that is currently in possession of the home loan provider.
Documentation for home loan is necessary, you are required to go through some paperwork, which assures the lender that you can repay the loan amount. Banks or other financial institutions require you to submit certain documents for home loan so that they can proofread it and also adjudge your credibility for home loan. Make sure that all the documents are correct and appropriate as the approval of the bank depends on your repayment capabilities which are decided by the documents.
Loanyantra.com helps you in every step. Start your research with Loanyantra.com. Let us know your requirements. Get all the suggestions you need and choose the best from the major lenders in India. All you need to do is just give a missed call to 040-71011991. You get a call back from our relationship manager and you can discuss in detail about your requirement.