Guide to the Home Loan Process

Buying a home is one of the major decisions a person has to take during his life. It is rare to find someone who pays the entire cost of home at one go. A home loan is an essential part of any home buying endeavor. Taking a home loan is a long journey, which involves many stages. The key to getting your home loan in a smooth way is being familiar with the entire home loan process.

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Know the home loan process before-hand
Beginning the home loan process in India

The process of getting a home loan starts with a formal application for the loan. The application form requires certain basic information about you. This will include your personal, residential, income, employment, educational details and details about the property, estimated costs and current means of financing the property. Though the requirements may vary from bank to bank but there are certain things which every bank will ask.

The application form must be supported with valid documents to substantiate the facts. Generally the banks will ask you to submit following documents.

  • Income proof
  • Age proof
  • Identity proof
  • Address proof
  • Employment details
  • Proof of educational qualifications
  • Details about the property if finalized
  • Bank statements

Proof of income : This will need to be backed up by proof such as copies of last three years’ Income Tax returns (along with copies of Computation of Income/Annual accounts, if any), Form 16/Form 16A, last three months’ salary slips, copies of the last 6 months’ statements of all your active bank accounts in which your salary/business income details are reflected, etc. Other documents that you need to provide with your application form include age proof, address proof and identification proof. You may also be asked to give your employment details.

Age proof : Copy of your school leaving certificate/Driving license/Passport/ration card/PAN card/Election Commission’s card/etc.

Identification proof : Same as above, but with photograph. Sometimes, the same document if it contains a photograph, the current residential address and the correct age can be the proof for all 3 things.

Address proof : Similar documents need to be provided to prove that you are actually staying at your current address.

Your employment details: If your company is not well‐known, then a short summary about the nature of the company, its business lines, its main customers, its competitors, number of offices, number of employees, turnover, profit, etc may be needed. Usually, the company profile that is available on the standard website of the company is enough.

Educational qualification : The copy of certificates of your higher educational qualification needs to be submitted.

The purpose of the entire exercise is to ascertain the suitability of an applicant for a home loan. The income documents and bank statements provide vital clues to the bank regarding your financial health.

Processing fees for home loans in India. : An important thing to note about home loans is the processing fee. Banks charge a processing fee for every home loan application. This fees is non refundable. This fees is used by the bank to start and maintain the home loan process including completing the various formalities during the entire period.

Evaluation and verification of home loan applicant : After applying successfully for the home loan and submitting the processing fees, the bank evaluates your application, decides in principal about your home loan and requires a personal meeting with the bank officials. This decision for personal interaction can be taken within 2-3 days of submitting a complete application. The purpose of this personal interaction is to know more about the borrower and his repayment capacity. Being satisfied by your application and personal interaction, the bank proceeds to verify all the facts that you mentioned in your application for home loan. A field investigation process is initiated – to confirm and validate everything stated in the application form. Qualified representatives are sent by the bank to your office and place of residence to ascertain the facts. The references provided in the application are cross checked and verified.

Verification of repayment capacity : Once the field investigations over, the bank now goes ahead to verify your repayment capacity. This is the most vital part of any home loan process. If the bank finds that you’ll not be able to repay the money back with interest on time, it will simply deny you any home loan offer. On the other hand if the bank finds that all’s well and is convinced by your repayment capacity, it sanctions your home loan. Based on how well the bank is satisfied by your financial conditions and repayment capacity the bank can issue a conditional sanction or unconditional sanction. If the sanction is conditional, you’ll have to fulfill the conditions imposed before the loan is disbursed.

Sanction letter for home loan : The bank then prepares a sanction letter which contains the following detail:

  • The amount of home loan sanctioned
  • The interest rate applicable on your home loan
  • Whether the interest rate is fixed or floating
  • Your home loan tenure
  • The mode of repayment of the home loan
  • If any special scheme applies to the home loan, its details
  • The terms and conditions associated with the home loan

If you find the offer attractive and agree with all the facts mentioned in the sanction letter, you will have to provide an acceptance copy to the bank. This is generally a duplicate of the sanction letter signed by you, provided to the bank for its records. If the bank charges any administrative fee, it will have to be submitted at this stage.

Verification of the property : Now the bank will verify the property in question. The home loan is a secured loan with the property being used as the security or collateral. So, to get the home loan you must submit the original documents of the property to the bank. The title deeds, no-objection certificates and other documents required by the bank are to be submitted in original and the bank keeps them safely until you repay the entire loan amount. After taking the papers, bank conducts a legal check so as to verify that the property has a clear title and the home loan is being disbursed to the right person and for the right reasons. Banks don’t lend for disputed properties and for titles where ownership cannot be easily enforced.

Along with the legal check, banks also send experts to the location of your property to conduct a technical valuation. If the property is under construction, the banks verify the stage of construction, quality of construction, progress of construction, locality etc. and evaluate the property on established parameters. In case where the property is ready or is being resold the bank verifies the ownership, maintenance, age of property, quality of construction, locality and required legal clearances. The banks have qualified valuators, which assess the value of property on various parameters and decide on the amount of loan

The sole purpose of all this exercise is to ensure that the property has a clear title, is technically sound and meets the valuation standards of the bank.

Note: Verification is not necessary if loan is being sanctioned by a tie-up Bank.

The disbursal of home loan : Once the formalities are completed and the bank is satisfied with the legal, technical and financial valuation of the property, the registration process for the home loan begins. The legal documents are to be prepared on stamp papers of required denominations in a format approved by the bank’s lawyer. The home loan agreement is then signed and you need to submit the post dated cheques for the agreed term. After the home loan agreement the loan disbursal process begins. Depending on the home loan purpose, and the agreed type of disbursal (lump sum or in stages), banks disburse the home loan amount.

Income Tax certificate

Every bank issues an income tax certificate that serves as requisite proof to let you avail of tax benefits that accrue on repayment of a home loan. This will typically contain the total amount of interest and capital repaid during the year. This is mandatory to claim the tax benefit in respect of self-occupied property. You will have to file this with your tax returns and submit this to your employer or chartered accountant to calculate your tax liability.

How Loanyantra Works During the Home Loan Process :

It is our work to make you feel at ease during the process. We are here to make you select the best and your favourite bank. We ensure that your process is smooth as we send you alerts and remainders about each step before even the agent comes to you. You can always contact our relationship manager for any queries.

Best banks for home loan borrowers!

Favorite banks for Indian Home loan borrowers


                            In India, saving and investing money is the option which everyone looks for. Investing money in buying a home is in everyone’s to do list. So no wonder that they go for a detailed analysis about the home loan and the process involved in it to choose the best, the fastest and the safest home loan provider.

                            According to the recent analysis, here are the details of the favorite banks for Indian home loan borrowers.

  1. SBI  Home Loan capturing 25.5% market share.
  2. HDFC Ltd. with 24.13%
  3. LIC Housing with 15.83%
  4. ICICI Bank with 13.10%
  5. Axis Bank with 6.23%
  6. IDBI Home Loan with 4.67%
  7. PNB Home Loan with 4.22%
  8. Others with 6.32%

These are the points usually borrowers look at while applying for a home loan.

  • Interest rate – Fixed, floating, hybrid
  • Home loan processing speed and the fees involved.
  • Loan qualification
  • Repayment terms

Let us go deep into these topics.

  • Interest rate :

                                 

    Interest rate offered is the primary factor of comparison. It affects the EMI and total amount payable. For a home loan, it is advised to go for a loan with low interest rates. Also it is recommended to decide whether to go for a fixed or flexible or hybrid loan rate.

     

Interest rates of various banks are as follows :

  1. SBI                          –             9.50% – 10.00%

  2. HDFC Ltd.             –            9.50% – 10.40%

  3. LIC Housing          –           10.10%

  4. ICICI Bank             –           9.50% – 9.90%

  5. AXIS Bank              –          9.65% – 10.45%

  6. IDBI Bank               –          9.85% – 10.15%

  7. PNB                          –         9.85% – 10.50%


Here is the graph showing the trends of Home loan base interest rate over the five years :

Best banks for home loan

  • Home Loan processing speed and the fees involved :

                            

It is a bit difficult process to apply for the home loan. You have to submit a large set of income and property related documents. The timeline for the approval will differ from bank to bank. Some banks are comparatively slower than others in carrying out the procedures, while some banks will approve your loan in simple and less time-consuming way. 

 

                            You can choose your bank as per your convenience. If you can spend enough time to carry out the procedural work, then you can apply for the slower banks. 

Here is the list of some major banks processing fees :

Bank Processing Fees
ICICI Bank 0.50% – 1.00% of the loan amount or Rs. 1500/- (Rs. 2000/- for Mumbai, Delhi & Bangalore), whichever is higher + applicable Service Tax & Surcharge
HDFC Ltd 0.5% or 10,000+service tax (12.36%), whichever is higher
SBI Home Loan Up to 25 lacs : 0.25% of loan amount minimum Rs.1000/-25-75 lacs : Rs. 6500/-75 & above : Rs. 10,000/-
Axis Bank Up-to 1% of the loan amount subject to minimum of Rs.10,000/-
LIC Housing 0.50% of the loan amount
IDBI Home Loan Nil
PNB Home Loans 0.50% of the loan amount
  • Loan Qualification :

                            Each bank, internally, has its own rules to grant the loan.  The different aspects usually lenders look into are the age, the source of income, credit history, employment stability, etc. Hence, each individual chooses the lender according to one’s own preferences.

  • Repayment terms : 

                            Housing finance regulator, National HOusing Bank (NHB), has already barred home finance companies from charging any prepayment penalty. Among banks, State Bank of India was the  first to do away with the pre payment fee on both fixed and floating rate loans. Following this, nearly 20 banks withdrew the penalty on floating rate loans. however, most lenders continue to charge the penalty on premature closure of fixed rate loans. Hence, it is another aspect a borrower looks at while taking a loan.

                            Different lenders use different yardsticks for measuring the borrower’s eligibility. Why shouldn’t borrowers consider doing research and compare several competitive features of home loans offered by different lenders? It is better to have the policies, facts, terms and conditions clarified well in advance before locking in a seemingly ideal home loan with any lender.

5 questions for home buyers to ask!

If answered accurately, they will help you take a more informed decision

Questions for home buyers to askNo loans to repay, modest aspirations and not a very ambitious retirement target. For Mumbai-based bank executive Alpesh Mehta and his schoolteacher wife Deepali, saving for their child’s education and marriage, as well as their own retirement, will be a breeze. But this could change if they go ahead with their plan to buy a house.In Mumbai, the minimum price of a 800-1,000 sq ft house is `1 crore. They will have to liquidate all their existing investments to raise about `20 lakh for the downpayment. The balance `80 lakh, if borrowed at 10% for 20 years, will mean an EMI of `77,200, which is roughly 60% of their combined monthly income of `1.3 lakh. Either the Mehtas will have to stop saving for their child’s goals or their retirement will have to be pushed back.The Mehtas are not the only ones entering this minefield. Across the country , a number of people are firming up plans to buy a new house. The New Home Index of Zyfin Research, an indicator of home buying plans of 3,000 households across 11 cities, has inched up in the past 12 months (see graphic).Though it is still in pessimistic territory, buyers are less pessimistic now than they were in May 2014. “The decline in pessimism has more to do with increased optimism about future income and job security than lower borrowing costs,“ says Debopam Chaudhuri, Chief Economist and VP-Research, ZyFin Research.

Despite the surge in buyer sentiment, real estate is still not a good investment in most parts of the country .Property price are still very high and despite the recent interest rate cuts, the cost of borrowing has not come down significantly. Before they take the plunge, potential borrowers need to ask themselves 10 questions. Your answers will tell you whether you should save more for a bigger down payment, buy a smaller house, invest in a cheaper city or not buy at all.


1. Can you afford the home loan EMI?

It might sound a no-brainer, but many home buyers get this wrong and bite off more than they can chew. The home loan EMI should be around 40% of your net household income. But that is if you don’t have other loans. A high EMI outgo can put your house-hold budget under pressure. If the home loan EMI accounts for more than 50% of the net household income, other goals will have to be downsized or junked altogether.Don’t be fooled into thinking that the recent cut in home loan rates have made property a viable investment. It will have a marginal im-pact on the total EMI. A 25 basis point cut will reduce the EMI of a `50 lakh loan for 20 years by `826.

It’s easy to get ambitious and go for a bigger loan if you are expecting generous increments in the coming years. Don’t make the mistake of leveraging on future income. While your income would certainly rise, but so would your expenses and financial commitments.


2. Have you factored in the other costs?

The advertised price is usually the base price of the property . The add-ons are usually kept hidden till you sit down with your cheque book. Many builders will slip in charges for facilities that you thought were free with the property. Others will keep certain charges hidden from the buyer by tucking them away in the fine print. These apart, there are other big-ticket add-ons such as the legal costs. The stamp duty and registration charges payable to the authorities add up a neat 7-8% to the overall price of the property. In all, these charges can push up the property price by 20-25%. Make sure you have factored in these additional costs.


3. Have you considered renting?

The high property prices means that renting is a better option in most cities.A 2-BHK house in Mumbai will cost close to `1.2 crore. If a buyer puts in `40 lakh as downpayment and takes a loan of `80 lakh, the EMI for 20 years comes to about `76,500. He also loses around `23,500 in interest that the `40 lakh downpayment could have potentially earned. The total cost per month comes to `1 lakh while he can easily get a similar house on rent in Mumbai for about `40,000-45,000 a month.

Don’t go by hypothetical examples.Instead, use an online rent-or-buy calculator to find which is is better for you.The one developed by Bigdecisions.com is a sophisticated online tool that takes into account several things, including the cost of the house, the amount of downpayment, the rate of interest of the home loan, the expected appreciation in the house price, the rent payable for a similar accommodation in the area and even the expected hike in the rent every year.


4. Will house value rise faster than the interest on loan?

In the early 2000s, when home loans were available at 6-7% and property prices were galloping at 20-25%, it made eminent sense to invest in an upcoming apartment project. Now, property prices are appreciating at a slower pace. In some markets, such as Noida and Greater Noida in the NCR, prices have even come down in the past 12-18 months.

If you are buying property as an investment with a loan, first assess whether its price will appreciate at a rate higher than what you are paying on the loan. “If you are payings 10% on the loan and the property price is expected to appreciate by 5-6%, then it is a bad buy,“ says Manish Shah, Cofounder and Chief Executive of Bigdecisions.com. Shah says the expected rate of appreciation is the single biggest determinant in their rent-or-buy calculator. “It makes the biggest difference in the decisions,“ he says.


5. Will this purchase force you to postpone other major goals?

Stagnant property prices and high EMIs are not the only problems that potential home buyers should be wary of. Their home buying plans can have serious implications on other financial goals, such as saving for their children’s education and marriage and their retirement. If the home loan EMI is too big, it will push other goals out of the financial plan. Worse, buyers like the Mehtas might have to liquidate existing investments to raise money for the downpayment. Though parents are unlikely to surrender child insurance plans and education related investments, retirement planning is easily sacrificed. “Younger people tend to think that retirement is an old age problem and defer the investment,“ says Shah of Bigdecisions.com. It is easy for investors to raid their retirement savings to fund their real estate dreams.You can take loans from the Provident Fund or the NPS for buying a house.Buy a house only if the purchase will not impact other goals. Otherwise, be ready for an asset-rich but cash poor retirement. Or not having enough money to send your child to a good college.

How to reduce tenure of home loan?

Moving into one’s own home brings in so much happiness that can be experienced but cannot be explained. Same is the case with Bhargav, enjoying the new house, the house warming session, the praises for the new furniture and the construction.

As the month dawns, no sooner he realized about the EMI. As the case with many, he has to fund his account to pay the EMI, as the money flew with other expenses and investments. It is then he placed himself as a fund manager of the house.

So, firstly, he made a list of all expenses and income sources; and also loan and investments. He found the expenses graph goes higher as and when there is an increase in the income. Also another insight was, he had investedReduce tenure of home loan in ULIP, PF,  which are low return sources. Because of this, he had opted for low EMI which increases the loan tenure. He thought investing in those and pay higher loan interest to somebody is not a wise decision. So he withdrew funds from PF and changed his endowment policy to a term plan with a little higher returns. This left him with enough funds. Now, he used the PF for paying the principal and the money saved from not paying the ULIP to increase the EMI.

Pre-payment:

Here, we found Bhargav taking a very clever step. He reduced his principal by paying some amount, at once (other than EMI). This is called pre-payment. This reduces the principal amount and in-turn reduces the interest amount.  Pre-payment can be done any time as there are no charges applied. You can use this option whenever there is an extra source of income like increment, gifts from family, savings from salary. 

A question arises is it worth using all the money saved to pay the principal. Yes, it is worth as you close the loan much earlier than agreed. But one should be sure that there is no other investment that gives you higher returns than the interest you are paying for the home loan.

Increase the EMI:

We also found that he had opted to increase his EMI.  This too reduces the tenure of the loan. Try to avoid unnecessary expenses and increase the EMI. Imagine finishing the home loan at the earliest. It is the most relaxing thought for sure. But don’t be enthusiastic. Be a judge for yourself. Don’t make the EMI a burden. 

Search for a lower interest rate:

Always note that you have to search for the lower interest rate and shift the loan. Follow the market trends and the interest rate. Even a .5% difference in the interest rate will reduce the tenure of the home loan by almost 30 EMI for a 20-years loan. Provided, you pay the same amount of EMI, though there is a decrease in the interest rate.

Reduce tenure of home loan

Know that there are always options to close your loan as early as possible. All you need is to get guided and monitored with careful steps and timely work. Realize that only after you finish your home loan, your house becomes YOURS.

Understand fixed vs flexible interest rates with examples!

Fixed vs flexible interest rates

The toughest decision to make while going for a home loan is deciding on which interest rate to prefer. As we know, Fixed rate has a constant interest rate during the whole loan period or fixed for certain number of years where as Flexible rate changes periodically with respect to the market. But there are pros and cons for both of them.


Fixed Rate :

Pros:

  • It is usually preferred when an individual doesn’t want to face any kind of financial risk.
  • It varies very little from lender to lender.
  • It is easy to understand.

Cons:

  • The interest rate would be higher when the market is on a higher trend, then.. 
  • the qualifying will be tough,
  • they will be less affordable, and 
  • the same higher rate remains, for the whole loan period, even when the market is on down trend or stable.

For example : Akshay bought a home for 50 lakhs. Out of 10 lakhs was payed as a down payment and 40 lakhs by a home loan. He took a home loan when the market is on the down trend and so, the interest rate is also lower, which is at 9%, ten years ago. Now the market is on the up trend, and the rates are higher. Akshay is saved from this financial risk of  increase in the interest rates.


 On the other hand, Abhinav bought a home for 50 lakhs. Out of which 10 lakhs was payed as down payment and 40 lakhs by a home loan. He took a home loan when the market is on higher trend and so,the interest rate is also higher, which is at 11%, interest ten years ago.  Now the market trend is stable and little on the lower trend, so the interest rate is 9%. But since the interest rate is fixed, Abhinav is paying 2% extra. 


So, when opting for a fixed rate as interest rate, take a wiser decision by knowing the trends of the market. This effects the number of years you are paying the home loan. Clever decision might increase to a decade or even reduce to half a decade. 


Note : Even fixed rates undergo changes after a certain time interval. It varies according to the individual lender.


Flexible or Adjustable Rate : 
Pros :

  • Flexible rate, initially is set a little lower than that of the fixed rate.
  • Depends on repo rate.When RBI increases the repo rate the interest rate would also be increasing. Moreover, this interest rate hike will not be for the entire tenure of the loan. Say you took a loan for 15 years. Over such a long time frame, interest rates are bound to fall.
  • Ceiling, i.e., this is the highest interest rate that the adjustable rate is permitted to become during the life of the loan.  

Cons :

  • It is complicated.
  • The monthly payment may change frequently over the period of the loan. Usually it is for every quarter, but it depends on the individual lender. For e.g., ICICI bank reviews it for every quarter.
  • With the change in the interest rate, you either have to change the monthly payment or change your tenure. i.e., if the monthly payment is constant then the tenure increases and vice versa.

Have to make a note of the review date.

Influence of Repo rate on flexible rate : 
Repo rate is the rate at which the RBI lends money to the financial institutions. So when there is a change in the repo rate, there will be a change in the interest rate. If there is an increase in the repo rate, i.e., the banks have to pay more interest, then they charge more from the customers, which increases the interest rate.


For example : Akash took a home loan of 50 lakhs with flexible interest rate of 9% when the fixed rate was 10.5%. Now there is a review of the rates every quarter. The revised rates are sent to Akash. It says, december – 9%, march – 9.05%, july – 9.15%, october – 9.01%, So, we observe a frequent change in the interest rate. This is depended on the market trend and the repo rate. But the flexible rate did not reach the fixed rate. Infact, it is very rare that the flexible rate would have drastic changes.


 As observed, there are pinholes in both the cases and also true advantages. Hence, regardless of the type of the loan that we select, we have to chose carefully to avoid costly mistakes.

Learn the home loan terms definitions in an interesting way!

Home loan terms definitions

Buying a new home with the help of a home loan is now very common. Since, there are n number of financial institutions to provide loan, there is a huge competition. So, it is very usual that this competition forces them to make the proceedings a little easier and a little convenient.


Recently, there is  a discussion among our friends about home loan, the process and the terms involved. The discussion started as Ajay wants to buy a new home with the help of a home loan. Aarav is already in a home loan, which helped Ajay to discuss all the basic terms about the same. The discussion goes on like this…


Ajay : Saw a house. All of our family members liked it. But it costs me a fortune. So, planning to go for a home loan.


Aarav : Ohh! Is it! So how much are you planning to pay as down payment


Ajay :  (New to all these terms) Down payment?!


Aarav : ( already in a home loan)  It is very important to know everything about home loan before you go for it. So, Down payment is the payment made in the form of cash as the initial payment, when you buy a home. The percent may vary from 5% to 25%, with respect to the seller. For the rest of the amount, you can arrange for a home loan. So, you should know how much cash you can pay before applying for a home loan.


Ajay : Hmm, So, what are the other things that I should know…


Aarav : OK… For the rest 85% say, you are going for a home loan from a financial institute. You know that, the financial institutes approve the loan after verifying your personal details and the property’s details. Now, before you apply, you should decide about the  interest rate for your loan. There are two rates which are depended on the RBI’s repo rate. They are, fixed and floating or adjustable.


Ajay : Oh, fixed interest rate is the rate which stays constant for the entire term, and floating is the rate which will change periodically with the market.


Aarav : Very true Ajay. This needs some research. So do before you decide.


Ajay : And next is the tenure.


Aarav : Is it just the number of years I take the home loan?


Ajay : Yes, ofcourse but, it is not just..there is a lot in it. Tenure depends on the EMI (Equated Monthly Installments) you can pay. Usually, EMI and tenure are inversely proportional. The more you opt to pay in a month, the lesser the years you will pay the loan. Tenure also depends on your age and length of the career. This is another aspect you should know about.


Aarav : Is there anything more to know and to check before I go for a home loan.


Ajay : Yes, the financial institutions charge processing fees. To get our work done, institutions do some ground work which involves documentation process, underwriting process, legal charges, etc. It usually varies from 0.25% t0 0.5%. Due to huge competition, there are some institutions which do not charge the fees.


Aarav : That’s interesting. Though minimal, we should try to reduce the cost in all means.

Ok, it is now my piece of cake to make a wise decision.

11 must know home loan tips and tricks!


Buying a house is once in a life time decision for most of us. Buying a house can be a fun and exciting experience. But finding the right home is just one step in the process. Most of the us ignore choosing the right home loan and see set of surprises later. Mostly we will refer the builder or friend who had recently taken home loan. Here are some tips to help make finding the right home loan as easy as possible. You can visit LoanYantra.com to compare the home loans

Home loan tips and tricks

“When I took the home loan I compare home loan interest rates of loan products on Loanyantra.com While I was sanctioned a loan for 15 years, I foreclosed my loan six months ago, that is within ten years,” said Gopi Krishna.

What are the right things he did? Read on to learn a few useful tips from him. 

  • Tip  1 – Good research:
    • Do not go as per what your loan agent says. You do your own research of the best terms available in the market. “While taking a loan, my agent did everything to stop me from going to a specific bank. I later on realized why, specific bank was paying less commission to agents, so they earn less. Hence the agents never encourage few banks,” said Srinivas. “I went and choose the bank that gave me the cheapest rate of interest,” he added.
  • Tip  2 – Get your financial documents in order: 
    • When you apply for home loan you need to provide your lender with number of financial documents. Having these documents already assembled will help accelerate the processing of your loan application.
  • Tip  3 – Park your additional funds: 
    • A couple of banks have a facility, which allows borrowers to park their additional funds in the loan accounts. “This will reduce the interest proportionately from the principal amount for the time that the amount was parked. This is an interesting option. This was not there when I took a loan,” said Sandeep.
  • Tip  4 – Learn what is floating or fixed rates: 
    • There are two types of interest rates that banks offer: floating and fixed interests. Floating interest rate is linked to market. It moves in tandem with a base rate.  Where as fixed interest remains fixed for a few months defined in the loan agreement. It is important to understand that in most cases floating rates work out cheaper than fixed rates in the long run.
  • Tip  5 – CIBIL Score : 
    • It is important to have a score of 750 plus to get attractive rate of interest on your Home loan. CIBIL data indicate that 80% of the home loan approvals are given to customer who have a credit score of 750 plus. Low CIBIL score could possibly reject your Home loan application or you may have to pay a higher interest rate.
  • Tip 6 – Understand foreclosure norms
    • Recently, RBI banned foreclosure penalties. So make sure you do not pay anything extra while foreclosing your loan.
  • Tip 7 – Save up to foreclose: 
    • If you can save Rs 1 lakh in the current fiscal, do not use it on a dream holiday abroad. Instead use it to foreclose your loan. “My advice to every borrower is that learn to foreclose your loan as soon as possible. The sooner you free the amount you pay for equitable monthly installments (EMI), the earlier can you enjoy the freedom to spend that money on luxuries of life,” added Sandeep.
  • Tip  8 – Compare processing fees:
    • Whether it is for a fresh loan or for a balance transfer. Enquire in all the banks before you finalize. Also make sure you give a cheque for processing fee instead of adding it to the loan account. If we add processing fee to home loan, say Rs-10,000 fee on 20 years loan with 10% interest rate, then one would endup paying Rs-23161. 
  • Tip  9 – Read the documents: 
    • Read everything written in the loan agreement before you sign on the dotted line. It is very important to be aware of terms and conditions. “I have to pay Rs-5000 every time I take a home loan provision certificate for tax saving” said Ramesh. 
  • Tip 10 – Increase the down payment: 
    • Every borrower has to pay some money from his own pocket while buying a house. Try to pay as much as possible as down payment. This will reduce your interest paid on the principal.
  • Tip  11  – Spend conservatively: 
    • Keep a tab on your spends during the home loan tenure. The old adage “A penny saved is a penny earned,” holds true in case of home loan too. When you save money, you could actually use it to foreclose the loan.