Weigh your Home Loan Options

Acquiring a home loan is acrucial part of the home buing process. Therefore, prior knowlwdge of home loans so that you choose the one best suited to you is a must. The Following points we belive will help you to get a better insight into the dynamics of home loan selections process.


What are the major parameter of home loan selections?

Home loans vary from each other in three major ways and these differences have crucial financial implications for you. First, they differ on the length of their tenures. Second, they vary on the way their interest rates are calculated. The third difference is the various processing fees that are charged. These three parameters should be used to evaluate the cost-effectiveness of various options.


What is the minimum and maximum tenure for home loan? which is the best tenure to opt for?

Loan tenures range from 5-20 years, and you need to choose your depending on factors like number of working years left, repayment ability and cash flow needs. The longer your tenure, the greater your total interest costs.


what is fixed interest rate and floating interest rate?

While fixed rate loans are those whose rates are fixed for the tenure of the loan, in case of floating rate loans, the rate is benchmarked to a retail lending rate of the lending institution and moves in tandem with it. This means in case of floating rate loans, the total interest you pay out during the tenure is dependent on the way interest rates move during it. The rate is reviewed periodically every six months and refixed in relation to prevailing market conditions.
Currently, fixed rate loan schemes carry interest rates that are higher by 0.5 to 0.75 percentage points compared to the floating rate loans. At this point, we need to point out that many home loans being marketed as fixed rate products have provisions in the loan agreement that allow the lender to revise the rate after a certain period of time in the tenure. This effectively renders such loans as floating rate loans.


Does the option of opting for fixed or floating interest rate depaendent on marketing dynamics?

You should opt for a fixed rate loan only if interest rates in the economy are either rising or have stabilized. They are also useful in the tenure is small, such as five years. Conversely, if interest rates are falling either because of economic downturn or governmental intervention, and are likely to stabilize at a lower level by the end of your tenure, then opt for floating rate. Given the huge interest rate differential in India and the developed world, one expect that with reforms in the interest rate regime-making it more market determined-and with free inflows of international capital, in the long term, interest rates in India would be lower than what they are today. If you share this perspective, you should opt for a floating rate loan for longer tenures.

What are the major parameter of how loan selections?

A Home Improvement Loan is one that is made available for you to do certain external work like structural repairs, waterproofing or internal work like tiling and flooring, plumbing, electrical work, painting etc.


What are the various types of fees charged by the banks?

The fees charged by a lending institution for processing loans have one or more components. However, the components to be charged are at the discretion of the banks and varies from time to time. We are providing the list of components that generally falls under the preview of lending fees.


Processing and administrative charges:

They range between 0.25-0.5 per cent of the home loan amount sought from the home loan provider.


They range between 0.25-0.5 per cent of the home loan amount sought from the home loan provider.

This charge is generally 1 per cent of the loan amount and is recovered by the bank if a borrower has not completed the loan withdrawal within the stipulated period.

This is usually 2 per cent of the outstanding loan amount and also depends on terms in the home loan agreement. This is recovered from the borrower if he pre-pays the loan amount in excess of the stipulated limit.

To discourage the practice of borrowers shifting to another Lender offering lower rates, banks are now charging a loan swap charge of 2 per cent on the loan outstanding on the date of the full premature repayment of the home loan.

To discourage the practice of borrowers shifting to another Lender offering lower rates, banks are now charging a loan swap charge of 2 per cent on the loan outstanding on the date of the full premature repayment of the home loan.


How much housing loan can one get?

Housing loan will be sanctioned depending upon your repayment capacity and according to your income. Your spouse's income can be included, if you want to increase the amount of your loan. The maximum loan that can be sanctioned varies with housing finance companies and ranges from Rs. 10 lakh to Rs. 1 crore.


What are the tax benefits that are available if one avails of housing loan?

Tax benefits are available on both the principal and interest components of the loan as per the Income Tax Act. The upper limit of the amount of deduction of interest repayment allowed from your gross total income is now Rs. 1,50,000 p.a. Besides, Sec. 88 offers you tax benefits for principal repayments.