How to choose the best home loan for you
When it comes to finding the best home loan for your needs, a lot of groundwork is involved. There are several factors that you have to take into account while planning to take a home loan. You should always consider home loan charges and all other major parameters along with comparing multiple banks and financial institutions in order to get the best deal as per your requirements. Making the wrong decision can adversely impact your own financial health in the long run.
Here are the factors that you have to consider:
Interest rate – Home loan interest rates usually depend on the overall amount of the loan, tenure of the loan, credit history or credit score and so on. Rates can usually hover between 9.40-12% annually as per approximate estimates. A tiny variation in the interest rate can make a huge difference to your home loan amount and EMIs. Choose lenders who give you loans at the lowest available interest rates. Banks usually make use of the MCLR framework for determining the rates. Non-banking finance companies (NBFCs) make use of the RPLR (Retail Prime Lending Rate) mechanism. Choose the one that suits you best.
LTV (loan to value) ratio – The loan to value ratio is the component of the value of your property which lenders will finance via this home loan. The remaining amount is the down payment which you have to shell out yourself. According to the Reserve Bank of India (RBI) guidelines, banks can offer a maximum of 90% in financing for properties in case of home loans up to INR 30 lakhs. It goes down to 80% for loans between INR 30 lakhs and 75 lakhs. This also comes down to 75% for loans exceeding INR 75 lakhs.
Credit history – In case you have a low credit score, it mars your chances of fully meeting the eligibility criteria for a home loan. Lower credit scores may hinder your chances of getting your desired loans from public sector banks. They may also lead to considerably higher interest rates in case you do manage to get your loan sanctioned. Housing finance companies and organizations are better options in case of a low credit score. Yet, you may get a lower loan to value ratio along with higher interest rates.
Tenure of the loan – Most NBFCs and banks offer loan tenures up to a maximum of 30 years. However, some banks and organizations have smaller tenures for people who are self-employed which is around 20 years. Other organizations may have 20 years as maximum cap for loan tenures. Go for the institution offering you the longest possible loan tenure since your eligibility will go up with lowered EMI payments.
Processing fees – Processing fees are charged by banks or financial institutions to take care of multifarious expenditure incurred while assessing any home loan application. Most lenders have fixed processing fees ranging between 0.50-1.50 per cent of the entire loan amount. This charge is non-refundable irrespective of whether your home loan is finally sanctioned or not. Choose lenders who have the lowest processing fees. Take note of charges like the prepayment penalty, switching fee, late payment charges and CERSAI charge. These charges should be compared since they may cumulatively take up 4% of your total home loan amount.
Processing time for loans – You should choose banks or financial institutions that have swifter processing systems for loans in case you have an urgent requirement. The time taken to approve and disburse loans varies from one institution to another.
With attractive interest rates and a host of benefits, Bajaj Finserv – one of the most trusted NBFCs in India – offers home loans and balance transfer solutions to help you finance your dream home.
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