Best Rates On Home Loan

01

What is my home loan eligibility?

It is a rather simple rule of thumb that most financial institutions use - your loan repayment capacity is considered as 50% of your monthly disposable income (excluding your monthly expenses). So, if your income is Rs.1 lakh per month and your monthly expenses are Rs.40,000, the financial institution will consider 50% of the remaining Rs.60,000 i.e. Rs.30,000 as your monthly loan repayment capacity. Now that’s just considering your income, but if you have a working spouse with whom you are applying for a joint home loan, the income of the spouse is also considered in the same manner i.e. 50% of the disposable income. This can increase your overall eligibility. Some people buy a joint family property and the entire disposable income from all sources is considered for the loan amount. Apart from the value of the loan, the financial institution also considers the age of the applicant and the remaining years that the person will be employable – upto age 60 for a salaried person and ranges between age 65 - 70 for a self-employed individual depending on the institution. The tenure of the loan is decided based on this and can go upto a maximum of 30 years.

02

How much can I borrow?

Typically, a financial institution lends upto 80% - 90% of the property value in case if you are buying a home (under construction or ready-to-move-in property) and between 70% - 80 % of the plot value for buying a plot of land and then constructing upon it. The remaining amount of 10% - 30% must be from your own sources. Do bear in mind that, higher the loan value taken by you; the monthly loan EMI is proportionately higher. Depending on the financial situation, you can take the loan amount upto the maximum offered by the financial institution or choose to contribute more from your own sources.

03

Can I get a home loan without ITR?

If you are self-employed, looking to buy an affordable house and do not have an ITR, you need not worry. There are a few banks that provide home loans to such customers. Get in touch with our team to know more about your eligibility.

04

What is the loan application process?

All financial institutions have a standardized process. You can either avail of a pre-approved offer and then decide on the property of your choice; or if you have already decided on the property, you can apply for the loan straight away. You can apply for a bank loan on www.finwisely.com where we will shortlist the best banks based on your need and recommend them to you.

05

What is the loan application process if I am looking for a property?

Pre-approved home loans are normally taken when you have not decided on the property yet. It is also a good option as you can negotiate better with the seller.
In this case, the documentation required is simple:

• Loan application form
• ITR
• Employment letter
• Current financials - last 3-month salary slip, last 6-month bank statement

Once they have all the documents and complete the assessment, you will be granted the pre-approved loan based on your eligibility. The offer is typically valid for a 6-month period during which you can decide upon the property.
Upon selection, you can go back to the financial institution with the remaining documents:

• Property documents
• Disbursement documentation
• Co-applicant documents
• Other documents as per the property

06

What is the loan application process if I have identified the property?

If you have already shortlisted the property of your choice, in addition to the documents mentioned above, the financial institution will also ask for the legal documents of the property and the entire chain of agreements for the land or property, before the loan is sanctioned. Upon sanction, the financial institution will provide a sanction letter with the terms of sanction including the amount sanctioned, rate of interest, type of loan (fixed, floating, overdraft, fixed + floating) and loan tenure is mentioned. Once you have made the down payment for the property to the seller (builder or existing owner), and the agreement is made, the financial institution will disperse the remaining amount in full in case of a ready-to-move-in property or in stages linked to progress for an under-construction property to the seller directly.

07

What is the Repo-linked Lending Rate?

Since October 2019, banks and NBFCs have started following the external benchmark i.e. Repo-linked Lending Rate (RLLR) for floating rate home loans. So, whenever the Reserve Bank of India (RBI) makes a change to the Repo Rate (i.e. the rate at which the central bank lends to commercial banks), the home loan rate also changes in the same proportion. Banks charge a spread over the external benchmark rate and this is fixed throughout the loan tenure unless the credit profile of the borrower undergoes a substantial change.

08

What is Marginal Cost of funds-based Lending Rate?

Marginal Cost of Funds based Lending Rate (MCLR) is the minimum interest rate, below which a bank is not permitted to lend. It has replaced the base rate from April 1, 2016 and considers unique factors like marginal cost of funds instead of the overall cost of funds. The marginal costs include the repo rate, which did not form part of the base rate. While calculating MCLR, banks consider all kinds of interest rates incurred while mobilizing funds and loan tenure. In the case of MCLR, the banks can now levy a tenor premium and effectively charge a higher rate of interest for loans with long-term horizons. The MCLR is linked to the repo rate that the Reserve Bank of India monitors and in case the repo rate undergoes an upward or downward change, it has an impact on the MCLR too. While the RBI revises the repo rate every quarter and the financial institution also changes the MCLR, it is passed onto the new borrower immediately and once a year or at the reset period to an existing borrower.

09

Which type of home loan rate is better?

Financial institutions offer multiple types of home loans which can be opted by you as per your need and financial position.
Fixed Rate
In this, the home loan interest rate is fixed for the entire duration of the home loan or for a certain number of years. Any changes made to the interest rate are not transferred to you and you remain unaffected by the market scenario. However, the interest rates are higher in this case as compared to a floating rate.
Opt for this if

• The current interest rates are already low, and you want to lock in at that rate
• the market conditions indicate that the rates will go up in future

However, if the rates are likely to go down, you may end up paying a high rate of interest. The other downside is that there is a pre-payment penalty in case of fixed rate home loans. You can, however, approach your financial institution to reset the rate after a defined period by paying an additional fee.
Floating Rate
In this, the home loan interest rate is linked to the base rate / Marginal Cost based Lending Rate (MCLR) and can change if the interest rate goes up or down. The MCLR is revised by the Reserve Bank of India and the financial institutions pass on the changes in interest rate to the borrower. The rate is changed either in a 6-month or 1-year window. The impact is typically on the tenure and not on the EMI amount. However, you may ask for the EMI amount to be increased or decreased based on your financial position. Usually, the interest rate in floating is lower than the fixed interest rate and the other upside is that there are no pre-payment penalties.
Opt for this if

• You are unsure about the interest rate scenario or future market conditions
• You expect interest rates to fall in the near term

You can always switch to a fixed rate home loan by paying a nominal fee levied by the financial institution.
Fixed + floating
In this, the interest rate is fixed for a certain tenure (initial 3-5 years depending on the financial institution). This is suitable if the present interest rate is low and you want to benefit from it as you are unsure of how the interest rates will move in the future.
Home Loan Overdraft Facility
In this, the home loan account is linked to a current or savings account. As a borrower, you can deposit any surplus amount available with you in the home loan account. This is considered as a pre-payment towards the home loan. With this, your interest component and loan tenure will reduce. You can also withdraw the surplus amount deposited in your home loan account, from your bank anytime. In such a scenario, the outstanding loan amount gets adjusted accordingly. The interest on the home loan is always calculated on the outstanding principal amount of the loan and any surplus deposited or withdrawn from the home loan account is considered when computing the interest and tenure. However, the benefit comes at an extra cost; the interest rate on such a loan is typically 20 basis points higher than a conventional home loan. The home loan overdraft facility is useful for self-employed businessmen with a significant variable income or salaried people who tend to get high bonuses. One should consider this type of loan only if you have a surplus amount that you do not want to invest elsewhere as you are not expecting to earn more than the home loan interest rate and you also want access to the money as and when needed.

10

What is a teaser Home Loan, and should I apply for it?

In a teaser home loan, the rate of interest is fixed for the first few years, and thereafter floating rates are applicable on the outstanding loan balance. These loans are typically offered at higher rates than a floating rate loan and it is not recommended to opt for it. It is expected that the floating rates will come down further with the economy contracting in the wake of the COVID-19 pandemic. Some banks are already offering lowest home loan interest rate starting at 6.8% for salaried individuals. So, the difference in interest rate between a teaser home loan and a complete floating rate loan will only grow wider. It is advisable to go in for the Repo-linked Lending Rate.

11

How can I improve my chances of getting a home loan?

• Always maintain a credit score more than 750 points
• Do not delay or miss your EMIs on your existing loans or credit card bills.
• Always share correct information to the financial institution.
• Ensure that the application form is filled and is legible.
• Documents must self-attested.
• Add a co-applicant with a good credit history to make your application more appealing.

12

How does my Credit Score impact my Home Loan?

Before sanctioning a home loan, all financial institutions do a credit profile check on the borrower(s). Essentially, this is to check if the borrower has been repaying all past loans/credit card outstanding on time. Credit bureaus like CIBIL capture records from multiple financial institutions on the loans, credit card repayment patterns and outstanding if any. Each unique person is given a credit score ranging between 300 – 900 depending on the above criteria. A high credit score is always better as it means that you are a responsible borrower. For home loans, a credit score of 750+ is considered good and one can negotiate on the home loan interest rate with the financial institution. A person has a good credit history if all payments are settled within the due dates. It also considers the number of times that one has applied for a loan. Generally, if the number is high, it has a negative impact on the credit score.

13

Can I repay the home loan early?

Yes! This is commonly known as prepayment and foreclosure in financial parlance. In case of floating rate home loans, there are no charges in case you wish to prepay or foreclose the loan. However, for fixed rate home loans, there may be certain conditions and charges applicable to you.

14

Can I get a home loan for the entire property value?

No, most banks/NBFCs lend upto 80% of the property value. The remaining 20% must be funded by you. A few banks do lend upto 90% of the property value.

15

Who can be my co-applicant on the home loan?

As per Indian laws, any blood relative or relation like father, mother, siblings, spouse or adult children can be a co-applicant. Friends, colleagues etc. cannot be a co-applicant. You can have upto 7 co-applicants in one home loan.

16

Will the EMI change with the change in Home Loan Interest Rates?

Normally, the EMI does not change. However, the interest and principal changes due to the fluctuation in interest rate. Due to this, the loan tenure gets impacted. If the interest rate goes up, the interest portion of the EMI will increase, and the principal portion would decrease. If the interest rate does go down, the interest portion will come down and the principal portion of the EMI would increase. For loans based on MCLR, the interest rate is subject to change after a year from the home loan sanction.

17

What is pre-EMI Interest on Home Loans?

Pre-EMI interest is applicable for partially disbursed home loans. You pay only the interest portion of the loan till the time it is fully disbursed.

18

What are the tax benefits applicable when taking a home loan?

Second Home or Additional Property

• On Principal Repaid: None
• On Interest Paid: Exemption on interest is lower of a) Rs. 2,00,000 or b) actual interest paid for all properties owned by the taxpayer

Under Construction Property

• On Principal Repaid: None
• On Interest Paid: The overall annual limit is Rs. 2 lakh and the interest paid can be claimed across five financial years (distributed equally) post-completion or handing over of the property.

First Home - Self Occupied

• On Principal Repaid: Under Section 80C, one can claim a deduction as follows - higher of a) actual principal repaid or a maximum of b) Rs. 1,50,000 (Rs. 2 lakh for senior citizens)
• On Interest Paid: Higher of a) actual home loan interest paid or a maximum of Rs. 2 lakh (Rs. 3 lakh for senior citizens) if house construction completed within 5 years from the end of the financial year in which loan is taken
  If the construction of the house is not completed within 5 years, then Rs. 30,000 is tax-exempt
  Additional deduction of Rs. 1.5 lakhs for interest on home loan availed for purchase of affordable houses of up to Rs. 40 lakh till March 2020

First Home – Rented/ Vacant (deemed to be let out property)

• On Principal Repaid: Upto Rs. 1,50,000 (Rs. 2 lakh for senior citizens) eligible for tax deduction under Section 80 C. This is applicable only if as a property owner, you are living in a different city for work
• On Interest Paid: Exemption on interest is lower of a) Rs. 2,00,000 or b) actual interest paid for all properties owned by the taxpayer