Is Your Home Loan Competitive?

‘A penny saved is a penny earned’ is a famous adage, and it perfectly applies to a home loan. Today, with the growing competition among the lenders, finding the best deal on a home is easier than ever before. Irrespective of the type of home loan you wish to apply for, be it a home construction loan, a home extension loan or home improvement loan, here are a few criteria you can use to compare the loans and ensure that you get the best offer.

• LTV Ratio The Loan-to-Value ratio is a financial term that is generally used by the lenders to denote the ratio of the loan amount sanctioned to the market value of the property that you wish to buy. When you apply for a home loan , the lender does not approve 100% of the property cost.The maximum amount you can get is 80% of the property’s value, and the remaining amount must be paid from your pocket. Some lenders (for specific customers) finance 90% of the property’s value if the loan amount applied is less than or equal to 30 lakhs.
• Type of Home Loan Interest Rate Home loan interest rates are of two types – fixed rate and floating rate. When you make a home loan interest comparison , you may inevitably look at the home loan interest rate offered by the lender. It is a critical factor that makes the loan affordable and has a long-term impact on the repayment; even a small difference in the interest rate can help you save a considerable amount in the long-run.For example, if you apply for a 25 lakhs loan at a fixed interest rate of 8% for 15 years, your monthly EMI would be roughly around Rs. 23, 980. On the other hand, if you keep the amount borrowed and the duration constant, but if the interest is 8.5%, your monthly EMI would be around Rs. 24, 620. This means, over a period of 15 years you would be paying Rs. 1, 14, 600 more.
• Loan processing fees When you apply for a home loan, you are obliged to pay a loan processing fee (which is usually non-refundable). The fee varies from lender to lender, but generally, it varies from 0.5% to 1% of the loan amount. In some cases, for specific customers, the lender may charge a fixed fee.So, when selecting the lender, you must be careful about the associated charges. Some lenders may charge you a lesser amount initially, but they may later charge other fees such as legal fee, technical fee, etc. whereas some lenders may charge a higher price upfront, but it would be all-inclusive. Hence, take into consideration the overall cost while choosing the lender.
• Foreclosure charges Foreclosure charges refer to the penalty paid for early repayment of the loan before the actual tenure. If you have surplus cash in hand, you can use the amount to close the loan account early and thereby reduce the overall interest outgo. But, to prepay the full or part amount, some lenders charge a foreclosure fee, which ranges from 0.5% to 1% of the outstanding amount. So, while looking for a loan offer, choose a lender that has the lowest foreclosure charges.
• Property insurance When you apply for a home loan, it is mandatory to secure the loan with insurance. The lender funds the premium for the insurance. But, as a borrower, it is vital to check the policy terms and conditions and ensure that there is transparency in the dealing.
• Value-added Services During the course of repayment of your home loan, you may need different kinds of services like you may need an interest payment certificate from the lender for claiming tax benefit or you may need a top-up loan. While comparing the best home loan offer, the lender should have a reputation for providing excellent customer service. Today, most lenders in India offer online services, and you can request any service at the click of a button.

Final Word Home loans are a long-term financial commitment. Good research about the lender will put in a better position to negotiate the deal and get the best offer.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.