10 Point Guide For Home Loan Seekers

Home loan
  1. Your ideal lender:  First things first.  Start the journey of fetching yourself the best home loan deal by researching, reviewing and comparing the various lenders out there in the market. There are about 25 options including the public, private sector banks and Non-Banking Financial Corporations (NBFCs) to choose from. Don’t base your decision solely on the basis of interest rate, other considerations like loan amount eligibility, tenure offered, terms and conditions of extending the debt and customer service record are equallyimportant.
  1. Loan amount: The loan amount eligibility depends on a number of factors- your income, its regularity, the prospects of your profession, previous track record of repaying your loans and credit card dues. Home loan lenders generally do not provide loan amount more than 80% of the value of the property. This is again subject to your current income.
  1. CIBIL Score: CIBIL credit score is your bank’s best friend. It helps the bank to discover your credit worthiness which in turn is employed to decide your home loan eligibility. Credit Information Bureau India Limited ranks everyone on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any check bounces, existing loans, loan repayments (or defaults) and how many times you have applied for a loan or a credit card. Individuals with a CIBIL score greater than 700 are more likely to get a home loan.
  1. Fixed or floating: While fixed rate remains fixed for a the time period mentioned  in the loan agreement, the floating interest rates is linked to the market and moves in tandem with the a base rate (now MCLR). Opting for a fixed rate makes sense when the interest rates are expected to rise in the near future. Also, the fixed rate comes with a reset clause which says that rate is subject to revision.
  1. Understand MCLR- If you have decided to take a floating rate home loan, then you should know what MCLR is. As per the new guidelines of RBI applicable from April, 2016, lending rates by commercial bank will now be linked to Marginal cost of funds based lending rate or MCLR. The new regime of determining interest rates replaces the ‘base rate’ system. Banks will either use the six-month MCLR or the one-year MCLR as the benchmark rate. Therefore, from now, all floating rate loan agreements will have a reset clause at a pre-specified interval. Biggest lenders, SBI and ICICI have set one-year MCLR as the benchmark for home loans.
  1. Loan tenure- Your EMI is calculated on the basis of loan amount, interest rate and loan tenure. Your monthly EMI is inversely proportional to loan tenure, i.e., the longer the tenure the lower the EMI and vice versa. But the loan tenure is directly proportional to the interest paid which means the longer you take to repay your loan, the more interest you will have to pay.
  1. Negotiate the rate- Whether you choose fixed or floating, make yourself aware that you can negotiate on the interest rate. Your association with the bank and CIBIL score would be your main weapons in getting the bank to bring down the rate for you. Also, try to purchase the loan at the end of the month. Banks have their monthly targets and may be more flexible as they do not want to lose business.
  1. You can switch lenders- Yes, that’s another option you can exercise if you are someone who doesn’t mind braving the drill to save some extra thousands. In case you are getting a significantly better deal from another lender, you can always switch. Most banks don't have any pre-payment penalty anymore on floating rate loans. Therefore, processing fee is the only additional cost you have to bear.
  1. No pre-payment penalty:  Remember that RBI has banned foreclosure penalties. So make sure you do not pay anything extra while foreclosing your loan.
  1. Read the agreement– Make sure you read everything or get someone else to vet the loan agreement for you before signing the dotted lines. You don’t want to be caught unaware in case bank springs up some surprise on you. Right?


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