Favorite banks for Indian Home loan borrowers

Favorite banks for Indian Home loan borrowers

                            In India, saving and investing money is the option which everyone looks for. Investing money in buying a home is in everyone's to do list. So no wonder that they go for a detailed analysis about the home loan and the process involved in it to choose the best, the fastest and the safest home loan provider.

                            According to the recent analysis, here are the details of the favorite banks for Indian home loan borrowers.

1. SBI  Home Loan capturing 25.5% market share.
2. HDFC Ltd. with 24.13%
3. LIC Housing with 15.83%
4. ICICI Bank with 13.10%
5. Axis Bank with 6.23%
6. IDBI Home Loan with 4.67%
7. PNB Home Loan with 4.22%
8. Others with 6.32%

These are the points usually borrowers look at while applying for a home loan.

1. Interest rate - Fixed, floating, hybrid
2. Home loan processing speed and the fees involved.
3. Loan qualification
4. Repayment terms

Let us go deep into these topics.

• Interest rate :
  

                               

  Interest rate offered is the primary factor of comparison. It affects the EMI and total amount payable. For a home loan, it is advised to go for a loan with low interest rates. Also it is recommended to decide whether to go for a fixed or flexible or hybrid loan rate.

Interest rates of various banks are as follows :

1. SBI                          -             9.70% - 9.75%
2. HDFC Ltd.             -            9.85% - 10.40%
3. LIC Housing          -           10.10%
4. ICICI Bank             -           9.85% - 9.90%
5. AXIS Bank              -          9.95% - 10.45%
6. IDBI Bank               -          10.00% - 10.15%
7. PNB                          -          10.00% - 10.50%

Here is the graph showing the trends of Home loan base interest rate over the five years :

• Home Loan processing speed and the fees involved :

                            

It is a bit difficult process to apply for the home loan. You have to submit a large set of income and property related documents. The timeline for the approval will differ from bank to bank. Some banks are comparatively slower than others in carrying out the procedures, while some banks will approve your loan in simple and less time-consuming way. 

                            You can choose your bank as per your convenience. If you can spend enough time to carry out the procedural work, then you can apply for the slower banks. 

Here is the list of some major banks processing fees :

Bank	Processing Fees
ICICI Bank	0.50% – 1.00% of the loan amount or Rs. 1500/- (Rs. 2000/- for Mumbai, Delhi & Bangalore), whichever is higher + applicable Service Tax & Surcharge
HDFC Ltd	0.5% or 10,000+service tax (12.36%), whichever is higher
SBI Home Loan	Up to 25 lacs : 0.25% of loan amount minimum Rs.1000/-25-75 lacs : Rs. 6500/-75 & above : Rs. 10,000/-
Axis Bank	Up-to 1% of the loan amount subject to minimum of Rs.10,000/-
LIC Housing	0.50% of the loan amount
IDBI Home Loan	Nil
PNB Home Loans	0.50% of the loan amount

• Loan Qualification :

                            Each bank, internally, has its own rules to grant the loan.  The different aspects usually lenders look into are the age, the source of income, credit history, employment stability, etc. Hence, each individual chooses the lender according to one's own preferences.

• Repayment terms : 

                            Housing finance regulator, National HOusing Bank (NHB), has already barred home finance companies from charging any prepayment penalty. Among banks, State Bank of India was the  first to do away with the pre payment fee on both fixed and floating rate loans. Following this, nearly 20 banks withdrew the penalty on floating rate loans. however, most lenders continue to charge the penalty on premature closure of fixed rate loans. Hence, it is another aspect a borrower looks at while taking a loan.

                            Different lenders use different yardsticks for measuring the borrower's eligibility. Why shouldn't borrowers consider doing research and compare several competitive feature of home loans offered by different lenders? It is better to have the policies, facts, terms and conditions clarified well in advance before locking in a seemingly ideal home loan with any lender.

SBI – Home Loan : MOST IMPORTANT TERMS AND CONDITIONS

The MOST IMPORTANT TERMS AND CONDITIONS  (MITC) covers the following Loan 
Products : 

1. SBI Home Loan Scheme 
2. SBI Pre-approved Home Loan 
3. SBI Yuva Home Loan 
4. SBI Max Gain Home Loan 
5. SBI Realty Home Loan 
6. SBI NRI Home Loan 
7. SBI Gram Niwas/Sahyog Niwas/Tribal Plus
8. SBI Green Home Loan 

Purpose for which home loan can be availed: 
                                The loan will be sanctioned for the purpose of purchase / construction / extension / repairs/renovation of new/second-hand residential house/flat/plot of land and furnishings (hereinafter referred to as the ‘project’). 

Premium of Home Loan Insurance cover (Optional) : 
                                The premium for the optional Home Loan Life Insurance cover (if availed) will be added to the loan amount. 

Loan to Value Ratio (LTV): 
                                For loan amount upto Rs.20 Lacs, maximum permissible LTV ratio is 90% of the assessed value of the property. For loan amount greater than Rs.20 Lacs and upto Rs.75 Lacs, maximum permissible LTV ratio is 80%. A maximum permissible LTV ratio of 75% is applicable on a loan amount above Rs.75 Lacs. 

Rate of Interest:

Floating Rate of Interest: - 
                                Interest on the loan will be charged at prevailing floating rate of interest on a daily reducing balance at monthly rests. The rate of interest is subject to revision from time to time due to (i) changes in Base Rate or (ii) revision even without change in Base Rate the Bank has the option to reduce or increase the EMI or extend the repayment period or both consequent upon revision in interest rate. 
Fixed Rate of Interest:- 
                                No Fixed rate option is available now Interest on the loan will be charged at the prevailing fixed rate of interest on daily reducing balance at monthly rests, subject to interest rate reset at the end of every two years on the basis of fixed interest rates prevailing then. State Bank of India (SBI) may at its discretion stipulate the periodicity of computation of interest. Further, SBI may at its sole discretion alter the rate of interest suitably and prospectively in the event of major volatility in interest rates during the period of the agreement. Thenceforth the rate of interest varied as aforesaid shall be applicable to the Loan. SBI shall be the sole judge to determine whether such condition exists or not. If the Borrower is not agreeable to the revised interest rate so fixed, the Borrower can request SBI, within 15 days of receipt of the notice intimating change in interest rates from SBI, to terminate the loan and the Borrower shall repay the Loan and any other amount due to SBI in full and final settlement in accordance with the provisions of the Agreement relating to pre-closure. 

Calculation of interest:-
                                Interest on the amount of the loan will be applied at the prevailing rate per annum on daily reducing balance with monthly rests.

Intimation of change in Interest Rate:- 
                                The borrower shall be deemed to have notice of changes in the rate of interest whenever there are changes in Base Rate or increase in interest rates where there is no change in Base Rate are either displayed on the Notice Board of the Branch or published in news papers or made through entries of the interest rate charged in the passbook/statement of account furnished to the borrower and the borrower is liable to pay such revised rate of interest. 

Penal interest:- 
                                In the event of a default in payment or any irregularity in the account, the Bank reserves the right to levy a higher rate of interest as it deems fit. Enhanced rate of interest @2% p.a on the irregular amount for the period of irregularity, over and above the applicable rate will be charged if the Equated Monthly Installment (EMI) remains unpaid for a period of 30 days from the due date, for any reason, including a bounced cheque. 

Bounced cheque/ECS or SI dishonours:- 
                                A penalty of Rs 250/- will be charged for every bounced cheque/ECS or SI dishonours. The rate may vary from time to time. 

Repayment: 
                                The loan is to be repaid in Equated Monthly Installments over the tenure of the loan. The repayment installment commences from a date specified in the sanction letter. The liability to the bank will be extinguished only when the outstanding in the loan account becomes Nil, on payment of residual amount, if any. 

Loan Tenor:
                                Maximum 30 years (or) up to the age of 70 years (the age by which the loan should be fully repaid) of the borrower, whichever is early. 

Pre-closure Charges:- 
                                Loans on Fixed and Floating rate of interest: No pre-payment/ Pre-closure penalty will be levied on Home Loans irrespective of the period for which the account has run or source of funds. 

Security:

Primary:- 
                                The loan will be secured by Equitable / Registered mortgage/extension of mortgage of the land and building/flat for which the loan is to be sanctioned. 

Collateral:- 
                                Liquid securities of adequate value in the form of Life Insurance policies, Government Promissory Notes, shares/ debentures, gold ornaments or such other tangible security as may be deemed appropriate, may be pledged by the customer in lieu of mortgage of the residential property financed by the Bank. 
Interim Security Pending Mortgage:- Wherever creation of mortgage is likely to be delayed for any valid reason, suitable security including third party guarantee, as considered necessary, may be taken for the interim period. 

Utilisation of the loan: 
                                The amount of the loan shall be utilized strictly for the purpose detailed in the borrower’s application form and in the manner prescribed. The construction of the house/flat or the modification/extension proposed by the borrower in the existing house/flat should be strictly according to the plan approved by the Local Authorities/Town Planning and Development authorities. Any modification desired in the plan as originally approved, can be undertaken only after express sanction for it has been obtained from the appropriate authority. 

Insurance: 
                                The house/flat shall be insured comprehensively for the market value covering fire, flood, Earthquake etc. in the joint names of the Bank and the borrower. Cost of the same shall be borne by the borrower. 

Inspection: 
                                The Bank will have the right to inspect, at all reasonable times, the borrower’s property by an officer of the Bank or a qualified auditor or a technical expert as decided by the Bank and the cost thereof shall be borne by the customer. 

Fees and charges: 

Processing fee: Collected at the time of Documentation. 

Some times there will be Concession in processing fee during Special Home Loan Campaign period  

Fees paid to Bank’s empanelled advocate and valuer for their professional services will not be refunded even if the loan is not sanctioned for any reason State Bank of India retains the right to alter any charges or fees from time to time or to introduce any new charges or fees, as it may deem appropriate, with due intimation to customer. 

Conversion charges for switching loan from fixed to floating rate: : Option for switching loan from fixed to floating rate is permissible on payment of 0.56% of the outstandings in the account. Fees and Charges are subject to change from time to time at the sole discretion of SBI. 


Disbursement: 

The loan will be disbursed only on the following conditions: 

1. All the security documents prescribed have been executed by borrower/co-applicant (s)/ guarantor/s A valid mortgage (equitable or registered if equitable mortgage is not possible) has been created in favour of the Bank as per the laws of the State. 
2. Wherever creation of mortgage is likely to be delayed for any valid reason, suitable security including third party guarantee, has been taken for the interim period. 
3. The loan will be disbursed in stages where a loan for construction is desired or purchase is through payment to seller in installments. 
4. All necessary statutory compliances are in place. SBI may disburse the quantum of loan in lump sum or in installments at its own discretion depending on the level of construction of the House/Flat as acceptable to SBI. SBI will disburse loan amount directly to the builder/seller/society as the case may be and as requested / specified/ directed by the customer to SBI at the time of each disbursement. SBI shall not be responsible / liable in any manner whatsoever for any delay by the customer in providing such request/ specification/ direction to SBI and the customer shall not claim any costs, charges and expenses in any relation to any non-disbursal by SBI due to any such delay by the customer. The Bank reserves the right to collect any tax if levied by the State/Central Government and/or other Authorities in respect of this transaction. 

Default: 
                        In the event of default i.e. if the amount due is not paid by due date, the customer will be sent reminders from time to time for payment of any outstanding on his loan account, by post, fax, telephone, email, SMS messaging and/or through third parties appointed for collection purpose to remind, follow-up and collect dues. Any third party so appointed, shall adhere to the Indian Banks Association’s (IBA) code of conduct on debt collection. 

Customer Service: 
For any service related issue, customer can get in touch with SBI by :

• Calling Customer Help Line Numbers 
• Contact Customer Grievance Cell at our Local Head Offices
• Write to Grievance Cell at our Local Head Offices 

(Details on Help line Numbers and Grievance Cell available on www.sbi.co.in)

In case a customer is not satisfied with the handling of grievance by the Local Head Office, a communication may be sent (enclosing the message sent earlier to Local Head Office) to the 

Deputy General Manager (Customer Service), 
Customer Service Dept, State Bank of India; 
State Bank Bhawan, 
4th floor; 
Madame Cama Road, Mumbai-400 021, 
Telephone No. (022) 22029456 , 22029451 22740432, 22740431,22740433 
Fax no. (022) 22742431. 
e-mail address - dgm.customer@sbi.co.in. 

Disclosure: State Bank of India is authorized to disclose from time to time any information relating to the loan to any credit bureau (Existing or Future) approved by Government of India and Reserve Bank of India without any notice to the borrower. State Bank of India is also authorized to make inquiries with the Credit Information Bureau of India (CIBIL) and get the applicants Credit Information Report.

5 questions for home buyers





If answered accurately, they will help you take a more informed decision

No loans to repay, modest aspirations and not a very ambitious retirement target. For Mumbai-based bank executive Alpesh Mehta and his schoolteacher wife Deepali, saving for their child's education and marriage, as well as their own retirement, will be a breeze. But this could change if they go ahead with their plan to buy a house.In Mumbai, the minimum price of a 800-1,000 sq ft house is `1 crore. They will have to liquidate all their existing investments to raise about `20 lakh for the downpayment. The balance `80 lakh, if borrowed at 10% for 20 years, will mean an EMI of `77,200, which is roughly 60% of their combined monthly income of `1.3 lakh. Either the Mehtas will have to stop saving for their child's goals or their retirement will have to be pushed back.The Mehtas are not the only ones entering this minefield. Across the country , a number of people are firming up plans to buy a new house. The New Home Index of Zyfin Research, an indicator of home buying plans of 3,000 households across 11 cities, has inched up in the past 12 months (see graphic).Though it is still in pessimistic territory, buyers are less pessimistic now than they were in May 2014. “The decline in pessimism has more to do with increased optimism about future income and job security than lower borrowing costs,“ says Debopam Chaudhuri, Chief Economist and VP-Research, ZyFin Research.
Despite the surge in buyer sentiment, real estate is still not a good investment in most parts of the country .Property price are still very high and despite the recent interest rate cuts, the cost of borrowing has not come down significantly. Before they take the plunge, potential borrowers need to ask themselves 10 questions. Your answers will tell you whether you should save more for a bigger down payment, buy a smaller house, invest in a cheaper city or not buy at all.

1. Can you afford the home loan EMI?
It might sound a no-brainer, but many home buyers get this wrong and bite off more than they can chew. The home loan EMI should be around 40% of your net household income. But that is if you don't have other loans. A high EMI outgo can put your house-hold budget under pressure. If the home loan EMI accounts for more than 50% of the net household income, other goals will have to be downsized or junked altogether.Don't be fooled into thinking that the recent cut in home loan rates have made property a viable investment. It will have a marginal im-pact on the total EMI. A 25 basis point cut will reduce the EMI of a `50 lakh loan for 20 years by `826.
It's easy to get ambitious and go for a bigger loan if you are expecting generous increments in the coming years. Don't make the mistake of leveraging on future income. While your income would certainly rise, but so would your expenses and financial commitments.

2. Have you factored in the other costs?
The advertised price is usually the base price of the property . The add-ons are usually kept hidden till you sit down with your cheque book. Many builders will slip in charges for facilities that you thought were free with the property. Others will keep certain charges hidden from the buyer by tucking them away in the fine print. These apart, there are other big-ticket add-ons such as the legal costs. The stamp duty and registration charges payable to the authorities add up a neat 7-8% to the overall price of the property. In all, these charges can push up the property price by 20-25%. Make sure you have factored in these additional costs.

3. Have you considered renting?
The high property prices means that renting is a better option in most cities.A 2-BHK house in Mumbai will cost close to `1.2 crore. If a buyer puts in `40 lakh as downpayment and takes a loan of `80 lakh, the EMI for 20 years comes to about `76,500. He also loses around `23,500 in interest that the `40 lakh downpayment could have potentially earned. The total cost per month comes to `1 lakh while he can easily get a similar house on rent in Mumbai for about `40,000-45,000 a month.
Don't go by hypothetical examples.Instead, use an online rent-or-buy calculator to find which is is better for you.The one developed by Bigdecisions.com is a sophisticated online tool that takes into account several things, including the cost of the house, the amount of downpayment, the rate of interest of the home loan, the expected appreciation in the house price, the rent payable for a similar accommodation in the area and even the expected hike in the rent every year.

4. Will house value rise faster than the interest on loan?
In the early 2000s, when home loans were available at 6-7% and property prices were galloping at 20-25%, it made eminent sense to invest in an upcoming apartment project. Now, property prices are appreciating at a slower pace. In some markets, such as Noida and Greater Noida in the NCR, prices have even come down in the past 12-18 months.
If you are buying property as an investment with a loan, first assess whether its price will appreciate at a rate higher than what you are paying on the loan. “If you are payings 10% on the loan and the property price is expected to appreciate by 5-6%, then it is a bad buy,“ says Manish Shah, Cofounder and Chief Executive of Bigdecisions.com. Shah says the expected rate of appreciation is the single biggest determinant in their rent-or-buy calculator. “It makes the biggest difference in the decisions,“ he says.

5. Will this purchase force you to postpone other major goals?
Stagnant property prices and high EMIs are not the only problems that potential home buyers should be wary of. Their home buying plans can have serious implications on other financial goals, such as saving for their children's education and marriage and their retirement. If the home loan EMI is too big, it will push other goals out of the financial plan. Worse, buyers like the Mehtas might have to liquidate existing investments to raise money for the downpayment. Though parents are unlikely to surrender child insurance plans and education related investments, retirement planning is easily sacrificed. “Younger people tend to think that retirement is an old age problem and defer the investment,“ says Shah of Bigdecisions.com. It is easy for investors to raid their retirement savings to fund their real estate dreams.You can take loans from the Provident Fund or the NPS for buying a house.Buy a house only if the purchase will not impact other goals. Otherwise, be ready for an asset-rich but cash poor retirement. Or not having enough money to send your child to a good college.

Want to decrease the tenure of your home loan?

Moving into one's own home brings in so much happiness that can be experienced but cannot be explained. Same is the case with Bhargav, enjoying the new house, the house warming session, the praises for the new furniture and the construction.

As the month dawns, no sooner he realized about the EMI. As the case with many, he has to fund his account to pay the EMI, as the money flew with other expenses and investments. It is then he placed himself as a fund manager of the house.

So, firstly, he made a list of all expenses and income sources; and also loan and investments. He found the expenses graph goes higher as and when there is an increase in the income. Also another insight was, he had invested in ULIP, PF,  which are low return sources. Because of this, he had opted for low EMI which increases the loan tenure. He thought investing in those and pay higher loan interest to somebody is not a wise decision. So he withdrew funds from PF and changed his endowment policy to a term plan with a little higher returns. This left him with enough funds. Now, he used the PF for paying the principal and the money saved from not paying the ULIP to increase the EMI.

Pre-payment:

Here, we found Bhargav taking a very clever step. He reduced his principal by paying some amount, at once (other than EMI). This is called pre-payment. This reduces the principal amount and in-turn reduces the interest amount.  Pre-payment can be done any time as there are no charges applied. You can use this option whenever there is an extra source of income like increment, gifts from family, savings from salary. 

A question arises is it worth using all the money saved to pay the principal. Yes, it is worth as you close the loan much earlier than agreed. But one should be sure that there is no other investment that gives you higher returns than the interest you are paying for the home loan.

Increase the EMI:

We also found that he had opted to increase his EMI.  This too reduces the tenure of the loan. Try to avoid unnecessary expenses and increase the EMI. Imagine finishing the home loan at the earliest. It is the most relaxing thought for sure. But don't be enthusiastic. Be a judge for yourself. Don't make the EMI a burden. 

Search for a lower interest rate:

Always note that you have to search for the lower interest rate and shift the loan. Follow the market trends and the interest rate. Even a .5% difference in the interest rate will reduce the tenure of the home loan by almost 30 EMI for a 20-years loan. Provided, you pay the same amount of EMI, though there is a decrease in the interest rate.

Know that there are always options to close your loan as early as possible. All you need is to get guided and monitored with careful steps and timely work. Realize that only after you finish your home loan, your house becomes YOURS.

Interest Rate, Fixed vs flexible and influence of repo rate with examples

The toughest decision to make while going for a home loan is deciding on which interest rate to prefer. As we know, Fixed rate has a constant interest rate during the whole loan period or fixed for certain number of years where as Flexible rate changes periodically with respect to the market. But there are pros and cons for both of them.

Fixed Rate :

Pros:
It is usually preferred when an individual doesn't want to face any kind of financial risk.
It varies very little from lender to lender.
It is easy to understand.

Cons:
The interest rate would be higher when the market is on a higher trend, then.. 
the qualifying will be tough,
they will be less affordable, and 
the same higher rate remains, for the whole loan period, even when the market is on down trend or stable.

For example : Akshay bought a home for 50 lakhs. Out of 10 lakhs was payed as a down payment and 40 lakhs by a home loan. He took a home loan when the market is on the down trend and so, the interest rate is also lower, which is at 9%, ten years ago. Now the market is on the up trend, and the rates are higher. Akshay is saved from this financial risk of  increase in the interest rates.

 On the other hand, Abhinav bought a home for 50 lakhs. Out of which 10 lakhs was payed as down payment and 40 lakhs by a home loan. He took a home loan when the market is on higher trend and so,the interest rate is also higher, which is at 11%, interest ten years ago.  Now the market trend is stable and little on the lower trend, so the interest rate is 9%. But since the interest rate is fixed, Abhinav is paying 2% extra. 

So, when opting for a fixed rate as interest rate, take a wiser decision by knowing the trends of the market. This effects the number of years you are paying the home loan. Clever decision might increase to a decade or even reduce to half a decade. 

Note : Even fixed rates undergo changes after a certain time interval. It varies according to the individual lender.

Flexible or Adjustable Rate : 

Pros :
Flexible rate, initially is set a little lower than that of the fixed rate.
Depends on repo rate.When RBI increases the repo rate the interest rate would also be increasing. Moreover, this interest rate hike will not be for the entire tenure of the loan. Say you took a loan for 15 years. Over such a long time frame, interest rates are bound to fall.
Ceiling, i.e., this is the highest interest rate that the adjustable rate is permitted to become during the life of the loan.  

Cons :
It is complicated.
The monthly payment may change frequently over the period of the loan. Usually it is for every quarter, but it depends on the individual lender. For e.g., ICICI bank reviews it for every quarter.
With the change in the interest rate, you either have to change the monthly payment or change your tenure. i.e., if the monthly payment is constant then the tenure increases and vice versa.
Have to make a note of the review date.

Influence of Repo rate on flexible rate : 

Repo rate is the rate at which the RBI lends money to the financial institutions. So when there is a change in the repo rate, there will be a change in the interest rate. If there is an increase in the repo rate, i.e., the banks have to pay more interest, then they charge more from the customers, which increases the interest rate.

For example : Akash took a home loan of 50 lakhs with flexible interest rate of 9% when the fixed rate was 10.5%. Now there is a review of the rates every quarter. The revised rates are sent to Akash. It says, december - 9%, march - 9.05%, july - 9.15%, october - 9.01%, So, we observe a frequent change in the interest rate. This is depended on the market trend and the repo rate. But the flexible rate did not reach the fixed rate. Infact, it is very rare that the flexible rate would have drastic changes.

 As observed, there are pinholes in both the cases and also true advantages. Hence, regardless of the type of the loan that we select, we have to chose carefully to avoid costly mistakes.

Are you aware of the terms involved in a home loan

Buying a new home with the help of a home loan is now very common. Since, there are n number of financial institutions to provide loan, there is a huge competition. So, it is very usual that this competition forces them to make the proceedings a little easier and a little convenient.

Recently, there is  a discussion among our friends about home loan, the process and the terms involved. The discussion started as Ajay wants to buy a new home with the help of a home loan. Aarav is already in a home loan, which helped Ajay to discuss all the basic terms about the same. The discussion goes on like this...

Ajay : Saw a house. All of our family members liked it. But it costs me a fortune. So, planning to go for a home loan.

Aarav : Ohh! Is it! So how much are you planning to pay as down payment. 

Ajay :  (New to all these terms) Down payment?!

Aarav : ( already in a home loan)  It is very important to know everything about home loan before you go for it. So, Down payment is the payment made in the form of cash as the initial payment, when you buy a home. The percent may vary from 5% to 25%, with respect to the seller. For the rest of the amount, you can arrange for a home loan. So, you should know how much cash you can pay before applying for a home loan.

Ajay : Hmm, So, what are the other things that I should know...

Aarav : OK... For the rest 85% say, you are going for a home loan from a financial institute. You know that, the financial institutes approve the loan after verifying your personal details and the property's details. Now, before you apply, you should decide about the  interest rate for your loan. There are two rates which are depended on the RBI's repo rate. They are, fixed and floating or adjustable.

Ajay : Oh, fixed interest rate is the rate which stays constant for the entire term, and floating is the rate which will change periodically with the market.

Aarav : Very true Ajay. This needs some research. So do before you decide.

Ajay : And next is the tenure.

Aarav : Is it just the number of years I take the home loan?

Ajay : Yes, ofcourse but, it is not just..there is a lot in it. Tenure depends on the EMI (Equated Monthly Installments) you can pay. Usually, EMI and tenure are inversely proportional. The more you opt to pay in a month, the lesser the years you will pay the loan. Tenure also depends on your age and length of the career. This is another aspect you should know about.

Aarav : Is there anything more to know and to check before I go for a home loan.

Ajay : Yes, the financial institutions charge processing fees. To get our work done, institutions do some ground work which involves documentation process, underwriting process, legal charges, etc. It usually varies from 0.25% t0 0.5%. Due to huge competition, there are some institutions which do not charge the fees.

Aarav : That's interesting. Though minimal, we should try to reduce the cost in all means.
Ok, it is now my piece of cake to make a wise decision.

Home Loan Hot Tips

Buying a house is once in a life time decision for most of us. Buying a house can be a fun and exciting experience. But finding the right home is just one step in the process. Most of the us ignore choosing the right home loan and see set of surprises later. Mostly we will refer the builder or friend who had recently taken home loan. Here are some tips to help make finding the right home loan as easy as possible. You can visit LoanYantra.com to compare the home loans. 

“When I took the home loan I compare home loan interest rates of loan products on Loanyantra.com While I was sanctioned a loan for 15 years, I foreclosed my loan six months ago, that is within ten years,” said Gopi Krishna.

What are the right things he did? Read on to learn a few useful tips from him. 

• Tip  1 - Good research:
• Do not go as per what your loan agent says. You do your own research of the best terms available in the market. “While taking a loan, my agent did everything to stop me from going to a specific bank. I later on realized why, specific bank was paying less commission to agents, so they earn less. Hence the agents never encourage few banks,” said Srinivas. “I went and choose the bank that gave me the cheapest rate of interest,” he added.
• Tip  2 - Get your financial documents in order: 
• When you apply for home loan you need to provide your lender with number of financial documents. Having these documents already assembled will help accelerate the processing of your loan application.
• Tip  3 - Park your additional funds: 
• A couple of banks have a facility, which allows borrowers to park their additional funds in the loan accounts. “This will reduce the interest proportionately from the principal amount for the time that the amount was parked. This is an interesting option. This was not there when I took a loan,” said Sandeep.
• Tip  4 - Learn what is floating or fixed rates: 
• There are two types of interest rates that banks offer: floating and fixed interests. Floating interest rate is linked to market. It moves in tandem with a base rate.  Where as fixed interest remains fixed for a few months defined in the loan agreement. It is important to understand that in most cases floating rates work out cheaper than fixed rates in the long run.
• Tip  5 - CIBIL Score : 
• It is important to have a score of 750 plus to get attractive rate of interest on your Home loan. CIBIL data indicate that 80% of the home loan approvals are given to customer who have a credit score of 750 plus. Low CIBIL score could possibly reject your Home loan application or you may have to pay a higher interest rate.
• Tip 6 - Understand foreclosure norms: 
• Recently, RBI banned foreclosure penalties. So make sure you do not pay anything extra while foreclosing your loan.
• Tip 7 - Save up to foreclose: 
• If you can save Rs 1 lakh in the current fiscal, do not use it on a dream holiday abroad. Instead use it to foreclose your loan. “My advice to every borrower is that learn to foreclose your loan as soon as possible. The sooner you free the amount you pay for equitable monthly installments (EMI), the earlier can you enjoy the freedom to spend that money on luxuries of life,” added Sandeep.
• Tip  8 - Compare processing fees:
• whether it is for a fresh loan or for a balance transfer. Enquire in all the banks before you finalize. Also make sure you give a cheque for processing fee instead of adding it to the loan account. If we add processing fee to home loan, say Rs-10,000 fee on 20 years loan with 10% interest rate, then one would endup paying Rs-23161. 
• Tip  9 - Read the documents: 
• Read everything written in the loan agreement before you sign on the dotted line. It is very important to be aware of terms and conditions. "I have to pay Rs-5000 every time I take a home loan provision certificate for tax saving" said Ramesh. 
• Tip 10 - Increase the down payment: 
• every borrower has to pay some money from his own pocket while buying a house. Try to pay as much as possible as down payment. This will reduce your interest paid on the principal.
• Tip  11  - Spend conservatively: 
• Keep a tab on your spends during the home loan tenure. The old adage “A penny saved is a penny earned,” holds true in case of home loan too. When you save money, you could actually use it to foreclose the loan.