How to choose the best home loan suitable for you?

How to choose best home loan suitable for youHow to choose the best home loan suitable for you?

Home loans help you to fulfill your dream of buying home well ahead of time without having money in your hand. However, there are certain points which you need to keep in mind before you choose the best home loan suitable to you. I am providing some important tips which you need to consider in choosing the best home loan in India?

What is Home Loan?

If you are already familiar, skip this section. This is meant for those who are new to this section.

A loan which is given for the purchase of property like a flat or independent house or commercial property is termed as Home loan. When you take a home loan, monthly instalments (EMI’s) need to be paid to the bank during the tenure of the home loan.

Also Read: SBI Max Gain Home Loans – Why this is unique home loan scheme?

How to choose the best home loan suitable for you?

There are few points which you need to keep in mind before approaching any bank or financial institution for a home loan in India.

1) Choose Lowest Interest Rates: This is very simple to say, but a little complicated to understand. Banks or financial institutions would indicate home loan interest rates with terms and conditions. You should choose lowest home loan interest rates as one of the main criteria where there are no or less T&C. Generally, home loan interest rates are offered between 9.75% to 14% interest rates.

2) Floating Vs Fixed Interest rates home loan: Another important factor is floating rates Vs fixed interest rates applicable on a home loan. Fixed interest rates are those where you would pay a fixed rate of interest on home loan during the tenure of home loan. On the other hand, floating rate means, interest rates vary from time to time based on RBI interest rates. If you are going for short term home loan within 5 years, you can consider taking a fixed rate interest rates. However, beyond 5 years, you should always consider floating rate. Best way is to consider hybrid home loan (mix) where home loan interest would be fixed for the first few years  and floating later on.

3) How much % of loan they offer: Another important factor is to check how much of total property value is being offered as a loan. Generally 70% to 85% of property value would be financed by banks or financial institutions. Considering highest loan % would help you to a) pay less down payment b) Get maximum loan and a maximum income tax exemption on this.

4) Consider loans of less processing charges and zero pre-payment charges: Most of the banks or financial institutions are not charging pre-payment charges in case you pay  home loan in parts during your tenure. However, many of them charge processing charges ranging between 0.1% to 2% of home loan value. Highest percentage would kill your outflow while taking loan. Try checking wherever there are low processing charges home loans.

5) Prefer simple documentation and fast processing time: These days, many banks have simplified home loan documentation process. With a few simple documents, you would be able to get a home loan now. Also check the processing time. Go for early home loan processing provider.

6) Consider special schemes if possible: There are many banks or financial institutions like LICHFL, SBI etc. who are offering special home loan schemes for women and senior citizens. Considering them would help you to get better interest rates.

7) Consider Joint home loan if required: There are several positive factors for joint home loan a) If your income is less and wanted more loan and your spouse is working, you can consider taking a joint home loan. B) Such joint home loan helps you to get a good income tax exemption of Rs 2 Lakhs + Rs 2 Lakhs = Rs 4 Lakhs per annum as an interest exemption (assuming that both have equal proportion of rights).

Also Read: What documents are required for home loans in India?

8) Compare various home loan features: Do you know that if a simple table is given to you along with all major features, you would be able to pick-up right home loan scheme suitable to you. Here is the latest home loan interest rate comparison statement which would help you to choose the best home loan in India.

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Suresh
How to choose the best suitable home loan for you

14 comments

  • Saravanan

    This article really helps!! also for the comments
    I am planning to buy home….i got some of my homework here.. 🙂

  • Kishore

    Hi Suresh,

    Above said pre-requisites are very good and one must be cautious before taking a home loan. I’ve a doubt here

    I’m an IT employe, getting HRA allowance and yearly I’m producing the rent bills to reduce my income tax.
    In future I’ll take home loan and stay in my own apartment, in that case I cannot get tax exemption on HRA allowance.
    Is there any way that I can get tax exemption on HRA allowance as well as house loan amount which I’l take?
    Can I keep the apartment on my wife name? and in btw she isn’t working.

    Above in point 7, you said tax exemption for 1.5 Lakh but I think the revised is 2 lakhs in 2014-15 budget. Please correct if I’m not wrong.

    Thank you
    Kishore Bitra

  • Pranay P

    Hi Suresh,

    Another good article to guide us well! Thanks!

    I have taken a home loan of 17 lacs from Axis Bank (in the year 2008) and I have been making part payments of 1 lac each year towards the home loan. Previously Rs.15063 was the amount being deducted towards installment and after many part payments it is now being deducted to 10800 approx. The outstanding on my loan as of today is 9.25 lacs. The interest component is being deducted at a larger rate i.e. 9600 rs. whereas the principal being deducted is 1200 rs. hence 9600+1200=10800 emi. The rate of interest for my home loan is 11+ percentage.

    Any suggestions for improvements or should I continue with what I am doing?

    Regards,
    Pranay P

    • Hi Pranay, Have you not selected the option to reduce tenure, but not EMI ? This is where is the trick. Your EMI would not reduce, you would still get max income tax exemption for the year fo next few years and finally you would close loan. This way though your over all outflow is same, your income tax exemption would be high for next few years.

  • Sri

    Thanks for the article.

    with regards to “How much % of loan they offer:”,

    It also depends on your salary you earn. Many banks offer loans for upto, monthly EMI is not greater than 50% our net salary. Even though you are capable of paying more than 50% of your salary, the banks will not accept that. This % may differ from one bank to another.

    To overcome the above issue:

    When you apply for a loan you need to consider for long duration like 20 years, 30 years. Once you took the loan, after few months, you can revise your EMI depending upon your capacity, repay within 10 or 15 years. If you take your loan for long duration your EMI will be less which will give you more eligibility for your loan.

    Use the Excel loan calculator to calculate how much you need to pay as EMI to repay in 10 or 12 or 15 years.

  • Bhimarah

    Fully agree with you.
    One thing I would like to share with you though. While some banks seem pliable on processing fee, they try to force and pressurise the home loan borrower to avail home loan protection and life insurance on a high premium, offering to add it to home loan with a single premium, thus increasing the home loan liability while also more than covering the concession given on the processing fee. I believe this is some kind of a scam home loan borrowers should be wary of.

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