Rate
of Interest:
Interest rates are different from institution to institution and
generally range from about 12.5% to around 16%. The interest on home loans in
India is usually calculated either on monthly reducing or yearly reducing balance.
Monthly
reducing:
In this system the principal on which you pay interest reduces every month
as you pay your EMI.
Annual reducing:
In this system the principal is reduced at the end of the year, thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender. Which means the EMI for the monthly reducing system is effectively lesser than the second system of calculating interest.
The best way to select the cheapest Home Loan is to keep the loan period constant and calculate the total amount paid for the home through the different loan options available.
What are the repayment period options?
Repayment period options range generally from 5 to 15 years.
What is fixed rate of interest?
Some institutions have a fixed rate of interest which means the rate of interest remains unchanged for the entire duration of the loan. This means you do not benefit, even if rates of interest drop in the market.
What is floating rate?
This is the rate of interest that fluctuates according to the market lending rate. This means you stand the risk of paying more than you budgeted for in case the lending rate goes up.
Other costs that usually accompany a Home Loan:
Home loans are usually accompanied by the following
extra costs: a) Processing Charge: it’s a
fee payable to the lender on applying for a loan. It is either a fixed amount
not linked to the loan or may also be a percentage of the loan amount. The loan
amount received by you cannot be less than the processing fee. b) Prepayment Penalties: when a loan is paid
back before the end of the agreed duration a penalty is charged by some banks/companies,
which is usually between 1% and 2% of the amount being pre paid. c) Commitment Fees: some institutions
levy a commitment fee in case the loan is not availed of within a stipulated
period of time after it is processed and sanctioned. d) Miscellaneous costs : it is
quite possible that some lenders may levy a documentation or consultant charges. e) Registration of mortgage deed.
How do HFCs decide what amount your loan should be?
Usually most companies give upto a maximum of 85% of the cost of the house. The other 15% sometimes called ‘seed money’ will have to be provided by a loan applicant. Out of the 85% the amount the applicant is eligible for, is decided by the age, income, no. of dependents, monthly outgoing and repayment capacity. This varies from case to case.
Securities required:
In most cases the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some institutions may ask for additional security such as life insurance policies, FD receipts, share or savings certificates.
Guarantors:
Some institutions ask for 1 or 2 guarantors, others require no guarantors at all.