Whether you are planning to buy your first home, or want to upgrade to a larger abode, it probably is the best time to buy a home in India. After all, home loan interest rates are at the lowest level in the last 15 years and we have also seen a slight price correction across the real estate segments in the country. From average 8.2% to 8.4% p.a. home loan rates in December 2019, the lowest home loan interest rates are presently available at 6.65% – 6.85% with most of the lenders.
As a result, we have also seen a constant rise in demand for ready to move in properties across the country after the rate cut. If we club the home loan repayment tax benefits, the effective rate of interest will be lower than 5 % p.a for the highest tax slab customers. Without a further adieu, let’s outline 5 steps to locking the best home loan interest rate in 2021.
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- Documents:
Documentation plays a significant role in improving your loan eligibility. Make sure you have required proof of identity, address, age & income along with property ownership documents to process your home loan application smoothly. Only after verification of these documents, your home loan application will be approved & sanctioned for disbursal.
Already due to COVID related disruptions, lenders are working with limited staff and thus there has been a slight delay in verification processes. When your documentation is in place, you can expect a faster movement of your file. It is recommended to opt for online application to further hastening the loan turnaround time.
- Documents:
- Down payment:
The eligibility for home loan amount is assessed as a percentage of property value and your repayment capacity. You do not get home loan for 100% value of property. In most cases, you will get home loan up to 90% of property cost for loans up to 25 lakh, up to 80% of property cost for loans up to 75 lakh and up to 70-75% of property cost for higher than 75 Lakh loans. Thus, the margin amount needs to be paid out from your own funds.
If you decide to borrow lesser than available credit limit, you basically exhibit a robust financial health and get eligible for a lower rate of interest. Thus arrange for down payment well before applying for a home loan. You can also include cost of registration, stamp duty & other expenses in the home loan.
3. Locking the best rate
Let’s quickly take a look at interest rates offered by top 5 home loan lenders:
- Kotak Mahindra Bank Home Loan: 6.65% – 7.30% p.a.
- SBI Home Loan Interest Rates: 6.75% – 8.05% p.a.
- HDFC Ltd Home Loan: 6.75% – 7.65% p.a.
- Axis Bank Home Loan: 6.90% – 8.40% p.a.
- ICICI Home Loan: 6.75% – 7.55% p.a.
Compare home loan interest rates offered by different lenders and choose the best rate being offered to you. Note that the rate of interest will vary as per your repayment capacity and current debt to income ratio. So it is recommended to maintain a good credit health for the best rate quote.
For instance, if you have existing loans such as car loan & personal loan EMIs to serve, your Fixed Obligations to Income Ratio will be high. You will get higher rate of interest. By repaying your existing liabilities & improving your credit score before home loan application will help you avail of a lower rate.
Also note that, these are floating rate of interest and fixed rate offered by the lender will be approximately 100 bps higher than floating rate. As we know, rates have already bottomed out, blocking this rate can offer you low rate benefit for entire loan term. But when you opt for floating rate, future interest rates will fluctuate as per the change in benchmark rates. So even if fixed rates are slightly higher, some borrower may prefer to opt for a fixed rate variant. Assess your requirement carefully.
In future, if you decide to switch from floating rate to fixed rate, it will cost you a switching fee. As, home loan is a long term commitment, it is recommended to carefully plan for your loan today. Locking the best possible rate & terms today will ensure peace of mind for future. Thus, basis your cash flow requirements opt for a floating rate of interest or a fixed rate of interest.
- Compare lenders:
Besides comparing home loan rates, you should also compare post disbursal services, processing fees, penal charges, ease of application & processing and multi channel customer support. For instance, Kotak Mahindra Bank offers uniform home loan benefits to salaried as well as self employed customers. SBI however offers different products for self employed and salaried customers. SBI also offers a combo personal loan to home loan borrowers for down payment or other expenses. The eligibility factors will vary as per risk premium and credit policy of the lender. While, Bank of Baroda offers a concession of 25 bps to home loan borrowers for a car loan.
Thus use professional advice and opt for a lender that offers the best match according to your specific needs. A loan aggregator like MyMoneyMantra can help you compare loan terms and conditions before signing up with any of the lenders.
- Apply online & make best use of available offers
Last but not the least, banks and NBFCs continue to run marketing offers for attracting new customers. Use profwessional advice to know the current deals. Presently, Kotak Mahindra bank has waived off 100% processing fee for online home loan applications. Likewise SBI Home Loan is also available at discounted rate for online applications. So make most of the available options and lock the best offer for your profile.
Using all these points you will not only seal the best interest rate for home loan but will also help you find the best terms and conditions, according to your needs.
