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For first-time home buyers, there are various deals and offers in the market that one can take advantage of. To start with, if you have already finalized your home and are looking for a home loan, there are a few things you need to know that might be of help while zeroing down on a loan.
With this, not only will you be able to get the best interest rate but can also keep the overall interest cost low till the end of the home loan tenure.
Compare effective rate
While comparing the effective rate, note that banks also charge other fees such as margin, premium, and spread. The amount of these might vary depending on the borrower’s loan amount, credit score, down payment made by the borrower, and borrower’s profession along with other factors. Therefore, the home loan interest rates vary based on the borrower’s profiles. For instance, a salaried home loan borrower might get a home loan at a cheaper rate than the self-employed borrower.
Currently, SBI home loan is offering a home loan at 6.95 per cent, with HDFC home loans are available between 6.70 to 7.20 per cent while LIC Housing Finance is offering home loan ranging from 6.90 to 7.70 per cent for a salaried individual.
HFC or Banks
Borrowers have the option to take the home loan either from banks or housing finance companies (HFC). While banks have to follow the RBI’s mandate of lending at rates linked to an external benchmark, housing finance companies do not have to follow the repo rate linked lending rate mechanism. HFCs can set their own rates based on their cost of funds.
Even though public sector banks usually offer cheaper home loan interest rates to borrowers, experts say the sanctioning and disbursing loan process takes longer than that of private sector banks and HFCs. Hence, based on your need make your choice.
Bank’s RLLR or EBR
Before exploring the home loan interest rates of any bank be it online or offline, find out its external benchmark rate. The external benchmark rate also goes by EBR, EBLR, and repo rate linked lending rate (RLLR). They are the same as they are linked to RBI’s repo rate. As a borrower, you need to find the lowest repo rate linked lending rate, as the lower the RLLR, the lower the interest rate will be for you.
Plan to repay your loan early
While taking a home loan itself, make a plan to repay the loan as early as possible. Experts say one should at least try to prepay their loan early, for instance, if you take a loan for 15 years the interest cost becomes a huge portion of your loan amount. Hence, it is suggested to save and make a prepay, twice or thrice a year. The more you prepay in the initial years of the loan, the lower your interest amount will be along with a decrease in your principal amount.
What should be your down payment percentage? Irrespective of what you choose between a bank or HFC, experts say it’s better to provide as much down-payment as possible.
It is so because your overall interest cost will be lower by the time tenure ends if you opt for a higher down-payment amount. Additionally, with a higher down-payment, the loan amount will also be lower, and so the EMI amount.
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