Things to Remember When Applying for a Home Loan

When applying for a home loan in India, there are several important factors to keep in mind. Here are some key considerations:

• Check Your Credit Score – It represents the borrower’s creditworthiness and financial responsibility.  

• Determine Your Budget – It can help ease the financial strain.

• Save for Down Payment – Paying more in the down payment can help reduce the loan amount and its interest rate correspondingly.

• Compare Lenders and Interest Rates – Every financial institution has different policies and interest rates they levy on their loan offerings. 

• Document Checklist – Prepare a list and organise all the essential documents for a seamless process.
• Professional Advice – It is always beneficial to take a professional’s help. When taking loans, especially for home, an NBFC can be very assistive. 

Interest Rate: An Important Consideration for Home Loans

When applying for a home loan, there are several factors to consider. Out of all, interest rate is one of the most important factors to consider. Do you know why? Well, it is because interest rate directly impacts the affordability and overall cost of the loan over its term. 

The interest rate directly impacts the amount of money to be paid in addition to the principal loan amount. It leads to lower monthly repayments, which ultimately creates a more manageable financial commitment. Although there are several types of interest rates applicable, each one has distinctive advantages.

Therefore, it is necessary to choose the right interest rate that aligns your loan with your long-term financial goals. It not only ensures easy repayment methods but also helps achieve the dream of homeownership. Below are mentioned the different interest rates applicable to home loans in detail. Based on the financial situation, one can make an informed decision to set a secure and affordable homeownership path.

Types of Interest Rates for Home Loans in India

When it comes to securing a home loan, the choice of interest rate is more than just a number on a piece of paper. It’s a decision that can significantly influence the total loan cost over the years. Here are the different types of interest rates to know about:

• Fixed Interest Rates

Fixed interest rates are like a steady ship in the sea of fluctuating financial markets. When you opt for a fixed interest rate on your home loan, it means that the rate remains unchanged throughout the entire tenure of the loan. With a fixed rate, the monthly loan payments remain consistent throughout the term. It makes it easier for borrowers to budget and plan for their expenses, as it gives clarity on how much has to be paid. Moreover, even if interest rates in the market rise, the rate stays the same, providing a sense of security.

• Floating (Variable) Interest Rates

Floating interest rates are not constant, and they keep on changing according to the situation of the financial market. They often start lower than fixed interest rates, which can be advantageous for borrowers. These rates are linked to market benchmarks, meaning they can go up or down during the tenure of your loan. When market rates decrease over time, one has to pay less interest on the home loan in the long run. 

• Hybrid (Mixed) Interest Rates

Hybrid interest rates are like a versatile vessel that combines features of both fixed and floating rates. These rates offer a fixed interest for an initial period, after which they switch to a floating rate. During the fixed-rate period, borrowers are protected from potential interest rate hikes. This can be particularly advantageous if the interest rates are speculated to rise in the near future.

By combining fixed and variable rates, borrowers can secure themselves against significant interest rate fluctuations. It provides a measure of protection against the potential negative impact of rapid interest rate increases. It also offers flexibility to borrowers who may want to modify the loan to suit their financial situation better. Once the floating rate kicks in, you may benefit if market conditions are favourable.

Choose Wisely: Know Loan’s Interest Rates

To make the best choice, one must consider factors like financial stability, market conditions, loan tenure, and comfort with risk. Moreover, seeking advice from financial experts or home loan professionals can help ensure your decision aligns with your long-term financial goals. Remember, the right interest rate sets the foundation for a secure and affordable homeownership experience.

Choosing the right interest rate for your home loan is a crucial decision. Seek advice from financial experts like Tata Capital to ensure you make an informed choice that sets you on the path to comfortable homeownership. 

So, get your home loan from reliable lenders today!

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What are home loans?

Home loans provide financial assistance to those homebuyers who cannot otherwise buy or build their dream house on their own. They are disbursed for a property that is already constructed, undergoing construction or is going to be constructed in the future. The lender then takes the property itself as security, for the sales of the same in future, in case the buyer fails to clear the debt. 

There are several types of home loans that cater to the different needs of a homeowner or a buyer. Here are 7 different home loan types available in India.  

Land Loan

A land loan or plot loan helps a buyer buy a piece of land. This loan is regarded similar to the home loan in terms of Equated Monthly Instalment options, documentation process, applicants, etc. This loan allows the buyer to build the house on this piece of land or just save the land as an investment option. These loans are given to both salaried and self-employed individuals. Make sure that the layout of the land you would like to purchase is strictly for residential purposes, not agricultural, and approved by the authority. Banks like ICICI and Axis Bank lend up to 85% of the land’s price. 

Home Construction Loan

A home construction loan is a loan that assists the buyer in the construction of a house. Since there is a risk factor involved, the interest rates of these loans tend to be higher than other loans. The loan disbursal is executed in 2 to 5 instalments based on the progress of your home’s construction. For the loan to be sanctioned, you need to produce documents like NOC from the local governing body, approved plan, sales deed, etc. Deviation from the house plan will lead to freezing of the loan by the bank. To avoid this, deviations have to be submitted to the bank for approval.

Composite Loan

A Composite loan is a combination of a land loan and a construction loan, that is, the lender provides money for buying the plot as well as the construction of the house. In India, financial institutions cover up to 80% of the land’s market value, with a repayment holiday of a maximum of 24 months. Banks like SBI charge only a low-interest rate for composite loans. In India, the average age group that is eligible for this loan is 18 to 70 years. Address proof, income proof and identity proof are the mandatory documents to be produced for the sanctioning of this loan.  

Home Improvement Loan

Home improvement certainly entails a considerable expense on the owner’s side. Home improvement loans can cover up to 90% of the renovation expenses and offer impressive interest rates. However, it does not apply to external improvements, like a swimming pool or a garden. The owner can apply for this loan with proof of address, income, identity, and employment. If there is a joint owner, the loan should be applied by both of them jointly. The proposal of repair works and all the documents of the property are also to be produced for the sanction of the loan. Upon submission of the application, a repayment period of 15 years is provided.

NRI Loan

With interest rates of home loans being more affordable and Indian currency’s value weakening, more and more NRIs are in a hurry to build their homes in India. To lower the chances of non-payment of the loan, banks are extremely careful in lending loans to people who live abroad. In addition to the usual documents that are required for the processing of loans, NRIs are demanded to produce the documents that prove they have been working in the current nation for the past two years in the least. The loan tenure is also shorter for them, that is, 15 to 20 years. The net income and educational qualification are the other two factors that influence an applicant’s eligibility. Passport, visa, permanent address, salary certificates, appointment letter of the job, foreign land address proof, work experience certificate are some of the documents crucial to the processing of the loan. 

Home Conversion Loan

If you are gripped by the fear of hiking interest rates, a home conversion loan is exactly what you need. Home conversion loan gives you the provision to convert your current form of loan into a different type of home loan, based on your specific needs and affordability. You can do this by paying a certain amount of conversion charges. But it is advised to analyze the consequences thoroughly before you go for the conversion. Decide whether you want to pay conversion charges and stay with the existing lender or shift to a new lender and pay the processing fees of a new loan. The ideal choice is the one that has fewer repercussions on your finance. In India, banks like Axis Bank and Bank of Baroda charge very less conversion fee. 

Home Extension Loan

Home extension loan is a boon to those who wish to extend the living space in their houses. Anyone who wants to make structural changes in their houses can apply for this loan, which will cover up to 90% of the construction estimate. Even if you have availed a home loan from a certain lender, you can still apply for the home extension loan individually or jointly from the same lender. The loan amount will rely on the age of the applicant/s, credit score, repayment history, the age of the property, etc. You are required to produce the proofs for identity, income, address and construction estimate along with the documents of your property.
Today, almost all major Indian banks lend home loans at affordable interest rates. Top banks like HDFC, Axis, SBI, Bank of Baroda, DHFL, and LIC provide low interest rates and attractive tenure. Do not forget the tips to consider while taking your loan, keeping in mind your affordability and risks involved, to avoid the repercussions of not repaying the money. With a satisfactory credit history and the confidence to match the eligibility criteria of the respective bank, your dream home can turn into a reality.

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