Home Loan Archives -

Why Is Home Loan Called A Good Loan?

Thu, 29 Sep 2022 04:21:41 +0000

The Buyt Desk

When one wishes to buy the house of their dreams, they may have to avail of a home loan. Loans are not a good thing but not so in the case of a loan taken for buying a house. Home loans are not bad debts but are considered to be good debt as it makes you an owner of an immovable asset. but

All Indians dream of buying a home since the day they start earning. It is one’s biggest dream and biggest asset in one’s lifetime. Buying a home needs a lot of money, effort, and time. The house buyer needs to arrange down payment money as the rest can be paid from the home loan. In India, the easiest way to create money for purchasing a home is a home loan which can be availed at a very low rate of interest.

Currently, real estate prices are very high and this makes it difficult for Indians to buy their dream home. Home loans are designed to help people buy homes as the loan amount is 80-90% of the house value. Non-banking financial institutions and public and private banks offer home loans by mortgaging the property till the loan is repaid.

What are the various types of home loans in India?

There are different types of home loans for different purposes in India like loans to buy a flat, individual home, or land, for extending the existing house, or for renovation and repair work at home. Below are the various types of home loans –

Home Purchase Loan
Home Construction Loan
Home Extension Loan
Home Improvement Loan
Home Loan Balance Transfer
Composite Home Loan
Home Conversion Loans
NRI Home Loans

What is the eligibility to avail of the Home Loan?

Each lender has its list of eligibility criteria. The main criterion which is considered by all is the borrower’s credit history. A credit score of over 750 is a must to avail loan at the best mortgage rates. There are a few other factors that are considered to determine the eligibility of the borrower which are –

Age of the borrower
Employment type
Minimum salary per year
Residency status
Margin requirements
Collateral security
Stable occupation
Assets, stability, and liabilities

What are the Benefits of a Home Loan?

Many Indians avail of home loans to buy, renovate, construct, or repair their homes. Below are a few of the advantages of a home loan that makes a home loan a good debt –

Tax Benefits – Income tax deduction is the major benefit of a home loan. On both interest and principal repayment, tax deductions can be claimed. Thus one can save some funds. Here are a few ways under Indian Income Tax law to save money –

claim up to Rs.1.5 lakh on principal repayments under section 80C
claim up to Rs. 2 lakh on the repayment of interest under section 24B
claim up to Rs. 1.5 lakh on special duty expenses under section 24B

Lower Interest Rate – Compared to all other loans, home loans have a lower rate of interest. During a cash crunch, loan top-up of existing loans can be made use of. So that you will get more funds at lower interest rates.
Long Repayment Tenure – Mortgage loans have long repayment tenures, unlike other loans. Loan tenure can easily be around 30 years. By opting for long tenures, EMI reduces and the budgeting burden reduces.
Tax benefits on the second house – If the borrower has brought a loan for the second house, the entire interest on the loan amount can be claimed for deduction under Section 24B of the Income Tax Act.
No prepayment charges – When the borrower opts to repay the home loan in a lump sum before the loan tenure, the lender usually charges prepayment penalties on this payment made. But borrowers are not charged prepayment penalties on floating rate home loans. Whenever a borrower has excess funds, they can utilize this fund and make a payment towards the home loan. By doing so, one can lower the burden of loans by either reducing EMI or loan tenure.
Balance Transfer Facility – You can change lenders when you are not satisfied with your current lender. You can transfer your home loan to a lender who offers better service and lower interest rates.
Dream home becoming reality – Buying a house from savings is not possible for all. But availing home loan one can easily buy their dream home and repay the loan easily in EMI.
Capital appreciation – Over time enjoy the gains from the rise in property prices
Saves on rent – Currently, rents are very high, especially in metro cities. Paying rent is a dent in your monthly budget. Instead, one can pay EMI and own the property.

The post Why Is Home Loan Called A Good Loan? appeared first on .

Fixed Or Floating Home Loan Interest Rate: What to opt for?

Thu, 26 May 2022 04:49:22 +0000

The Buyt Desk

Home loans come with two options of interest rates- fixed and floating interest rates. These are the two types of interest which often put home loan borrowers into a dilemma. The topic has been in discussion among many home loan borrowers. And to choose between fixed and floating interest rates, a borrower must have a clear perspective.

What is a Floating Rate?

The floating interest rate implies the interest rate that varies according to the change in reference benchmarks and other market conditions.

What Is Fixed Interest Rate?

The fixed interest rate is called so because the interest rate in this loan does not fluctuate like the floating interest rate. However, the fixed interest rate does not mean it remains uninfluenced by the market movement. The fixed interest rates may fluctuate in certain conditions.

One more option is present for a fixed interest rate, i.e., a proper fixed and fixed-fixed rate loan. When selecting the fixed interest option, checking every piece of detail is imperative.

Fixed or Floating Interest Rate: Which Is Better for Borrowers

From the lender’s perspective: Providing a loan at a floating interest rate is beneficial. They offer loans at a lower interest rate with a profit margin. This way, they have the option to change the interest rate according to the market movement when required.

On the other hand, in the fixed interest rate, specifically, the fixed-fixed interest rate loan, the loan provider gets stuck with the provided interest rate. Thus, they prefer to freeze the interest rate at a higher price.

From the borrower’s point of view: If the loan duration is short, i.e., five years or less, one should prefer taking a floating interest rate. Experts have a reason for this. According to them, the economic cycle takes time to change, and when a borrower chooses a floating interest rate, he is likely to pay a lower interest rate during the initial loan tenure period.

When you see the lower interest rate, banks show only the floating interest rate, not the fixed interest rate, as the difference between floating and the fixed interest rate would be significantly different.

The interest rate and EMI of fixed interest rate loans would be much higher than the floating interest rates.

Now take the example of a loan with long tenure. You begin with the floating interest rate, and when the interest rate cycle changes and gets reversed, you can switch from floating to fixed interest rate, provided that the fixed interest rate is fixed and will give you peace of mind.

For shifting the loan from flexible to fixed interest rate, there are charges to be incurred. You must keep this in mind when deciding between the two options.

Enough information is available these days to track the interest rate on the home loan. Thus, loan optimization would not be a challenge for informed borrowers.

Advantages of Fixed Interest Rate:

The interest rate in this option remains stagnant irrespective of the market conditions. It offers protection against volatile conditions.
It is a suitable option for those good at budgeting. It is ideal for long term budgeting.
It helps in long term planning.

Advantages Of Floating Interest Rate:

The top benefit of the floating Home Loan interest rate is that its interest rate often remains lower than the fixed interest rate. And the difference remains significant, sometimes 2 to 3%.
Even if the floating interest rate increases, the rise remains for a short duration. It does not last all through the duration loan.
It has a shorter loan repayment duration. One can think about taking additional loans shortly.

The post Fixed Or Floating Home Loan Interest Rate: What to opt for? appeared first on .

Five Ways New Home Loan Borrowers Can Reduce Their EMI

Thu, 19 May 2022 04:04:07 +0000

The Buyt Desk

Buying a home is an important decision. Most of us take a home loan to finance a home. But before finalising the lender you must put in ample leg work in comparing the home loan rates of various banks and financial institutions. By doing so you find a good deal on home loan rates and end up saving more.

Interest Rate is an important factor which can make or break a deal. A difference of merely 0.5% in interest on the loan amount of 50 Lakh for 20 years tenure could result in higher EMI that can outgo up to Rs 3.64 Lakh in totality. Therefore, it is imperative that you check all the possible options before making the final decision.

Here is how new home loan borrowers can reduce EMI size-

Chose The Right Property – Lenders often have a list of negative properties where they do not extend their hand for the loan approval. When you are shortlisting the property, make sure you do the property search in a way that meets all the conditions. Only then you would be able to coordinate with the lender offering the lowest interest rate.

Find A Lender Offering The Lowest Interest Rate Many online platforms present a list of banks offering loans at a lower interest rate with their terms and conditions. However, the bank interest rate varies according to the applicant’s profile. Thus, you should shortlist five or six banks offering the lowest interest rate and then check the terms and conditions of each lender. Finding the right lender will help you reduce your EMI size.

Try To Make Higher Downpayment – Loan borrowers who make higher downpayment are likely to get a loan at the lowest interest rate. In banking terms, it is a low LTV ratio. By making a downpayment of 20-25 per cent of the property amount, the borrower can keep the LTV ratio low and get a loan at a lower interest rate. Additionally, a higher downpayment means lower EMI.

Increase Your Loan Repayment Tenure – You can reduce the EMI amount by increasing the loan tenure. For example, if you are taking a loan of 40 Lakh for 20 years with an interest rate of 7.5%, the EMI will be Rs 32,224. When taken for 25 years, the EMI will be Rs 29,560. For the 30 years tenure, the EMI will be Rs 27,969.

But the problem with this option is that, for a higher loan, the total interest payout will also be higher. Thus, increasing the loan tenure option, one must choose when there are no other options present.

Choose Home Saver Loan – This option is good for those having a fluctuating income, such as entrepreneurs. The option gives borrowers the facility to pay a lower EMI amount, i.e. only the interest amount in some exception time. Once the monthly obligation gets over, the borrower can restart the regular EMI. He can make higher payments in between to reduce the principal amount.

Nevertheless, this loan option comes with a higher interest rate when compared to other options.

The post Five Ways New Home Loan Borrowers Can Reduce Their EMI appeared first on .

Should You Opt for a Joint Home Loan or not?

Mon, 10 May 2021 12:26:21 +0000

The Buyt Desk

When you plan to buy a house, there begins a series of long financial calculations. It is not a cheap affair and requires huge funds. In most cases, a home loan comes to the rescue. Now, the important consideration is “how much loan will the bank be ready to sanction?” There is a simple way to increase the loan amount. Take a joint home loan.

Advantages of applying for a home loan with a co-borrower

Let us first understand who is a co-borrower. A co-borrower can be your spouse or a blood relative such as a brother, a sister, or parents. He should be an earning member whether self-employed or salaried. Both you and the co-borrower are liable to repay the home loan. Your friend or an unmarried partner is not eligible to be a co-borrower/co-applicant for a home loan. There can be as many as six co-applicants for a home loan.

Easy loan

A joint home loan is sanctioned easily in comparison to an individual home loan. This is because banks know that the repayment liability is not borne by a single individual. In fact, banks recommend that co-owners (all the people who have ownership of the house) should be co-applicants in the home loan.

Higher loan eligibility

Bank considers earning potential and creditworthiness of all of the co-applicants, and thus, it sanctions a greater amount in a joint home loan. This will reduce the amount you have to save for the down payment. It will also distribute the burden of EMIs among the applicants. Overall, you will not compromise a lot on your monthly budget. Moreover, with two or more people contributing towards loan repayment, you will be free of the debt sooner.

The banks also decide the term of the joint home loan based on the age of the co-applicants. For instance, it will be 20 years if you apply with your spouse and 10 years if you apply with your parents.

Lower rate

If one of the co-applicants in a home loan is a woman, then banks offer the loan at a lower rate. The rate is lower by 10 to 25 basis points for female applicants. Thus, it is only sensible to apply for a joint home loan with your wife, sister, or mother.

Tax benefits

Both the co-applicants can enjoy the tax benefits associated with a home loan, offered by the IT Act. They can file for a tax deduction in the amount paid as principal (Section 80C) and interest in a financial year (Section 24). The tax benefit is proportionate to the share of the applicant in the joint home loan.

A home loan with co-applicants does not put the complete burden of repaying a loan on a single person. Along with the above-mentioned advantages of a joint home loan, your affordability for a bigger house increases. In fact, you have the opportunity to move to a location of your choice. A joint home loan is not only effective for financial planning but also tax planning of the family.

The post Should You Opt for a Joint Home Loan or not? appeared first on .

How to Reduce the Interest of Your Existing Home Loan?

Sat, 06 Feb 2021 16:32:27 +0000

The interest rate on home loans is seeing a massive dip. Banks have lowered their rates to even less than 7% per annum for their new customers. However, it may be the case that the existing customers may have been paying the interest as per the old rate. There may be many reasons for this. Let’s find out why could you be paying a higher rate.

Types of loans

First, it is important to know whether your loan has a fixed rate of interest or a floating rate of interest or a hybrid interest rate. A fixed-rate of interest means that the interest rate on your loan will be fixed at the time of loan disbursal and remain the same throughout the term. The bank’s announcement of a change in interest rates does not affect your loan’s interest rate or EMI. The floating or variable rate of interest keeps on increasing or decreasing from time to time. In the case of hybrid loans, the interest rate remains fixed for the first few years, and later it turns into the floating-rate loan. So, by now you must have understood that the rate of interest of your loan will change if you have chosen a floating rate or when you get your loan converted into a floating rate loan.

Reset Date

Depending on your loan agreement, there is a reset date on which it is possible to change your loan’s interest rate. It does not matter how many times the bank has announced changes in the interest rates in the meantime. According to your loan agreement, the reset date can be three months, six months, or even 12 months. For example, your loan reset date is 12 months, and your bank reduces the interest rate when your loan is just three months old. Then you will have to wait for another nine months to get the benefit of the reduced rate.

Lending Rate System

Government or Non-government banks and housing finance companies such as HDFC or LIC Housing Finance Company provide home loans to buy or construct a house. These financial institutions have different methods of determining interest rates. Housing finance companies follow Retail Prime Lending Rate (RPLR) system; while banks follow MCLR or Repo-Linked Lending Rate system, i.e. RLLR system. Among all these methods, the RLLR system is the latest. The implementation of this system took place in banks on 1 October 2019. This method has the highest transparency as it is directly linked to the RBI’s repo rate. Also, in this method, as per the RBI directive, banks will reset their customers’ loans at least once in 3 months. Thus, the customers can quickly benefit from the changes made by the RBI.

The Difference In Interest Rates

You must have noticed that the bank does not offer all its customers loans at the same rate. Despite having the same landing system, the effective rates of interest may be different for two customers. For example, the current repo rate of RBI is 4%; however, the bank may give loans to its customers at the interest rate of 6.84% to 9.10% per annum under the repo linked landing rate. Here, the whole game depends on the spread. The bank offers an effective rate to the customer by adding an additional rate to the repo rate. This additional rate is known as the spread. The spread depends on the customer’s relationship with the bank, his CIBIL score, his profession, the loan amount and its tenure, etc.

How to Reduce The Interest Rates?

If you have a floating rate loan and there is no reduction in your loan rate even after the RBI has reduced the rates, you can negotiate with the bank. You can negotiate a decrease in the spread irrespective of which lending rate system – RPLR, MCLR, or RLLR the bank is following for your loan. For example, if your home loan has a spread of 4% per annum, then the effective rate of interest is 8%. If the bank reduces the spread by even 1%, then the effective rate of interest will become 7%. You will get this benefit throughout the term. If the repo rate increases from 4% to 6% in the future, your effective rate will be 9% after the summation of 3% and 6% instead of 10% after the summation of 4% and 6%. This is because the spread remains constant. However, the bank will not do all this free but will charge a small fee from you. If the repayment period is long, then there is no harm in reducing the rate by paying a small fee. In this case, the bank will immediately reset your loan even if there is time left for the original reset date. If your bank does not reduce the rate as per your expectation, you can choose the balance transfer. This means that you can transfer the remaining loan balance to another bank, offering a lower interest rate.

After reducing the interest rate, the bank will give you two options: either to reduce the term of the loan or reduce the EMI. You can decide according to your need. If you do not pay the EMI, then it is better to reduce the loan term and be free from the loan quickly.

The post How to Reduce the Interest of Your Existing Home Loan? appeared first on .