When you decide to purchase your own home, availing of a Home Loan offer is extremely crucial. However, Home Loan is a long-term financial commitment, and you will be servicing EMIs for a major part of your working life. Any error in judgement might cost you a lot of money. So, you must undertake detailed research and compare multiple Home Loan offers before selecting the best one for you. Due to the availability of multiple options in the market, the decision might take some time to reach, but eventually, the efforts will be well worth it.
Read on to understand how can you choose the best Home Loan offer.
How to compare Home Loans: Important parameters
It is prudent to compare multiple Home Loan products before you choose one. Some of the factors to compare are discussed below:
LTV Ratio:
Loan to Value ratio specifies the percentage of the value of the property that the lender is willing to finance. The maximum amount available as a Home Loan, can vary between 75% to 90% of the property value. This ratio varies across financial institutions, for instance LTV ratio for an HDFC Home Loan is 75% (for property value above Rs. 75 Lakhs), 80% (for property value between Rs. 30.01 Lakhs to 75 Lakhs), and 90% (for property value up to Rs. 30 Lakhs).
So you must identify the margin amount you can afford and the total amount you need. Compare the LTV ratio of the lenders to ascertain which lender can offer you the amount that you actually require. Generally, higher is the LTV Ratio; higher is the EMI, and higher is the interest cost, and vice-versa. So, ideally you should contribute as much margin money as possible to reduce the LTV ratio.
Interest rate structure:
There are two major types of interest rate options that you can choose from, i.e. fixed interest rate and floating interest rate. While the fixed interest rate remains unchanged throughout the repayment tenor, the floating rate is linked to external benchmarks like RBI Repo Rate or TBLR. In case of a fixed rate structure, the EMI remains the same throughout the loan tenure. Thus lenders usually charge a higher interest rate against the Home Loan. While, in the case of floating rate structure, the interest rate are fluctuating as per the market conditions, and thus, these are lower than fixed rates.
The RBI has reduced the repo rates several times over the last year. So, if you wish to avail the benefits of reduction in repo rates, floating rate structure is the best option for you.
Rate of Interest:
Rate of interest is an important parameter because it determines the total interest cost as well as the EMI you must serve. Make sure that you compare the Home Loan interest rates offered by different lenders carefully before making a decision. Due to extreme competition in the market, the Home Loan interest rates have become really affordable, but there is no harm in checking multiple options because you can, in fact, save a huge amount of money by availing a lower interest rate. For instance, HDFC Home Loan Interest Rates start from 8.25% per annum while Bajaj Finserv Home Loan interest rates start from 9.05% per annum.
Foreclosure charges and part pre-payment:
Well, Home Loan lenders do not levy any foreclosure or pre-payment charges complying with guidelines from RBI regarding the same. During the repayment of your Home Loan, if you get access to surplus funds, you may partly prepay towards your Home Loan.
In most cases, lenders state prepayment limits. Thus, before sealing a home loan, make sure you assess the flexibility with prepayment of loan.
Annual Percentage Rate:
Instead of comparing only the interest rates, you should compare the total cost of the loan, i.e., Annual Percentage Rate (APR).
APR is a more accurate measure of the suitability of a Home Loan because it encompasses the various costs that you have to pay. In many cases, it has been observed that many lenders with supposedly low-interest rates have a higher APR. So, undertake a detailed comparison of the APR to determine the best Home Loan offer.
Type of property:
The type of property you wish to purchase is also an important factor that determines the best Home Loan offer for you. While some lenders offer Home Loans for all types of properties, there are others who do not offer Home Loan for the purchase of empty plots. So, you must opt for a lender who offers a Home Loan for the type of property you wish to purchase.
Type of Home Loan:
While you might think that there is only one type of Home Loan available, but there are different types available. Home Purchase Loan, Land Purchase Loan, Home Improvement Loan, Home Extension Loan, Home Construction Loan, NRI Home Loan are some of the options that you can access. So, identify your requirement and select the type of Home Loan which meets your requirements.
Processing time:
The time taken for processing of Home Loan application is an important factor. You need to opt for a Home Loan provider that sanctions and disburses the loan in a quick time. This will ensure the completion of the purchase as soon as possible. Moreover, you will be able to avoid any increments in the price of a property due to delay on the part of the lender.
Repayment tenor:
You need to select the repayment tenor according to your financial ability. Longer is the repayment tenor, lower is the EMI, but higher is the overall interest cost and vice-versa. So, you must choose a lender that offers the desired repayment tenor which you seek.
As availing a Home Loan is one of the biggest financial decisions of your life, you should not rush into making a decision. Never accept the first offer that you get because there might be a better one available with another lender.
