Home loan Interest Rates a Short Introduction

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Terms and Definitions Associated With Home Loans

Home is the safest dwelling in today's world and is the prime necessity of living. As most of the working class today belongs to the services sector and arranges its livelihood through salary, the option of availing loan is widely exercised by individuals from the lower and middle society classes. Purchasing a home through loan is rather easy for the service-class professionals as they get one-time purchase amount through the loan and repay it in smaller EMIs through their service period. As many different websites today offer home loan online itself, you can compare home loan interest rates that are provided by different loan providers and insurers and easily get a home loan through a hassle free process.

The bank or the lending institution enjoys the ownership rights over the property until the borrower pays back the loaned sum fully and the interest amount. If you want a loan for purchasing a new home, then you need to know about certain uncommon terms that are frequently used during the loaning process. By knowing these home loan terminologies, you will be able to know about the various aspects of the loan processes.

                                                                                                                 

Margin and Down Payment

According to the new RBI guidelines, a bank can provide you loan up to 80% of the property value. For the smaller house loans, the ceiling is 90%.Hence; you would be required to pay a minimum of 20% or 10% of the property value at the time you purchase it. This initial one-time payment is called as Margin or Down Payment. The rest is paid by your lending financial institution. Other allied costs of property purchase like stamp duty costs; registration charges, etc. are not included in this cost.

Freehold Property

Freehold properties are those properties and houses where the owner owns the land on which the property is also built. Villas, Bungalows, and other houses come under this classification. Apartments and flats are also free hold properties, but the land on which the apartment building stands is owned by all the apartment owners in the proportion to their flat size. A flat owner cannot change the basic structure of building but can make changes to his/her own apartment after taking due permission from the apartment housing body or the authority concerned.

Leasehold property

A person can live in a leasehold property for a definite time period and has to pay rent (one-time or monthly) of the property, during that time period. Once the lease time period is over, the property goes back to the owner/lessor and the less reevaluates the property. In India, leases are given for usually a period of 99 years, which can be changed and modified further. In between the lease time, the lessee can also buy the property.

Pre-Approved Property

Banks and financial institutions verify new and old properties for their legal and technical aspects and approve it for sale. The buyer is not required to get the property approved again by another financial institution or legal department when he/she buys it. Not all banks verify and approve all properties, and you can get a home loan from a lending institution that has not approved the property that you have chosen to purchase. It is also not necessary that you will get a loan for purchasing a particular property from a bank that has approved it as each loan request is processed individually. Home Loan Interest Rates comparison is also done by individuals who take a loan from a financial institution by mortgaging their previous property.

[Source: http://www.sooperarticles.com/finance-articles/loans-articles/terms-definitions-associated-home-loans-1465884.html?]

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Five Ways to Reduce Your Home Loan Interest Payout

Choosing the right lender, and subsequently looking out for ways to reduce the burden of the home loan through lower interest rates, is crucial.

The most critical factor for most people taking a home loan is interest rate. And understandably so, because home loan EMIs usually are the biggest monthly expenditure for a household and it lasts for at least a decade. Even the smallest of differences in the interest rates offered by various banks and financial institutions can amount to a significant amount in the long run. Choosing the right lender, and subsequently looking out for ways to reduce the burden of the home loan through lower interest rates, is crucial.  Here are a few tips that may help you reducing your home loan interest payout:

Switch to MCLR: Both Reserve Bank of India and home loan borrowers have long accused banks neglecting existing borrowers while reducing interest rates. To solve this problem, RBI made the banks to switch over to Marginal Cost Based Lending Rate (MCLR) ¬– based lending rates from April 1, 2016. Since then, all the new floating rate bank loans have been lent on the basis of MCLR. Even borrowers of loans disbursed till March 31, 2016 have the option of either switching to MCLR or continuing with the base rate.

As the repo rate is used in the calculation of MCLR, it is better placed to reflect the changes in policy rates than the base rate and BPLR systems. Moreover, banks have been asked to mandatorily review their MCLR every month and reset your interest rate at a periodic interval of less than a year. Even your interest rate reset date has to be communicated to you at the time of your loan disbursal. These features make MCLR system a much more transparent rate-setting system. The provision of fixed interest rate reset date will also force banks to pass on the repo-rate reduction to you. Thus, given the current declining interest rate regime, it makes more sense to switch to MCLR in order to benefit from future rate cuts.

Reset your loan to lower rate (for NBFC): Currently, home loan borrowers from NBFCs and housing finance companies do not come under the purview of MCLR. However, they can reduce their interest rate to current lending rates by paying a conversion fee. This fee can go up to 1% of the outstanding principal. Many banks also offer the facility of switching from higher fixed rate to lower Home Loan Rates on the payment of a similar conversion fee.

Make prepayments: Home loan borrowers have the option of prepaying their entire or a part of their outstanding home loan balance. Currently, lenders are barred from charging prepayment of floating rate homes loans; however, lenders charge prepayment charges of up to 2% of the outstanding loan amount on fixed rate home loans. While opting for prepayment, make sure that the savings in interest cost is higher than the prepayment charges paid.

Increase your EMI: Your monthly income is considered while fixing your monthly EMIs. Usually, lenders prefer your EMIs to be within 40% of your monthly income. You can reduce your overall interest payout by diverting a part of your increment towards home loan EMIs. In order to reassess your repayment capacity, banks/NBFCs may ask you to submit your salary slips and bank statements. However, while opting for increased EMI, do not sacrifice your long term investment goals. 

[Source: http://www.blog.loanmoney.in/five-ways-reduce-home-loan-interest-payout/]