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/]

Getting a Home Loan in India

Decided on your dream home and now have to raise the funds? Fortunately bank loans are not as difficult to get as they used to be. It’s still a slightly long process, but then it’s always better to know that everything has been checked thoroughly rather than keep having to run around every three or four months. Here are the steps to go through:

1. Application

You need to fill up an application form which will ask for your basic information such as address, employment details, income, education and so on. The form will also ask for the property details like estimated costs etc. They will also ask you to submit verified photocopies of certain documents such as

Income proof

Age proof

Identity proof

Address proof

Employment details

Proof of educational qualifications

Details about the property if finalized

Bank statements

These are for security-both yours and the bank’s.

2. Processing fees for home loans in India

An important thing to note about home loans is the processing fee. Banks charge a processing fee for every home loan application. This fee is nonrefundable. The processing fee varies from bank to bank and is generally between 0.25% to 0.50% of the loan amount. This fees is used by the bank to start and maintain the home loan process including completing the various formalities during the entire period.

3. Evaluation and Verification

Once all your paperwork is in, it takes a few days for the bank back after going through your application and deciding your eligibility. If you pass this stage, field verification begins for which they send representatives to talk your family and neighbours as well as your colleagues to verify that the information you have provided is correct. The references provided in the application are cross checked and verified.

4. Repayment Verification

The bank now verifies your repayment capacity. After reviewing your credit records and bank account details, if convinced that you will be able to make payments every month, the bank sanctions your home loans. The sanction can be conditional or unconditional. If the sanction is conditional, you’ll have to fulfill the conditions imposed before the loan is disbursed. If they feel that you will not be able to pay back the loan, they will not sanction your loan.

5. Offer letter for home loan

The bank then prepares an offer letter which contains the following detail:

The amount of home loan sanctioned

The interest rate applicable on your home loan

Whether the interest rate is fixed or floating

Your home loan tenure

The mode of repayment of the home loan

If any special scheme applies to the home loan, its details

The terms and conditions associated with the home loan

If you find the offer attractive and agree with all the facts mentioned in the offer letter, you will have to provide an acceptance copy to the bank. This is generally a duplicate of the offer letter signed by you, provided to the bank for its records. If the bank charges any Administrative fee, it will have to be submitted at this stage.

6. Property Verification

The bank sends representatives to verify the property you are looking to buy. For this, you have to submit the original property documents. These include the title deeds, no-objection certificates and other documents. The bank conducts a legal check so as to verify that the property has a clear title and the home loan is being disbursed to the right person and for the right reasons. Banks don’t lend for disputed properties and for titles where ownership cannot be easily enforced.

[Source: http://www.midtownstructures.com/blog/getting-home-loan-india]

How to Get a Pre-Approved Home Loan

What is Pre-Approval?

Whenever people think of buying the house of their dreams, the only thought that crosses their mind is to get a Home Loan. Various private and public sector banks have started the trend of providing Home Loans. This has been a great boon for many people.

This process of getting an approval from the bank can be a tedious process. Many a times, it so happens that people lose their desired property due to the long waiting time demanded by the bank for processing a loan request.

Thus, this trend of getting a pre-approved Home Loans even before the acceptance of your request has been initiated. Banks would provide pre-approval to you after considering your background. The yearly income of the customer and other major factors are considered before giving a pre-approval. This pre-approval can be shown to the dealer to book the house that the customer desires. Thus the property can be booked even before the actual Home Loan is granted.

Although, getting a pre-approval for the Home Loan does not mean that the actual Home Loan has been granted. It should be kept in mind that a pre-approval is offered for a particular amount only. The bank has all the rights to declare the pre-approval void if the customer books a house of higher price value that the requested amount. Many times people misuse these pre-approvals to book properties of higher price value. Thus, make sure that after getting a pre-approval for a Home Loan, the property is booked within the allowed price only. Read this blog post to know How to invest in real estate.

Getting prequalified for a Home Loan can be Quite a Challenging Task

Pre-qualification before the application of Home Loan should be thoroughly done. Pre-qualification means estimation of your affordable expenditure on the house.

The bank checks your assets and credit before even offering you the preapproval. People should keep a check on their requested loan amount.

People who do not have any prior investments in properties must make sure that their work and asset value complements their loan request. Make sure that your income receipts and asset documents are kept ready as bank officials will do a strong background check even before considering your request for pre-approval.

We should have the following points in mind while applying for a pre-approved Home Loan:

Income Statement:

Verbal words and promises don’t hold any importance. So while, applying for any Home Loan it is advised to keep the income statements ready. It’s always better to maintain a proof of all the updated income and bonuses.

Asset Verification:

Before accepting the request for the loan, the bank needs a proof of all the assets. The bank needs to check if the customer can pay regular down payment hence, they enquire for the proofs. Usually the down payment is fixed to 3.5% while some Home Loans may require 20% down payment.

Credit:

Credit scores determine the Home Loan Interest Rates for the down payment. If a customer has a credit score above 750 then the down payment can be lowered to a substantial amount. Customers with low credit scores require higher down payment. Many times, customers are offered discounts in their down payment amounts if certain an amount is paid. Read this blog post to know how much credit score is needed to apply for a Home Loan

Verification of Employment Verification:

Background checks are a method of verifying the authenticity of the customer. The customers, in their application provide certain contact details that are further verified by the bank. Usually customers are asked to mention the contact details of their employers. If the customer has shifted their job recently, then the contact details of past and the present employer is required. Businessmen are asked to provide some extra paperwork.

Proper Documentation:

The procedure for Home Loan application requires thorough and efficient documentation procedures. Usually government documents such as, driver’s license, PAN card etc. are required during the Home Loan documentation procedure. The application procedure of a house loan may become very lengthy and tedious sometimes.

All the above described points hold utmost priority while applying for a pre-approved loan.

Benefits of Pre-Approved Home Loans

Zero-In On Your Home:

Lenders usually specify the loan amount when they offer pre-approved Home Loans in India. Since you know the exact amount, you can eliminate homes that are not within your budget, and narrow down on the most optimum choices.

You Can Negotiate with Your Seller:

A pre-approved Home Loan will make it clear to your seller that you mean business, and that you have the funds to close the deal. This could lead to your seller providing you with added benefits like discounts, or allowing you to move into your new home as soon as possible.

[Source: https://blog.bajajfinserv.in/how-to-get-a-pre-approved-home-loan/]

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