Soaring housing prices in the past have made homes unaffordable for direct purchase by the common man. In recent times, home loans have become a very feasible route for a person to buy the house of their dreams. However, with the various types of home loans and the numerous corporations offering them, it can become difficult to choose the right home loan plan. Since home loans are often the largest and longest loans offered to retail customers, one must be diligent before and research thoroughly taking a home loan. Firstly, we must look at the types of home loan plans offered in India:
Types of home loan plans:
Home purchase loan
The most common type of home loan, these loans are used to buy residential property. Banks offer home purchase loans up to a maximum of 90% of the property value.
Home construction loan
Home construction loans are used to finance the construction of a new house, or to finance the construction of an unfinished house.
Home improvement loans
These home loans are used to renovate, repair or refurbish homes. They are beneficial when a property requires large extra costs to be made habitable.
Home extension loans
These loans are used to extend one’s property, such as adding a room. They are smaller in size and hence have lesser eligibility requirements.
Top-up home loans
These loans are taken on top of an existing home loan, and allow you to raise cash from your house in addition to your existing home loan. They usually charge slightly higher interest rates than home loans, but also have longer tenures than other types of loans.
Land purchase loan
These loans are used to purchase plot or land for construction or investment purposes.
NRI home loans
NRI home loans usually have a higher interest rate than home loans for residents of India.
Balance transfer loan
Balance transfer loans are used to transfer an existing loan to a different company, to take advantage of lower interest rates. However, there are often additional charges on transferring the balance home loan.
These loans allow people to buy a new property before selling off an existing one, and help meet short-term liquidity requirements. They have high interest charges and a maximum tenure of 2 years.
Nevertheless, regardless of the purpose of taking a home loan, it is very important to choose the right home loan plan to avoid additional financial liabilities and get the best home loan rates in the market. But how does one get the best home loan plan? Are interest rates and processing fees the only factor?
Here are our tips to help you get the best home loan plan in India 2021:
Improve your credit (CBIL) score
When choosing a home loan plan, the advertised interest rate may not necessarily be the one you have to pay, as home loan size, eligibility and interest rate depend upon your credit score, age, bank statements and income. Maintaining a high CBIL score, generally in the range of 700-900, allows you to access the best interest rates which reduces the cost of your home loan significantly. Ways to improve your credit score include utilizing 30% of your credit card limit, maintaining your older credit cards to have a longer credit history, and most importantly, paying your EMIs and credit card bills on time. Repaying a loan also boosts your credit score considerably, and having too many outstanding loans and charges can lower your CBIL score.
Consider including a co-borrower
In many cases, having a co-borrower can help you receive better terms for your home loan. For example, many lenders such as PNB, SBI and HDFC bank offer a concession of 0.05% on interest rate to women borrowers, which increases further if the borrower has a high CBIL score. Taking a joint home loan can allow you to receive better interest rates, divide your debt burden and gain eligibility for larger loan amounts. It also makes you eligible for tax deductions, though if one applicant defaults on payment it impacts the
Compare interest rates and service processing fees
It is very important to not only compare interest rates of home loan providers, but also their processing fee, as it adds to the total cost of the home loan. Using sites such as paisabazaar, one can compare interest rates between different home loan companies and choose the one which offers the lowest rates. Keep in mind though, the interest rate payable may change depending upon your profile as it depends upon the risk for the lender in approving your home loan.
Fixed vs Floating interest rates
Most home loan plans are offered at floating interest rates, which means the interest rates according to the central bank’s monetary policy. There are options to take home loans at fixed interest rates which can allow you to plan your finances more accurately, though the rate offered is usually higher than the prevailing interest rate in the market. When interest rates are high and expected to go lower, it is wise to opt for floating interest rate loans, and vice-versa for fixed interest rate home loans.
Choose the right company
Furthermore, one must be careful when choosing a home loan company, as companies that provide better service and have no hidden charges would be the most beneficial to you for the long term. The best company not only charges low interest rates, but also offers flexible payment options and makes repaying your home loan a hassle-free process. To help you choose the right home loan company, we have prepared a list of the best home loan companies in India 2021, which will guide you towards selecting a suitable company for your home loan.
Look for additional features/benefits
Lastly, one must also look at additional features and benefits offered by home loan companies, such as zero prepayment charges and top-up loans. Most companies provide a maximum tenure of 30 years, but the maximum age till the tenure is valid differs from 60 to 65 among most home loan companies. Banks usually offer lower interest rates than housing finance companies, but may be stricter in their eligibility requirements. Additionally, balance transfer costs and additional fees incurred must be examined to determine the total cost of the home loan.
To summarize, these are our tips to help you get the best home loan plan in India 2021. One must have a high credit score, compare interest rates and service processing fees, choose from the best companies and consider the additional benefits provided when taking a home loan from any company. We hope this article helped you gain clarity regarding how to get the best home loan plan in India. If you liked this article, please share and comment below.