Buying a home is a huge, once-in-a-life financial decision. Young couples looking to raise a family of their own and wanting their own home early in life have given rise to multiple institutions offering home loans in our country. The current home loan interest rates are also favourable for people looking to buy a home of their own without worrying too much about finances. With various banks or non-banking finance companies (NBFCs) and housing finance companies (HFCs) offering home loans at attractive interest rates, the question is how to choose the right lending institution for your home and how to reduce the overall home loan interest rates. Answering this question requires one to understand the factors that influence home loan interest rates in India.
Factors Influencing Home Loan Interest Rates
A credit score reflects the borrower’s past payment history and behaviour toward loan repayment. It is a measure of how serious you are about loan repayment. A poor score can lead to a higher rate of interest while a score above 750 will bring down the rate.
Type of Property
The location of your home and property type also plays a significant role in determining the interest rate. A home in a developed locality with high-quality amenities nearby will cost more than a home with average amenities and connectivity. The resale value of the former will also be greater than the latter and thus, such loans come at a lower rate of interest than an old property with fewer amenities around it.
Cost of Home and Loan Amount
If you are buying an expensive home, you will have to avail of a higher loan amount, which in turn will increase the loan tenor. Long-tenor loans are sanctioned at higher rates of interest.
A borrower needs to pay around 20 percent of the property value as a down payment for a home loan. But if you have funds, you can make a larger down payment as giving a larger amount as a down payment will certainly reduce the interest rate for you.
Type of Interest Rate
Home loans availed of under the MCLR scheme may lead to lower interest rates. Also, check the current home loan interest rates that depend on whether one has opted for fixed rates or floating rates. The Statutory Liquidity Ratio, MSF (Marginal Standing Facility) and repo rate, decide the interest rates in a floating scheme.
Your occupation may also have an impact on home loan approval and interest rate. If you are working with a reputed organization and have a stable source of income, you may get a loan at a lower interest rate. However, if you are a salaried employee working for a start-up or small business, you may be charged a higher rate of interest on a home loan.
Home Loan Balance Transfer
Balance transfer of a home loan is when you switch your existing loan from one bank to another to avail of a lower home loan interest rate. It is best to opt for it when you have a long loan repayment tenor pending. Some other advantages of a home loan balance transfer are:
- Repayment plans as per your need
- Availability of top-up loans over and above the existing loan
- No charges for a balance transfer to a new lender
Current Home Loan Eligibility Criteria
The loan applicant must be an Indian resident whether salaried or self-employed. This means that the borrower must be living in India to apply for such loans and be considered eligible for the home loan by a lender.
Age of the Applicant
A salaried loan applicant’s age must lie between 23 years and 62 years and a self-employed applicant’s age should be between 25 years and 70 years. Age requirements vary from lender to lender. Thus, borrowers must check with their preferred lender before applying for a loan.
A job experience of 3 years in a private/public sector firm for salaried borrowers and more than 5 years of business experience for self-employed borrowers needs to be shown to be eligible for a home loan.
Source of Income
An applicant must have a steady source of income as it determines their ability to repay the loan. However, if the loan EMI exceeds 60% of the monthly income of the borrower, the application is rejected.
A CIBIL score above 750 is a must to be eligible for a home loan. It shows your seriousness about loan repayment and makes you financially credible to lenders.
Home Loan Tax Benefit
If you are paying EMI for a home loan, it mainly has two components:
- Interest payment
- Principal repayment
Did you know you can avail of tax benefits on home loan? Here are the deductions on their income tax liability on availing of a home loan:
|Tax deductions allowed on home loan principal amount + stamp duty registration charge|
|Section/s under the Income Tax Law||Section 80C|
|The upper limit on tax rebate||Rs 1.50 lakhs per annum|
|The upper limit on tax rebates for senior citizens||Rs 2 lakhs per annum|
|Tax deductions allowed on home loan interest|
|Section/s under the Income Tax Law||Section 24, Section 80EE, Section 80EEA|
|The upper limit on tax rebate||Up to Rs 3.50 lakhs per annum|
|The upper limit on tax rebates for senior citizens||Up to Rs 4.50 lakhs per annum|
You can claim a deduction on the interest portion of the EMI paid for the year from your total income up to a maximum of Rs.2 Lakh under Section 24. Thus, in all a home loan borrower can claim a tax deduction of up to Rs.7 Lakh.
How to Apply for Home Loan
For online loan applications, you need to visit the chosen lender’s website and fill out the loan application form and submit it along with the required KYC and home loan documents. Documents required by lenders are bank statements, income tax returns, income proof documents, property documents, sale agreement, etc. Once these are verified along with your home loan application, you move to the loan sanction stage.
Going for a home loan with the lowest interest rate is among the best ways to achieve an easy home loan but do not make a hasty decision. Take time and understand how to get the best home loan interest rates for comfortable loan repayment.