Hat tip to home loans that offer you the joy of becoming homeowners even at a young age. With advanced technology, you can avail of housing loans effortlessly from the comfort of your home. But the tricky part is to pick out the best home loans from the bunch fully loaded with versatile home loan products. Well, the key to grab the best home loans is to check the home loan interest rate offered by banks and finance providers and compare them. One crucial point you should never skip is to collate services offered by the banks together with the interest rates. Banks and financial institutions offering both will be the ideal ones to procure the best home loans.
However, the cost-effectiveness of the housing loan thoroughly depends upon the chosen bank. The lender offering the lowest home loan interest rates can be a trap and might not be fit for you. So be cautious with the imposed charges while applying for a home loan.
To put it straightforwardly, homebuyers may get confused while selecting the best home loan bank, yet you can turn it into child’s play by contrasting the rates and flexible services. To make the process a bit easier, we have encapsulated top home loans for 2021.
Home loans are a type of financial solution where a borrower takes money from a lender to purchase, build or renovate a home. The loan amount, interest and EMIs are predefined during the application procedure. Until the loan amount has been paid, the ownership of the property remains with the lender. The loan amount can be a maximum of 90% of the cost of the property and the debtor pays the rest of 10% as a down payment.
In India, due to the pandemic, the home loan interest rates have been consistently low for the past year. This is due to the Repo Rate guideline by the Reserve Bank of India. Repo Rate is the interest that Indian banks pay to the RBI for the funds they borrow. If RBI increases the repo rate, banks are forced to increase interest rates as well. In June 2021, RBI announced that the repo rate will remain the same as last year to help boost the Indian economy. This has helped the common man as the interest rates will remain at their record low throughout the year.
How to Choose a Bank for Home Loan
Before applying for any particular bank for the loan, the applicant should carefully research all the home loans available in the market. The following factors should be considered –
- Interest Rates – Most banks have a similar range of interest. It is best to check home loan interest rate, get a quote from different banks and then compare the probable cost of EMIs
- Affordability – It is important to consider the affordability of a loan and the consequent EMIs. The borrower should carefully consider their capacity to pay off the loan.
- Longest Tenure – all banks have different longest tenures available. Most usually cap it at 30 years. The time of tenure decides the rate of interest and the EMIs to be paid.
- Processing Fees – It is a one-time fee to be paid by the debtor. Different banks have different processing fees and can change the price of the loan.
- Advantages and Disadvantages – The borrower should carefully consider the pros and cons of each bank and the home loan. They should also extensively research the past loan history of the bank, the interest rates, and the financial stability of the bank. They should avoid controversial banks for home loans.
Current Interest Rates on Best Home Loans of Major Indian Banks
Here is a rundown of the best home loans. Go through them and check the home loan interest rate that copes with your requirements.
- State Bank of India offers home loans in the interest range of 6.7% to 7.4% depending on employment. They also charge a processing fee of 0.4% of the loan amount i.e. ₹10,000-₹30,000
- HDFC bank has an interesting range of 6.75% – 7.85% on home loans. Their processing fee is ₹3000 or 0.5% of the loan amount.
- ICICI bank has a higher range in interest rates i.e. 6.75% – 8.05%. The processing fee is 0.5% of the total loan amount.
- Axis Bank has one of the highest ranges in interest rates, the highest is given to self-employed professionals. The interest varies from 6.75% to 8.55%. Its processing fee is 1% of the loan amount and a minimum of ₹10,000
- PNB offers interest in the range of 6.8% 5to 7.4% with a processing fee of 0.35% or between ₹2500-₹15,000.
Types of Home Loans
Most Indian banks offer different types of home loans depending on the purpose of the loan. Some of the types of home loans are:
For Purchasing a Home –
It is intended for the express purpose of purchasing a fully constructed house. The banks usually offer a loan amount that is approximately 85% of the total price of the house.
For Constructing a House –
The borrower provides a construction plan to the lender, detailing all the necessary costs and procedures required to build a house. The banks then review and decide the loan amount that will be provided. Usually, for construction loans, the full amount of the loan isn’t given at one time. Instead, the loan is handed out in smaller amounts.
For Purchasing Land –
Many people purchase land as an investment or with a prospect of constructing it in the future. Several Indian banks offer this type of loan and usually provide a maximum of 85% of the cost of the land. The rest 15% is given by the borrower as a down payment.
For Renovation or Expansion of a House –
Certain banks allow people to take loans for renovating their houses or expanding sections of their houses. The loan amount is usually smaller and getting accepted for this loan is relatively easier.
Types of Interest Rates
The interest rate is one of the most crucial aspects of a home loan. A higher interest rate always results in a loss to the debtor. The rate of interest is decided upon by the bank and is dependent on the type of loan, the credit score of the borrower, and the Repo Rate given by the RBI. At the time of application, the banks usually offer two types of interest rates which are:
Fixed-Rate of Interest
The rate of interest is decided upon at the beginning of loan tenure and remains constant throughout. A person may be allowed to shift to a floating interest rate after a certain period of time. It is beneficial as the EMIs remain constant throughout the tenure. If, during the loan tenure, the general rates of interest increase, the current loan amount remains unaffected. It is profitable to the borrower as they do not have to pay extra. However, if the general interest rates decrease, it results in a loss to the borrower.
Floating Rate of Interest
The interest rate is dependent on the current market rates of interest. The percentage is dependent on RBI guidelines and the rate revisions given by the bank. This proves beneficial to the debtor when the market rates of interest drop and the debtor are required to pay a lesser interest amount. However, it can also be disadvantageous if the rates of interest increase.
How to Calculate EMI for Best Home Loans
Home loans are usually long tenure loans approximately 10-30 years as these are very large amounts. Before applying for a loan, it is best to check different banks and their interest rates. The borrower should also calculate the predicted EMIs for each bank. The EMI is dependent on the type of rate of interest that is chosen. The EMI can be calculated by online or offline methods.
- A lot of websites and many bank websites have EMI calculators available on their websites. Simply fill the required fields i.e. the loan amount, loan tenure, and interest percentage. The calculator will provide the final probable EMI and the breakdown of the amount.
- The EMI can also be calculated manually by using the general formula –
EMI = {P x r x (1+r)^n} / {(1+r)^(n-1)}
Here, P is the principal amount, r is the rate of interest and n is the total number of months or installments in the loan tenure.
This method is slightly cumbersome so one should be careful with the calculations.
Housing Loan Eligibility Criteria
Since home loans are larger loans, they’re also treated as high-risk loans. This means that the bank thoroughly assesses the applicant before moving forward with the loan amount. While applying for a loan, the borrower needs to be aware of all the details that banks require. The borrower should also take care of all the factors that could potentially lead to the rejection of the loan. The banks also adjust the interest rates based on their assessment of the borrower. Given below are some of the major factors that banks look into while assessing a loan request:
Credit Score –
It is the first and foremost criterion for eligibility. Borrowers with poor credit scores will not be granted the home loan. Banks usually permit loan requests only for people with good or excellent credit scores. If the score is above 700, the borrower is likely to get the lowest interest rate from the bank. As the credit score drop, the interest rate increases. This is because a person’s credit history highlights their behavior with money. People who are responsible for payments and have a consistently good payment record have great credit scores. However, if a person defaults on payments or is unable to pay the loan and settles it with a bank, their credit score drops. Banks and lenders approve the loans on the basis of the risk that the borrower presents. Borrowers with good credit scores are treated as low risk whereas those with low credit scores are treated as high risk. It is important to maintain a healthy credit score.
Type of employment, Income, and Employer –
Applicants that work in major corporations or for the Government are usually given higher priority for home loans and are considered low risk. This is because they generally have a steady flow of income and job security. Contrarily, loan applicants who are self-employed or have unstable income and/or employment are treated as high risk. Their loan applications are more likely to be rejected or to get a very high-interest rate.
Total loan amount –
Banks have to carefully consider providing loans to individuals because lending out large loans could result in losses for the bank. The larger the loan amount, the higher is the risk associated with it. The general benchmark of a small home loan is 30 lakhs. As the amount increases, the bank gets tougher with its assessment and may also increase the rate of interest.
Things to Consider to Avail Best Home Loans
- Amid elevating the rate of interest, nearly all banks or financial institutions offer their best home loan interest rates to the applicant with good credit scores. An applicant with a credit score of 700 or above qualifies in the category of good credit score.
- Amendments in repo rate don’t reflect immediately on the payable home loan EMIs. Banks usually reset the repo rates at fixed interims.
- Be cautious that banks/finance providers are not permitted to charge any penalty for home loan prepayment correlated with the floating rate of interest.
Wrapping Up
Post referring to top Home Loans for 2021, depict what suits you the best. Square yards have got it covered for you. You just need to look forward to various home loans products banks are offering and at what rates. Check the home loan interest rate offered by various banks such as SBI, HDFC, AXIS and avail of the one which fits best in your budget. You can access housing loans effortlessly when you have top-notch information about the top home loans.
