What is the right time to apply for a home loan?
There is nothing such as right time to apply for a home loan. Home loans can be applied while acquiring or constructing a home/flat.It can also be done prior acquiring or constructing the property. Home loans are not just confined to acquiring or constructing new homes, home loans can also be borrowed for renovating or expanding houses.
How to apply for a home loan?
The first step to get a home loan includes submission of application form with the required documents. Once submission is done, the bank goes through the application and review it and ask questions wherever necessary and will also informally tell the loan amount you are eligible for and the terms and conditions about the loan and leave the decision to you. You can refer to other banks and home loans they are offering and come to a decision after analysing the interest rates , loan amount, tenure and conditions.
What are the factors considered to determine the eligibility for home loan?
Your repayment capacity is considered while determining eligibility for home loan. The major factors that are considered while assessing your repayment capacity are: Income,Qualifications,Age,Spouse’s Income, No. of dependants, Stability and continuity of occupation,Assets/Liabilities,Savings history.
What are the different types of home loans available?
The following are the major types of home loans available, there are also other types of home loans which are not very widely used:
- Home Purchase Loans: These are the basic forms of home loans used for purchasing of a new home.
- Home Improvement Loans: These loans are given for implementing repair works, healing and renovations in a home that has already been purchased.
- Home Construction Loans: These loans are available for the construction of a new home on an existing plot.
- Home Extension Loans: These loans are given for expanding or extending an existing home. For eg: addition of an extra room etc.
- Home Conversion Loans: These loans are available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required. Through home conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need of pre-payment of the previous loan.
- Land Purchase Loans: These loans are available for purchasing land for both construction and investment purposes.
- Bridge Loans: Bridge loans are designed for people who wish to sell the existing home and purchase another one. The bridge loans help finance the new home, until a buyer is found for the home.
How long will it take to get a home loan application sanctioned from the bank?
It generally takes 2 weeks for processing home loan applications when all the documents submitted are intact and proper. It might take one more week to disburse the sanctioned loan amount.
What security/ collateral has to provided while borrowing a home loan?
Some additional securities are taken by the bank as security or collateral. These additional securities can be in form of guarantee from one or two persons, assignment of insurance policy etc. The main purpose of taking additional securities is to compensate the loan amount in case of any default by borrower. Thus, the surrender value of the collateral should be equal to the loan amount borrowed. Although the mortgage of the property would be the last resort for the bank.
What is the maximum amount of loan that i can borrow?
The three major factors which determine the maximum amount of loan you can borrow, they are: The purpose of Loan, Whether it is for the purchase of the property or renovation or expansion of existing property or purchase of plot for development.
Few other factors which effect the maximum loan amount that can borrowed are your residential status i.e. whether resident India or Non-resident India.
Generally, home loans are provided for in range of 75%- 85% of the total cost of the home loan.
What are interest rates offered generally for home loans?
Typically, home loan interest rates range from 12.5% to 16%.
How is interest rate on home loan calculated?
Mostly banks follow the annual reducing- balance method, which accounts for the principal repayments only at the end financial year. Therefore, you pay the interest on the principle that you have already paid to the bank.
Few banks offer interest rate at daily or monthly reducing- balance method,this leads to lower interest burden.
On what basis are interest rates calculated?
The Home Loans interest rates are usually calculated on Monthly Reducing or Yearly Reducing balance. In Monthly Reducing Balance, the principal on which you pay interest reduces every month as you pay your EMI. However in Yearly Reducing Balance, the principal is decreased at the end of the year, thus you continue to pay interest on a certain part of the principal which you have actually paid back to the bank, which means the EMI for the Monthly Reducing system is apparently lower than the Yearly Reducing system of calculating the interest.
What is the difference between fixed and floating interest rates?
Fixed Rate of Interest means that the interest rates remain fixed for the entire duration the loan. This basically means that you do not benefit, even if the rates of interest drop in the market.
Whereas, Floating interest rates means rate of interest that fluctuates according to the market lending rate.
Are there any tax benefits available on home loans?
Yes, you are eligible for tax benefits on home loans under the Income Tax Act, 1961, tax benefits are offered on the loan amount and interest components. The tax benefits are subject to change every year.
Is it necessary to insure the property?
Yes, the property has to insured aganist fire and other appropriate hazards. the property should be under insurance cover during the tenure of loan. The bank will be beneficiary of the insurance policy. You will also have to produce proof/evidence, whenever required by the banks.
Can loan be paid before the schedule?
Yes, loan can be paid before the maturity of the loan tenure. However, most of the banks charges pre-payment fees for doing so. This fees may be charged at a rate of 1 to 2% of the loan amount prepaid.
What do you mean by EMI?
EMI means Equate Monthly Installments . It can be explained as the fixed amount of money payable to the bank every month by you. The EMI encompasses of interest and principal amount. This EMI is determined considering the total loan amount, interest payable and term of loan.
Who can be a co-applicant?
co-applicants are generally co-owners of the property for which the loan is borrowed. It is not necessary that co-applicants are always co-owner. Mostly, co-applicants are : husband/wife, daughter/ son, mother/father etc.
What are the additional fees and charges that are payable ?
Generally fees are charged by the bank at the time of application for home loan and/or at the time of sanction of loan. The processing fees is either fixed or it is calculated as percentage on the loan amount. Administrative fees is also charged at the rate of 1% on the loan sanctioned by the bank. Both processing fees and administrative fees are payable upfront.
Some other additional fees payable to the bank are:
- Interest tax: Interest tax refers to the tax payable on the interest of the loan. This tax is some times included in the interest amount by the bank or charged seperately.
- Commitment Fees: Few banks charge commitment fees in case the loan is no more offered by the bank after it got processed or sanctioned.
- Miscellaneous charges: Other charges can be levied by the bank like consultancy fees or documentation charges.