The key to a successful home loan journey lies in the economy at which you service the debt.With the economy, it is referred to low-interest rates on a loan. When the interest rate is higher, the flow from your pocket will be that much more and vice-versa. And since it is about the home loan, which is taken for a longer period of 20-30 years, you need to be even more thoughtful as any negligence on the interest rate can make a deep hole in your pocket.
The selection of a lender with attractive interest rates can go a long way in making your stay at home comfortable and enjoyable.
Types of Interest Rates:
Home loan interest rates are offered on both floating and fixed basis, with the former being the most preferred one. Because it gives you the chance to leverage on the favorable market conditions to reduce the cost of your borrowing.
However, depending upon the repo rate changes, the interest rate on a floating rate home loan can either go up or down. If you can opt for a floating rate loan even at the expense of upside interest rate risks in the case of adverse condition, you would more or less emerge as a winner in the long-term. But for those who are unwilling to take the risk, fixed rate home loan is the way forward as the interest rate here will remain the same in the entire loan tenure, which means a fixed amount of EMI will be payable each month.
Interest Rate Changes in Response to MCLR Variation:
The conception of Marginal Cost of Lending Rate (MCLR) is attributable to the inadequate response to the cut in repo rate, the rate at which the commercial banks borrow from the Reserve Bank of India (RBI), by the central bank.
When the repo rate reduces, the banks receive cheaper loans from the RBI and vice-versa. The RBI had cut repo rate by 150 basis points (100 basis points= 1%) from Jan 2015 to April 2016. Surprisingly, the banks slashed their lending rates to just 60-70 basis points during the period, not even half of the benefit transmission to the borrowers.
So, in order to ensure effective transmission of rate cut benefits to the borrowers, the MCLR mechanism came to the fore and is applicable to floating rate home loans disbursed on or after 1st April 2016. Loans before the said date come under base rate regime.
If you belong to the base rate and want to take advantage of the rate cuts, switch to MCLR. But there is a condition that once you shift to MCLR, you can’t get back to the base rate.
How is MCLR Calculated?
Based on the factors below, MCLR is calculated by commercial banks in India.
- Operating Expenses
- Cash Reserve Ratio
- Tenor Premium
- Marginal Cost of Funds
The good thing about MCLR is the equated change in the effective lending rate of the lender. Nowadays, when the RBI cuts repo rate, the banks do make a change in their MCLR, decreasing your borrowing cost.
Home Loan Interest Rates of Major Lenders:
State Bank of India (SBI)- 9.10%-9.60% p.a. (women) – 9.15%-9.65% p.a. (others)
HDFC Bank- 9.15%-9.75% p.a. (women) – 9.20%-9.80% p.a. (others)
ICICI Bank- 9.15%-9.45% p.a. (women) – 9.20%-9.50% p.a. (others)
Axis Bank- 9.35%-9.45% p.a. (floating) – 11.75% p.a. (fixed)
Punjab National Bank (PNB)- 9.30%-11% p.a.(floating) – 9.25%-11.25%p.a.(fixed)
Bank of Baroda (BoB)- 9.05%-9.55% p.a.
Each one of us desires to buy a home one day. And to do it, you can avail a home loan from banks and non-banking financial companies. The home loan journey starts with you selecting a property to buy from the real estate developer or builder. The moment you choose the property, the next thing that you must do is to navigate through the home loan offers of lenders. While checking the offers, the focus should be on the interest rate, the amount of loan available, the eligibility criteria, EMIs, etc.
Home loan is available to buy a new home, resale flat, under-construction property, purchase of a plot for home construction, along with home renovation & extension. The loan tenure for each of these varies.
For buying the flat be it new or old, you can get a home loan for a tenure of 20-30 years. However, the tenure comes down to 15 years in the case of home renovation or extension.
Housing Loan Interest Rates:
The housing loan interest rates are based on both floating and fixed rates. With a floating rate mechanism, the lenders will keep changing the MCLR based on the market conditions, resulting in up and down of the lending rates from time to time. With fixed rates, the interest rate on a home loan will remain the same throughout the tenure of a loan.
The interest rate on a home loan ranges from 9.10%-13% p.a. across banks in India. Look below to find the home loan interest rates of major lenders in India.
State Bank of India (SBI)– 9.10%-9.65% p.a.
HDFC Bank- 9.10% p.a.
ICICI Bank- 9.10%-9.15% p.a.
Axis Bank- 9.10% p.a.
Bank of Baroda– 9.05%-9.55% p.a.
Punjab National Bank (PNB)– 9.30% p.a.
Home loan eligibility or to say housing loan eligibility is an important consideration in your quest for a dream home. Though eligibility criteria differ from one lender to another, more or less it is similar to the points below.
- Your age should be a minimum of 18 years at the time of application.
- You should not be over 70 years by the time loan is set to mature.
- The earning must be sufficiently higher and can easily accommodate the applicable EMIs on a loan.
- You should be working in a public or private sector firm, or doing the business for about 2-3 years to get the nod for a home loan.
Home Loan EMI Calculator:
Even though you have 20-30 years to repay the home loan, you still need to know the EMI amount in advance for an easy and pleasant stay at your house. It is because of the money management you can do if you are aware of the EMIs payable.
If you know the amount of loan that you can get from the lender, the calculation of EMI gets easier via the calculator. You just need to enter the loan amount, interest rate and tenure of the loan to compute the monthly installments that include a portion of interest and principal amount.
Documentation Required in Home Loan:
You need to be ready with a list of documents shown below.
Application Form Along with Photographs
Identity Proof– Aadhaar Card/Voter ID/PAN Card/Passport
Residence Proof– Latest Electricity & Telephone Bill/Passport/Property Tax Receipt/Aadhaar Card/Voter ID
Business Establishment Proof (For Self-employed Applicants Only)– Service Tax/VAT/Sales Tax Registration/Electricity & Telephone Bill of Shop
Income Proof- For Salaried Applicants–Salary Slips of Last 3 Months, Form 16
For Self-employed Applicants- ITR, Profit & Loss A/C Statement & Audited Balance Sheet for Last 3 Years
Property Documents- Sale Deed, Agreement of Sale
Bank Statement– Last 6-month Statement Required