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Home Loan

To make your home loan journey a smooth sail, in this article we will help you to know eligibility criteria, rates of interest, process, necessary documents, EMI comparison and transfer for lowest rates.

Home loan is really critical and important financial decision in our lives. Before you finalise your bank to secure home loan, try to get more information on current interest rates from different banks. First, gather some more information about how much each bank can give you. Find out eligibility for government and private banks. Which interest rate is more flexible and affordable such as fixed rates or floating rates? What is more easy a prepay option or balance transfer? We try to give answers to all such questions, and make this home loan process simple for you. To find the lender for 20 years term go through the fine print and save for years to come. A perfect Home loan is loan which gives you lowest rates throughout the tenure, has part payment options and allows you to balance transfer if you wish to.

Should I take Home loan now or wait ?

Home loan is a long term investment plan. Generally, people opt for a home loan for 20 to 30 years.Mostly customers avail loan on floating interest rates. Rates keep changing and long-term loan such as for 20 years or more than that is impossible to decide. Home loan rates will change in 20 years, so making a decision to take a home loan just base of the reason of interest rates is not a smart idea. So thinking to start a loan at a lower rate has no relevance.The right time to take a Home loan is when:

  • he Property you intend to buy is good and cannot be missed or it is expected that the price of property will rise.
  • The EMI that you have to pay per month is above your monthly expense budgets etc.

How is my Home loan Eligibility Calculated

The borrower's eligibility of getting a housing loan depend upon his/her repayment capacity & the banks establish this repayment capacity by considering various factors such income, spouse’s income, age, number of dependants qualifications , assets, liabilities, stability and continuity of occupation and savings history. Eligibility Factors in Housing loan Your Home Loan eligibility is determined by your repayment capacity and the value of the Property

  • Income,Qualifications,Age
  • Spouse’s income,No. of dependants
  • Stability and continuity of occupation
  • Assets/Liabilities,Savings history.

The most important concern of banks in determining your loan eligibility is that whether or not you are contentedly able to pay off the amount you borrow. The Second factor is the value of the Property, Banks are okay to fund 75-85% of property value but with the condition that you have income capacity that you can pay its Emi each month.

Fixed and floating rate of interest

When you avail a home loan EMI is calculated either on fixed rate of interest or according to the floating rate of interest. Before finalizing either, you must take a note of both the patterns and take a well-calculated decision. Generally, home loan is taken for a longer tenure compared to other loans such as personal loan or car loan. You borrow the loan for at least for10 years and maximum upto 30 years. In such scenario, you end up paying a huge amount as interest on your principal amount. Therefore, the difference of 0.5% can make huge impact on your overall interest amount. Let's take a close look at both the patterns of interest.

  • Fixed rate of interest:Generally, in fixed rate of interest, the percentage of interest is fixed for whole tenure and same percentage of interest is charged throughout the loan. It makes the EMI payable at a constant sum throughout the tenure. Therefore, it is always recommended that you opt fixed rate of interest only when the rates are bottom down and if an upward trend is expected.
  • Floating rate of interest: Floating rates of interest changed with the market lending rates. Therefore, these rates are prone to fluctuations. The interest rate on your EMI might get increased or decreased depending upon the fluctuation in the market lending rates. In this case, bank provide an alternative to increase the tenure of the loan, at a constant EMI, for the borrowers who do not desire their EMI to be increased in case of higher interest rates.

Documents required in Home Loan

Generally, the documents required to process your loan application are almost similar across all the banks; however they may differ with various banks depending upon specific requirement etc. Following documents are required by financial institutions to process the loan application:

  • IncomeAge,ProofAddress, Proof
  • Income Proof of the applicant & co-applicant
  • Last 6 months bank A/C statement
  • Passport size photograph of the applicant & co-applicant

In case of Salaried

  • Employment certificate from the employer,
  • Copies of pay slips for last few months and TDS certificate
  • Latest Form 16 issued by employer Bank statements

In case of Self-employed

  • Copy of audited financial statements for the last 2 years
  • Copy of partnership deed if it is a partnership firm or copy of memorandum of association and articles of association if it is a company
  • Profit and loss account for the last few years
  • Income tax assessment order

Banks Loan to Property Value Interest Rates MCLR Rates
state bank of indiaState Bank of India (SBI) 75% -90% 8.60% - 8.65%(Women) 8.65% - 8.70%(Others) 8.00%
hdfc bankHDFC Bank 75% -80% 8.65% - 8.75% 16.15%
ltc housing financeLIC Housing Finance 75% -80% 8.50% - 8.70% 8.15%
icici bank home loanICICI Bank Home Loan Upto 85% 8.65% - 8.85% 8.20%
fedbank home loanFedbank Home Loan Upto 85% 9.57% - 9.82% 8.95%
bajaj finserv home loanBajaj Finserv Home Loan 175% - 80% 8.85%
pnb home laon1PNB Home Loan 75% - 80% 8.65% - 8.75% 8.45%
pnb housing financePNB Housing Finance 75% - 80% 8.90% - 9.10%
idbi home loanIDBI Home Loan 75% - 90% 9.15% - 9.20% 8.80%
dhfl home loanDHFL Home Loan 80% - 85% 8.60% - 8.70%
indiabulls home loanIndiabulls Home Loan 75% - 80% 8.65% - 8.85%
allahabad bank home loanAllahabad Bank Home Loan 75% - 90% 8.85% 8.60%
bank of india home loanBank of India Home Loan 75% - 85% 8.65% - 8.70% 8.50%
union bank home loanUnion Bank Home Loan 65% - 80% 8.75% - 8.80% 8.50%
bank of baroda home laonBank of Baroda Home Loan 75% - 90% 8.35% - 8.55% 8.35%
vijaya home laonVijaya Home Loan Upto 80% 8.90% 8.65%
standard chartered home loanStandard Chartered Home Loan Upto 80% 9.35% 8.95%
indian bank home loanIndian Bank Home Loan 80% - 90% 8.60% 8.60%
l & t home loanL & T Home Loan 80% - 90% 8.60% - 8.70%
shubham housing development finance companyShubham Housing Development Finance Company 75% - 80% 12%-14%(For Salaried) - 15%-17%(For Self-employed)
Home Loan – Let's simplify how this will go about and what are the steps.

The first step involved in the process is to find your property, which is followed by the verification of property documents, post that the documents are examined. Simultaneously, you can start searching for the lender who can offer the best home loan deal after checking your eligibility criteria.

Know the Home Loan Eligibility:

Banks offer the loan amount based on your monthly income and the value of the property. They will give you max amount in which your EMI of home loan and others loans is 50-60% of your income. Other factor is value of that property.

Select the Best Home Loan after evaluation:

Comparing home loan interest rates of various banks is the primary feature in the home loan selection process. However, you should not also forget to compare other fees & charges like application fees, processing fees, legal charges of different loan offers. To check the interest rates & other charges incurred by various banks, Deal4Loans has brought in a Home Loan Comparison Chart across various government and private banks. Banks offer fixed and floating rates in home loans.

Most customers choose Floating rates
Applying for the Loan :

After you have selected your lender, you have to fill in the application form, wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs.

Documentation & Verification Process:

You are required to submit the necessary documents to the bank, which will be verified together with the details in the application

Credit & default check:

Bank checks out the borrower’s loan eligibility (through repayment capacity) & the amount of loan is confirmed. The borrower’s repayment capacity is reached, which is based on the income, salary, age, experience & nature of business etc. Bank also checks credit history through the Cibil Score, which plays a critical role in deciding & approving your loan application. Low credit score implies that the bank upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application

Bank sanctions Loan & Offer letter to the borrower:

After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, the bank further sends an offer letter to the borrower, which constitutes the details like rate of interest, loan tenure & repayment options etc.

Acceptance Copy to the Bank:

The borrower needs to send an acceptance copy to the bank after the borrower agrees with the terms & conditions in the offer letter.

Bank checks the legal documents:

The bank further asks the legal documents of property from the borrower to check its authenticity, so as to keep them as a security for the loan amount given. The next step involved is the valuation of the property by the bank which determines the loan amount sanctioned by the bank.

Signing of agreement & the loan disbursal:

The borrower signs the loan agreement & the bank disburses the loan amount.

How to calculate interest rate?

While applying for a home loan, the most important question is rate of interest. One more thing, which is equally important is how interest is calculated by respective bank. Banks are required to quote interest rates on a 'reducing balance' basis. Let's take a look how this whole formula works:

For instance: You have taken a loan of Rs. 1 lakh for a period of one year at an interest rate of 10.00% per annum, on a monthly reducing balance basis. In this situation, you will pay 12 equated monthly instalment’s (EMIs), with a part of each EMI going towards repaying the principal amount borrowed (Rs 1 lakh), and the balance towards servicing the interest on your loan. What is important to note is reducing balance calculation is the interest component of your EMI keeps changing, from a high initial amount in the early part of your loan, to a nominal figures as the loan comes to an end.

Sr. No EMI Interest Principal Amount Balance Amount
1 8,792 833 7,958 92,042
2 8,792 767 8,025 84017
3 8,792 700 8,091 75,926
4 8,792 633 8,159 67,767
5 8,792 565 8,227 59,540
6 8,792 496 8,295 51,245
7 8,792 427 8,365 42,880
8 8,792 357 8,434 34,446
9 8,792 287 8,505 25,941
10 8,792 216 8,575 17,366
11 8,792 145 8,647 8,719
12 8,792 73 8,719 0
Total 1,05,499 5,499 100,000

This happens because the bank charges interest rate of 10% on a lower or reducing balance loan amount each month. Therefore, in the first month 10% rate is charged on full Rs. 1 lakh. After paying your first EMI, you are left with a balance amount of Rs. 92,042 to pay. In the second month, the same rate of interest is charged on a reduced/lower balance basis. The same formula continues month-after-month, till the whole amount is repaid. Therefore, in lower interest rate, the EMI stays constant, the split of interest and principal keeps changing, with the interest amount of EMI being at the highest in the first month and decreasing month-by-month to a nominal amount, in the last month of repayment.