Are you planning to finally own a house in the new year? Deciding to buy a house is indeed a big step and needs a lot of time and research before you close a deal. With your priorities of home ownership, make a checklist and start working on it. If you already own a piece of land and want to build a house or renovate an existing house, then 2019 would be a good time to do it. With the Reserve Bank of India (RBI) introducing new changes in the current home loan interest rates, the rates are going to be a lot different.
With so many financial institutions around, there are many options of obtaining home loans in India. Many banks and non-banking financial companies (NBFCs) offer home loans and other financial products. Not only does this help you save on time, but you do not even have to step out of the house. Before you apply for a home loan, you can use an EMI calculator in India to calculate your monthly financial burden. You must calculate whether you can afford to repay the EMI on time. Defaulting on an EMI will attract a penalty with added interest. It will also affect your credit score.
You can also use the housing loan eligibility calculator to check if you are eligible for the maximum loan amount. Do remember that you will also need to pay registration charges, government levy, and maintenance charges for the new house. Some lenders may or may not include these expenses in the loan amount. Since you can get as much as 80% of the total amount, you will have to shell out some extra amount.
Since April 2016, banks have been using the marginal cost of funds-based lending rate (MCLR) to determine the interest rates. Earlier, in the floating home loan rate, even if the RBI had cut the interest rate, lenders would not pass the benefit immediately to the customer. To resolve this problem, the central bank came up with its new home loan and auto loan rules:
- The RBI made it mandatory for banks to link the floating home loan rate to external benchmarks such as the RBI repo rate, 91/182 Treasury Bill yield, and any other benchmarks introduced by Financial Benchmarks India Pvt Ltd (FBIL).
- Owing to the current floating home loan rate, banks reset the new interest rate only after 4–6 months.
- Banks will charge a margin spread over the benchmark rate. This spread will remain constant throughout the loan tenor. If there is a change in the borrower’s financial status, they can request a corresponding change in the spread.
- Loans with a fixed home loan interest rate will not change. But if you have a home loan currently running on a floating interest rate, do ask your lender to inform you about the change in the EMI amount.
You can also go for a pre-closure or pre-payment to reduce the loan principal and thus enjoy a reduced interest rate. The rules for pre-payment vary from lender to lender. While some allow only a certain percentage of the loan amount to be pre-paid every year, some restrict pre-payment in the first three years. Do check this point in the agreement.
Your home loan makes you eligible for tax benefits under Section 80C of the Income Tax Act. If you are a first-time borrower, you should check government-backed schemes as well. For example, the Pradhan Mantri Awas Yojana (PMAY) helps citizens to become home-owners by providing subsidy on the interest rate.
You should do your own due diligence to calculate heck your home loan eligibility and secure the best home loan interest rate from banks and NBFCs. Do not refrain from negotiating certain terms and conditions. There may be many schemes and offers to match your income and requirements.