Shop for home loan rates before signing

With the booming up of MNCs and a major change in the salary packages, has completely changed the economic structure of the society. The young salaried employees are looking for options to invest their money and real estate has perceived lucrative and prudent to them. The high salaried youngsters either have built or purchased their homes by taking home loan.

Now days it is no longer difficult to get a HFC or home loan from bank. The most important issue is how to choose the home loan amount?

The amount of loan depends upon borrower’s finances, other commitments and more importantly his peace of mind. A huge loan amount will result in greater outflow in the form of EMI from the borrower’s pocket.

With the rising competition in the home loan segment banks are offering a number of innovative products to attract customers. Many private banks like ICICI bank, HDFC bank, Standard Chartered, Axis bank, IDBI bank, etc. and public sector banks like State Bank of India, Bank of Baroda, Bank of Rajasthan, etc. are offering a number of customized products to suite the requirements of varied customers.

Apart from floating rate home loan and fixed rate home loan which are being offered by all the banks, a number of products which are combination of the two and coupled with numerous types of repayment facilities are also being offered by the banks.

For instance ICICI bank is offering a home loan product which is the combination of floating rate and fixed rate home loan. In this, the borrower can opt for a portion of the total loan that he wants to borrow under floating and fixed rate scheme.

Then there is a short term bridging loan offered by HDFC for those who have plans to move into bigger, better and more convenient house, but you do not want to sell the existing house before buying the bigger one. This change creates a variance in the cash flow. For such buyers HDFC has created this loan. Short term bridging loans are easy to manage and repayable in either lump-sum payment of principal or installments.

Likewise there are more options available for different categories of borrowers. You can choose from them according to your requirement.

Interest rate on home loans

A home loan rate is linked to an internally computed reference rate such as prime lending rate (PLR) or mortgage reference rate (MRR). There is a difference of 2% between the reference rate and the effective rate. Whenever this reference rate increases, it pushes up the home loan rates as well.

Consider a loan amount of Rs forty lakh at a rate of 11 percent interest over tenure of 15 years. The EMI amount comes to Rs forty five thousand five hundred. If the loan amount were less, say Rs twenty five lakhs, for the same interest rate and tenure, the EMI will work out to be lesser. It means greater the home loan amount, greater will be the EMI outflow and tighter will be the borrower’s finances.

Then there is floating rate and fixed rate to choose from. Normally, the interest rate on fixed rate home loan is one percentage point higher than that on the floating rate loan. In the fixed rate you are insulated from the risk of rise in the interest rates in future. However, the fixed rate home loan debars you from taking the advantage of any fall in the interest rate.

On the other hand, as far as a floating rate loan is concerned, the manner of its determination is very non-transparent.

The bank will declare a benchmark rate. This home loan rate will be typically charged at a discount (lesser than the benchmark rate) or, in the case of some banks, at a premium (higher than the benchmark rate).

There is no single answer to the question whether one should go for a fixed or floating rate. The answer changes from time to time.

If you want information about the existing home loan rates being offered by different banks then check with rupeetimes.com. On this site you will get the complete information on interest rates as well as how to calculate EMI.

Therefore, the most important thing is before you sign on the dotted line with your home loan provider, just shop around to see you have got the best rates.