Home Loan FAQ
Whether floating or fixed.
I think banks have been mandated to provide loans MCLR Rate + Margin so as to bring transparency. So technically all banks would now only provide floating rate loans on this though cant verify. However housing finance companies can provide fixed rate as they are not governed by Rbi . Initially though HFCs like Indiabulls or HDFC would be better but since then feel that banks are better as over a period things migh change.
Should you convert fixed to floating ?
This depends on how much charges the bank is taking for converting fixed to floating. If currently you are paying a comparitively higher fixed rate then that does make a sense.
Are floating rates actually truely floating ?
Well no . Unfortunately No . While all banks say that they have cut the rate of interest as soon as Rbi monetary policy comes its only for new loans to be disbursed . Banks work on MCLR rate. MCLR is the minimum rate at which any bank can provide rates. This is a marginal rate below which the bank wont make any money on the loan . So banks set their Home loan rates as MCLR + Margin % . Again MCLR rates varies from overnight rate to maybe a 3 /5 MCLR rate which will be different for the same bank . Here is the catch
When it is said the SBI is offering home loan at 1 year MCLR rate of 8.35% it means from your disbursement date to the next year the rate will be fixed at 8.35 . The next floating rate will be after 1 year and so on. This is also called as reset
A few banks have started offering a 6 month reset and Hsbc is leading the pack with 3 months reset. So every 3 month based on their montly MCLR your interest calculation gets reset .
Next question is lower reset period Good ?
Well its a very tough thing to say, If the rates are falling then it works in your favour but if rates are rising then it works against. What I fear is that maybe banks reduce the reset period once they have an idea of rates rising again.
Nationalized vs Private vs Co-Operative
Well all have their own merits and demerits .
Co-Operatives are the quickest as maybe they do the least background checks. Its a good idea if you think there are certain document problems . Also charges can be higher than both nationalized and private .
Private sector again isnt the most reliable . They generally are responsive during rate cuts and proactive during hikes. Though there can be a few schemes that can be attractive. Like I have been attracted to the HSBC Home loan though a final decision is yet to be made . Well the reason . First 3 months reset as well as quicker disbursement . Second customer service . 3rd offering a rate of 8.4% to 8.5% and again transparency in charges especially quite minimal processing charges
Nationalized : Well the best if you can pardon the slow way of functioning quite common with all Nationalized. Check some reviews online and opt for the banker .Best would be Sbi over a long run as you will never feel cheated by them but again the most stringent of checks .
What are the various home loan products
Floating Rate Home Loan : The normal home loan which most of you and me opt for . Prepayments now are free with all the banks . Only ask whether they have a minimum / maximum clause for prepayment
OD Linked Home Loan : Better known as Sbi max gain as it was one of its pioneers to popularize the product. Well it essentially means your loan provided is treated as an Overdraft facilty with the bank . Only benefit vis a vis a normal loan with free prepayment is in the OD linked account you can always withdraw the surplus amount over and above your normal emi in case of emergency ie it provides liquidity in case of emergencies if you prepay a lot of your amount . Ideal if you are streching your budget to the maximum and focussing on prepaying a huge chunk . However demerits include a 0.20% higher interest rate + maybe no deduction for the prepayment under Section 80C ( though bankers have different opinion )
Third scheme A booster plan to take 1.2% of your eligible amount in case of young salaried person . This essentially means they give u higher credit with 1.2 times your normal eligibility . In the intial phase you only pay interest like 2 years then they increase your EMI so as to cover principal repayment and so on
Step Up : Similar to prepayments except in this a step up of ur EMI is fixed like say 5% pa. Not the greatest options since u can always prepay if u are not forgetful
Is prepaying a good options ?
Well answer is depending on the current rate of Interest and what you can earn if u invest the prepayment option in some other security . Keep these things in minds other than absolute gains . The taxation benifts from prepayments compared with the after tax income from investment in other security.
Is Credit Score required for obtaining a Home Loan ?
I had started a discussion a year back as I needed a Credit Card suggestion . @DealSeeker advised me to get a credit card to build a credit history which is good but somehow things dint go as planned. Till date dont own one but hopefully with my Home Loan Application to be processed in the coming days I will go in for one without any pressure . The delay was first due to making my family understand while the second was that I was planning purchasing a home in the near future so feared having a bad credit score during home loan. Is credit score mandatory ? Visited quite a few banks and as per my discussion with them it is something which is not checked . For personal loans and car loans these things do matter but for a Home Loan the Cibil score is not hard and fast .Bank of Baroda is giving some incentives for high scores but havent visited them . Rest all the banks Sbi , Hdfc , Axis,Icici , Pnb said credit history is not mandatory;.
How to check ur max loan eligibility ?
A lot of tools online where you can check the Loan Eligibility . To get an exact amount consult a banker he will give the right calc . Also banks cap approx 60 % to 65% of your current net montly takehome as the max home loan EMI to give you the right figure of loan
Get a detailed list of charges while signing the loan agrement . This needs to be clear as to what you are being charged for.