Capitalise on festival offers for loans, but heed other conditions too

Loan amount, tenure and prepayment conditions must also suit you

This festival season most offers on home loans fall under one of two categories: Reduction in interest rate and waiver (partial or complete) of processing fee. While offers are important, borrowers must heed the other terms and conditions the loan comes with.

Stiff criteria for best offers

The best festival offers are not open to everyone. You can avail of them if you fulfil a number of terms and conditions.

Banks and housing finance companies (HFCs) often set cut-off credit scores. “SBI’s special campaign rates for the festival season can only be availed by applicants having credit scores of 700 and above and to new-to-credit applicants. Similarly, HDFC Bank has set a minimum cut-off credit score of 800 for availing its home loan festival offer. Applicants not having these qualifying credit scores would be charged regular home loan rates,” says Ratan Chaudhary, business head, home loans, Paisabazaar.

Several other criteria may apply. “Many of the lowest interest offers may be for women borrowers, for those borrowing for a shorter tenure (say, 15 years), or availing a smaller amount (say, Rs 30 lakh or less),” says Adhil Shetty, chief executive officer (CEO), Bankbazaar.

Borrowers who have found a house they like at a price they can afford should try to make the most of these offers. “When buying a house, people end up spending their entire savings. Any money they can save through these offers will come as a relief,” says Rishi Mehra, CEO, Wishfin. He suggests checking that what is given to you as an offer is not taken away under some other head.

Points to check

Borrowers must consider a number of other factors while choosing a lender.

Total loan cost: “Look not just at the interest rate but also the processing fee,” says Shetty.

Use an EMI calculator to compare the overall cost of borrowing. “First, calculate the cost for the players with whom you maintain your deposit accounts, credit card accounts, or existing loan accounts. Then visit online financial marketplaces to compare the home loan rates and fees offered by other lenders,” says Chaudhary.

Check the spread: Borrowers have reduced the spread (the interest rate charged over and above the repo rate) from 300-350 basis points before the pandemic to as low as 190 basis points now.    

“Check whether you are getting the best spread you are eligible for. Also, understand the clauses around it — whether the lender can change the spread at will or only under specific conditions, such as a deterioration in the borrower’s credit score,” says Shetty.

Loan amount eligibility: Mehra emphasises going with the lender that is willing to give you the amount you require. Suppose that you require Rs 1 crore. One bank is willing to offer you Rs 75 lakh at 8.5 per cent and another is willing to offer you Rs 85 lakh at 8.7 per cent. You have only Rs 15 lakh to give as down payment. You will have no alternative but to go with the lender offering the higher amount (despite the higher rate) if you don’t want to miss out on the house you are keen to buy.

Prepayment conditions: Most borrowers pay off their home loans in 8-10 years, hence the terms and conditions around prepayment are crucial.

Some lenders may allow you to pay a small extra amount, say, Rs 2,000 each month over and above your EMI. This makes prepayment easy. Some, however, may insist that the prepayment should be a large lump sum amount equal to, say, three EMIs. Others may allow only a fixed number of prepayments in a year.

“If the frequency allowed is low, or the minimum amount you can prepay is high, prepayment becomes more difficult,” says Shetty.

Loan tenure: Mehra suggests paying heed to the tenure as it determines the EMI. A longer tenure reduces the EMI and makes the monthly burden easier to bear. A longer tenure, however, results in a higher interest cost, so a balance needs to be struck.