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If you are looking for a home loan, make sure you have a good credit score. A score above 750 and preferably over 800 qualifies borrowers for the lowest rates. Some lenders also give lower rates to salaried borrowers over self-employed ones.
"Credit score determines the customer character and capacity which helps customer to negotiate the commercials with the developer as well as financial institution," said Parag Kale, Business Head, RBL Bank.
BankBazaar lists borrowers who get the best home loan offers
1. Women often get additional discounts of 5-10 basis points on interest rates.
2. The smaller your loan or loan-to-value ratio, the lower your rate.
3. Houses from A-list builders may make the financing process easier.
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4. Existing Customers having a salary account with the lender may get you lower rates.
5. Repo-linked loans from banks are often cheaper than loans from NBFCs.
All new retail floating-rate home loans sanctioned since October 1, 2019 are linked to an external benchmark for determining interest rates. In the case of most banks, the repo rate happens to be the benchmark.
The effective rate that is charged to the home buyer is made up of the repo rate, the spread that the bank decides, and the credit risk premium, which is determined by the borrower’s credit score.
Loan-to-Value (LTV) is a critical financial metric used in home loans to assess the risk associated with a mortgage. It represents the ratio of the amount of money borrowed through a mortgage (the loan) to the purchase price of the home.
"For instance, if you take a loan for Rs 40 lakh for a house valued at Rs 50 lakh, your LTV ratio is 80%. LTV is governed by RBI’s rules. For low-value properties under Rs 30 lakh, you can borrow up to 90%. But for high-value properties above Rs 75 lakh, you can borrow no more than 75 per cent. A lower LTV, often achieved through a larger down payment, can lead to favourable interest rates and loan terms, while a higher LTV may lead to higher interest rates, mortgage insurance requirements, or even loan denials," said Adhil Shetty, CEO of Bankbazaar.
The concept of the down payment is important as it helps lenders minimize the chances of loan default by ensuring the loan owner has a stake in the property.
The risk for the lender also goes down when a home loan borrower makes a higher down payment than required and therefore, lenders offer their best or lowest home loan interest rates to borrowers who pay a higher down payment than needed.
What does a home cost? If you are buying an under-construction home, Banbazaar breaks down the following costs for you:
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The concept of the down payment is important as it helps lenders minimize the chances of loan default by ensuring the loan owner has a stake in the property.
The risk for the lender also goes down when a home loan borrower makes a higher down payment than required and therefore, lenders offer their best or lowest home loan interest rates to borrowers who pay a higher down payment than needed.
What does a home cost? If you are buying an under-construction home, Banbazaar breaks down the following costs for you:
"A home loan can cover most but not all expenses related to a house purchase. The RBI’s LTV guidelines and the borrower’s eligibility play a part in what can be borrowed," said Pankaj Bansal, CBO, BankBazaar.com.
A loan may cover 75-90% of the sum of the base price, GST, amenities and utilities . The rest—i.e., 10-45%— comes out of pocket. Large costs such as registration and stamp duty and furnishing will typically not be covered and must come out of the buyer’s savings.
Home loan interest rates: Rates as advertised by the lender on September 26, 2023. Rates are liable to change. The lowest rate for each lender considered. The lowest rates are given only to eligible borrowers.
Read part one of our two-part series on home financing here.
