What factors to consider while taking a home loan?

The Reserve Bank of India (RBI) kept the key policy rates unchanged last month. It helped the banks to keep the interest rates on home loans low. Some lenders even went on to slash it further to support the ongoing recovery. 
 
Housing Development Finance Corporation, or HDFC, India’s largest housing finance company, is offering home loans at interest rates starting at 6.7% to new applicants, regardless of the loan amount or employment category. It has joined State Bank of India and Kotak Mahindra Bank in bringing down the home loan rates in the recent months.

Kotak Mahindra Bank is offering a rate of 6.55% per annum for a limited period, while SBI is offering home loans starting at 6.7%. Home loan interest rates slipped below 7% last year.
A big factor that decides the interest rate is the credit score of the borrower. For example, HDFC is offering its special rate to those who have a credit score of 750 and above. Other factors include the homebuyer’s age and income. 

HDFC Managing Director Renu Sud Karnad has said that record low interest rates, government subsidies and tax benefits have helped homebuyers. 
 
The interest rates have fallen on the back of the Reserve Bank of India’s liquidity infusion measures to support growth and credit uptake after the pandemic battered the economy. For now, the home loan rates seem to have bottomed out. 

However, customers need to keep a few more things in mind before they decide to buy a house in the current scenario.
 
In most home loans, the interest rate is linked to an external benchmark, generally the Reserve Bank of India’s repo rate. Therefore, customers will not be able to lock in at the current rock-bottom rates. The EMIs will rise as the repo rate is hiked. The repo rate was kept unchanged at a record low of 4% in the last monetary policy announcement.
 
One can also opt for fixed interest rate to insulate their cash outflows from market fluctuation. But the interest rates are a tad higher in it as compared to floating rates.

Experts believe that the central bank may hike interest rates in the first half of 2022. RBI is also expected to slowly roll back its accommodative policies that have facilitated easy liquidity conditions. It all may lead to a hike in the interest rates.

Homebuyers should also consider the cost of down payment, stamp duty, registration fee and property tax. In Noida, a stamp duty of 7% is levied on the total cost of the apartment one purchases. And the registration charge is 1%. These rates are different in every state.
 
Of course, buyers can claim a deduction of up to Rs 1.5 lakh for principal repayment under Section 80C of the Income Tax Act. In addition to this, a deduction of up to Rs 2lakh can be availed of on the interest payment under Section 24B.
 
Borrowers should also look at loan-related charges like the processing fee, administrative fee, prepayment charges, conversion charges, legal fees and inspection fees before making the big move. Buyers should try to limit their EMI to 25% of their monthly earnings. And experts say that they should invest in ready-to-move projects as it will save them the rent. And it will also protect their interest, as several projects continue to be delayed by several years.
 

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