5 Factors That Influence Your Home Advantage Loan Cost

So you are in the market to get a new home your dreams. And of course with soaring property prices and rising inflation you choose to secure this dream property through the help of home loans. It's a wise decision, but among the many factors you need to consider before taking a home loan, the interest rate is one of the important withering aspects. And although most home loan interest rates start with a fixed percentage, based on several influencing factors, these interest rates may rise or even drop some points based on the following factors. 

• Lenders will not lend you the entire amount for purchase of the house. Most lenders require you to put in 15% to 20% of the total cost from your own funds. The lenders provide rest of the money. So if you want to buy a house for Rs 50 lacs, then you need to have atleast Rs 10 lacs (20% of Rs 50 lacs). In case you don't, you should either search for a cheaper house or wait to save up the required down payment. Lenders might tell you that your credit score is not good and hence, they cannot offer you loans at low rates. But you can counter them if you have already checked your CIBIL score and found it to be satisfactory. So make sure to check you CIBIL score before applying for home loan. Lenders give loans at lower interest rates to those who have high CIBIL score. Do not go and take the loan from the bank where you have your savings account. Many lenders are ready to offer better rates and borrower friendlier terms. So visit multiple lenders and evaluate their basic offers. Its possible that you might get a loan offer which is much better than what your long-time banking partner is offering.

• Now the fixed rate of Interest remains fixed for the entire tenure of the home loan. Floating rate loans on other hand have variable rates that can change in future and are linked to policy rates declared by RBI. Both have their own pros and cons and hence, it is a very important factor to think about thoroughly.

• When buying a house, many people forget to consider other hidden or less-discussed costs like property tax, maintenance costs, etc. Since these costs themselves run into lacs, overlooking these would mean that you would have lesser money to actually buy the property you want to. If people had their ways, they would never take loans. After all, who wants to pay interest. But reality is that prices of real estate are beyond most people. And hence, people do need to take loans to buy their dream homes. When we lend you money for a fixed period of time, we borrow it from the financial markets. This consists of funds from other banks, customer deposits, blue chip investors etc. Some loans allow you to make extra repayments without being charged economic costs. Our fixed rate home loans, for instance, allow you to make up to $20,000 in extra repayments during a fixed rate period without incurring economic costs.

• Most people's first preference for taking a home loan is to go to banks where they have their active accounts. Though this might be a convenient option, it might not necessarily be the best option. Always approach many lenders to see which is offering you the best interest rates and other services. Remember that even a difference of few decimals points in interest rates can help you save a few lacs over the loan tenure. This factor is underrated by most. Most people think that whatever the lender is offering is the final deal. But that is not the case. All terms and conditions are negotiable. Even the rate of interest! So if your loan application has been approved and you have a high CIBIL score, make sure you negotiate hard with the officials to get a good deal. After all, its your hard earned money which you will be paying.

• Many lenders automatically include life insurance plans in the home loans and ask borrowers to include the one-time premium amount into the loan amount. This effectively means that you are taking a loan to pay insurance premium too! This should be avoided if possible. Its best to take a separate term plan to protect your home loan. If you already have a home loan running, then its possible that other lenders might be ready to offer you loan transfers at lower rates. So lookout for such offers. Its possible that even after considering processing and loan transfer charges, the offer by new lender might be more cost-effective for you in the long run.

Many people are of view that NRIs are not allow to take home loans in India. But that is not true and financial institutions are more than willing to lend to NRIs. Let's take a look at the various features of NRI home loans and how they are different from resident home loans. Lenders generally ask borrowers to bring in 15% to 20% as downpayment. But that doesn't mean that you cannot make a higher downpayment. Making a larger down payment substantially reduces your EMI burden and helps save a lot of money as interest. So try to make the highest possible down payment that you can.

The interest rate on the money we borrow is known as the 'cost of funds'. If you make additional repayments, or pay out your fixed rate loan early, our original loan term remains the same. Accordingly, an economic cost is charged to us and this is why we pass this cost on to you.

Now home loans are not small. They run into several lacs and in many cases, crore(s). So even if there is a small chance of saving even a small percent somewhere, it can mean savings of lacs during the full tenure of the loan. Economic costs can be considerable so think hard about the pros and cons of a fixed rate loan before you decide to fix it. If you're hoping to pay your loan off early, then a fixed rate loan mightn't be a great idea.

Many Indians residing abroad earn handsome incomes. This is the reason why they find it lucrative to purchase properties in India. But even those, who are not able to bring in all the funds required for purchase of property, are interested in taking the NRI Home loan route. If you're thinking about fixing your home loan's interest rate, you need to know about economic costs (especially if you harbour hopes of paying your loan off early). Here we discuss the concept of economic costs – and find out when it's charged, how it's calculated, and what you can do to avoid it.

The cost of funds changes each day—which obviously affects the calculation of economic costs. You'll need to talk to your home loan specialist or banker to get a quote. Talk to them before you pay it out or change your loan.
These are some of the important features of NRI loans. But before you or your NRI friends approach the lenders, it's better to do your research so that you are updated about any possible changes in NRI lending rules due to political or regulatory changes.