Many banks and Non-Banking Financial Companies (NBFC) may lower their interest rates, especially on home loans, owing to the festive season that is fast approaching from September to October. While many people go on to purchase their first home during this auspicious time, there are many factors that one will have to consider. This will help borrowers choose the best bank and get the best possible interest rate. In this article, we will look into the various factors that a homebuyer will have to consider before he/she applies for a home loan.
A wide range of factors come into play while choosing a bank to process your Home Loan. Among all other factors, one of the main factors is the interest rate offered by the bank. The interest rate offered by a bank hugely depends on the Marginal Cost of Funds-Based Lending Rate (MCLR). MCLR is basically an internal benchmark of the bank that will be used to determine lending rates. All borrowers will hence be forced to pay according to the bank’s current MCLR.
Mark up Rate
It is very important to consider the markup rate before availing a bank loan. Most Banks are not allowed to give out funds for a rate that is lesser than the MCLR. Thus, MCLR is not the only factor one should consider before going for a home loan. For example, even if two banks have the same MCLR rate, their mark-up rate could be different. So, if the MCLR is 8.25% for both the banks and the mark-up is 0.40% and 0.25% respectively, the home loan rate will be 8.65% and 8.5% for each bank. Thus, the markup rate will make a difference in the rate of interest charged by the bank. Therefore, it is a very important factor to consider.
Maximum Loan Eligibility
Before making the plunge, it is always wise to check the eligibility criteria because a home loan will only be sanctioned to those who match the certain criteria. This includes an income bracket, a good credit history and also a good track record of repaying loans on time.
Banks may also take into consideration the Credit Information Bureau Limited (CIBIL) score. Therefore, it is important to hold a good credit score before approaching the bank for a loan. It is advised that the borrower makes efforts to first build a good credit score over a certain period of time and then go on to file an application for a bank home loan.
It is important to be very wise while choosing the type of interest that is charged for your respective home loan. There are two types of interest: fixed rate of interest and floating rate of interest. In case of fixed rate of interest, the rate at which the home loan is granted is fixed and will not change until the loan payment has been made. In case of floating rate, the interest charged will vary and in many cases, may shoot up very high because the market conditions determine the interest rate. In such a scenario, the EMIs will fluctuate every month. It is always wise to opt for a home loan that offers a fixed rate of interest.
Remember, the interest rate charged is directly proportional to the tenure of the loan. If there is a longer tenure period, even though the EMIs are lesser, the rate of interest charged will be on a much higher side. It is always wise to take this factor into consideration before filing an application for a home loan.
On the whole, it is always wise to take all factors into consideration before going for a home loan. This will help the borrower choose the best bank, the best interest rate, and the most suited tenure. It is always empowering for a borrower to know the terms and conditions of the lender so that the best possible decision can be made.