Types of Home Loan Interest Rate

The real estate market is witnessing a slowdown. This is partly due to rising prices and also due to increase in the home loan interest rates. Whether we choose a fixed or variable interest rate for repaying the home loan to the financial institution that has to be examined thoroughly?

Fixed rate

For a home loan with a fixed interest rate one should know his/her monthly repayments for the entire duration of the loan. This is slightly more expensive than a floating rate but there is no risk associated with it. Yet this formula is still the most popular.

Variable rate

A variable rate may vary throughout the duration of loan repayment. In the start home loan may be less expensive but may become more expensive later because everything then depends on the interest rate that changes due to the government policies. There is a built-in protection. The maximum possible exceptions for the variable interest rates are predefined so there are not too big surprises can come for the home loan repayment. With a "tunnel" 2 / -2 is the rate at the review dates no more than 2 percentage points higher in comparison with the start of the loan. Conversely, the falls no lower than 2 percentage points. For example, an interest rate of 5% can be determined with these limits do not increase in excess of 7% for interest and it performs well over the whole duration of the loan.

Accordion Credit

Besides the fixed and variable Home Loans interest rate accordion credit is an also a point. In this formula the term is not fixed in advance at the review date, it is adjusted depending on the evolution of interest rates. For example, during rising interest rates your monthly payment remains the same but the duration is extended. Again, there are safeguards built in, making the time limit not too prolong in these cases but renewable upto 5 years only.

Choose which formula is best?

Depending on one's own salary expectations or if you believe that interest rates will continue to drop, choose the formula that best suits you. Also, you can often change at the time of formulation of a repricing. You can also choose to formula 10/5/5. Then you are 10 years guaranteed a fixed interest rate, which is then reviewed and the formula is reworked again for 5 years and so on.

[Source: http://www.sooperarticles.com/finance-articles/loans-articles/types-home-loan-interest-rate-806813.html?]

10 things to know about the new loan rate

This month, all banks moved to a new lending rate regime—the marginal cost of funds-based lending rate (MCLR). Till March-end, new floating rate loans were linked to base rate. The new rate regime is likely to improve transmission of rates to the end consumers. If you check the current interest rates, MCLR-linked home loans are at least 10 basis points (bps) cheaper than base rate-linked home loans. One basis point is one-hundredth of a percentage point.

What does this mean for your existing home loans? What happens to your other loans such as personal loan, auto loan and education loan?

What is MCLR? It is the new benchmark lending rate at which banks will now lend to new borrowers. Till 31 March 2016, banks used base rate as the benchmark rate to lend. While MCLR will be the benchmark rate for new borrowers, for existing borrowers, the base rate regime will continue. MCLR is closely linked to the actual deposit rates. Banks have to publish at least five MCLR rates (overnight, one-month, three-month, six-month and one-year).

Which loans will get linked to MCLR? All floating rate loans will be linked to MCLR. “This includes home loans, loan against property and many of the corporate term loans. Those such as car and personal loans, which are fixed rate loans, will not be linked to MCLR

How does such a loan function? If you are a new borrower who has taken a floating rate home loan, then it will be linked to MCLR. This means two things: one, you will have a reset clause in the loan documents, and two, you will have a spread.

Through Calculate Home Loan Emi Will it changes the EMI? Usually, the tenor of the home loan will change and not the equated monthly installment (EMI). “When MCLR is reset, the tenure of the loan is altered keeping the EMI amount unchanged.

How can an existing borrower move to MCLR? Currently, these loans are cheaper than base rate-linked loans. All existing home loan borrowers can switch from base rate to MCLR, but this comes at a cost.

Should you switch from base rate? Most banks charge 0.50% of the outstanding principal as switching charges. Some may ask for a flat fee. There will be other administrative costs as well.

What to check for before opting for an MCLR-linked loan? Besides the rate, you need to check the spread for your loans. “In concept, MCLR is not very different from prime lending rate or base rate.

Can one negotiate with the bank on any of the charges? You can negotiate the switching charges and other administrative costs. “Though the bank has a list of charges, most of these can be negotiated.

[Source: http://www.livemint.com/Money/Xizd6EP6QOnFTl7jtxbQSO/10-things-to-know-about-the-new-loan-rate.html]

Online Emi Calculator

Check out the pros and cons of fixed and floating interest rate home loans

1. What is a fixed interest rate home loan?

A fixed rate home loan is a home loan where the interest rate is fixed over the entire tenure of the loan. The interest rate doesn't change with market fluctuations. A major component of the monthly installment in the earlier period part of the loan tenure is used to service the interest while the principal is served in the later parts of the tenure.

2. What are its advantages?

The interest rate remains fixed irrespective of market conditions, bringing a sense of certainty in the repayment schedule and structure. This loan is suitable for good budgeters and those who want a fixed monthly repayment schedule that doesn't fluctuate.

3. Are there any disadvantages?

These loans are usually 1-2.5 percentage points higher than the floating rate home loan. Further, if for any reason the interest rate decreases due a change in the business environment, this loan doesn't get the benefit of reduced rates and the borrower has to repay the same amount.

4. What precautions should customers take before availing this loan?

Customers must cross-check with their bank whether the fixed rate home loan is fixed for the entire tenure or only for a few years. Experts say fixed rates are a better option if the economic scenario is conducive to rising interest rates in the near future.

5. What is a floating interest rate home loan?

In such loans, the rate of interest varies with market conditions. These loans are tied to a base rate and have a floating element, through Home Loan Repayment Calculator. If the base rate is revised upward or downward depending on the market conditions, the floating interest rate is also revised accordingly.

6. What are its benefits?

It is cheaper than fixed interest rates when the interest rate outlook is easy. Even if the floating rate goes higher than the fixed rate, it will not be for the entire tenure. Interest rates are cyclical over the long run and hence will fall for some time over the tenure of the loan. Hence floating interest rate helps with savings in terms of amount of repayment depending on which phase of the interest rate cycle a loan in contracted.

7. What are its drawbacks?

Monthly installments are uneven making it difficult to budget. Also, customers benefit by choosing a floating rate home loan only as long as the interest rate does not go beyond 11.5%.

[Source: http://economictimes.indiatimes.com/wealth/borrow/check-out-the-pros-and-cons-of-fixed-and-floating-interest-rate-home-loans/articleshow/50828460.cms]

A quick way to find the eligible home loan amount…

Buying a house is surely one of the major responsibilities in life. You have to be prepared in terms of thorough research on the place of living, amenities, financial resources, etc. There are leading government bank and private financial companies who are always ready to help the individuals to get a housing loan at cheaper interest rates.

But before offering a home, every person qualifies for some amount known as “house loan eligibility” based on factors like job stability, income source, and credit score. It is very important to know about the eligible loan amount before you opt for a housing loan.  While using house loan eligibility calculators your age, current income, repayment capacity is taken into consideration by bank or finance companies.

With internet-based services, things are now at the click of a button for you. To avail your finance you don’t have to visit banks or finance companies, fill up form, get copies attested and finally submit them. Things can be taken care off right at your home or office. A computer, laptop, tablet or smartphone device and good internet connection is all that you require applying for a loan from any part of the country. Ensure that you keep scanned copies of the relevant documents before applying online. Once verified and approved, you will get a phone call from the respective bank for loan disbursement in your bank account. It is important you get an idea about the bank or finance companies past performance in terms of offering clients end-to-end solutions, customer service, and other quick online processing facilities.

Based on your income source, different banks consider different percentages that you can set aside for paying monthly installment. These percentages are on the basis of occupation, the number of depends. It also takes into consideration interest rate of the bank, a time period for which you need to loan and loan amount required. Based on these ground the house loan eligibility calculators tell you the loan you’re eligible for.

Some benefits of house loan eligibility calculators:

•Make your housing loans affordable and easier on your pocket each month

•Fixed and floating rate options available as per your preference

•Know the savings before transferring your Home Loan to other banks, without any hassles

•Get aware of the flexible repayment options for your home loan from the comfort of your home or office

It is advisable while planning to buy your house, construction or renovate it, through a housing finance improve your credit score history. For any lender, it speaks volumes about how well you manage your finances and how good you are at clearing your dues. More good the credit history better are the chances of higher house loan eligibility through Emi Calculation for Home Loan.

It is usually difficult to get approved for a home loan if you have a bad and sometimes even average, credit score. 

House loan eligibility helps you know what your tenure and interest will look if you make extra payments. It’ll display a new pay off date and a new interest total, giving you the best estimation on your finances in future. It cuts down the hassles of usually tedious and time-consuming manual calculation of EMI applicable on your home loan. It is simplified and loaded with all the essential data, including amortization details and the ability to alter components like interest rates and tenure to try other types of permutation and combinations.

Seven steps to your first Home

For a millennial, the decision to buy a home can be a life-altering one. For young individuals or couples, getting into a long-term debt commitment such as a home loan can be a daunting task. However, as financial advisors would agree, buying your first home in your 20’s or early 30’s can be one of the smartest moves you can make financially, as it gives you a great head start in more ways than one.

1Getting over the initial fear

Those who have just about completed hefty student loans may develop cold feet at the thought of skimping once again and preparing to take a home loan. At this stage in your lives, it is important to see the bigger picture. In a few years from now, a roof over your head that you can call your own before you reach your middle years will feel like a great achievement.

2 Invest with a specific goal

If you have firmed up your mind to purchase your first property, the first thing you must do is begin investing with this specific goal in mind. Set a budget and pick an investment option that will help you meet your goal in a specific number of years. While setting a budget, do not be too hard on yourself and try to stretch limits. Your first home need not be your only home and you can always graduate to a bigger place when you can afford one. While saving for your first home, equities may be your best bet as they offer you the best inflation adjusted returns as compared to other instruments despite the risk factor.

If you do not have the expertise or the time to invest in equities yourself, you can choose the systematic investment plan (SIP) route of mutual funds. By investing in equities through the SIP option of mutual funds you also get the advantage of compounding, which means your returns are reinvested over the term you choose to remain invested in the fund, thus helping you achieve your financial goal of saving up enough for the down payment of the property.

3 Home loan options

Does enough research before you decide on a lender? Many lenders want young and dynamic home owners as customers and have specific loan products that make it easier for you to make repayments in your initial years and increase the quantum with the rise in your career. Checkout such options and read in between the lines to understand each nuance carefully as well as through calculate home loan emi.

4 Begin with clean credit records

One of the most important factors that will decide whether or not you are creditworthy is your Credit Information Bureau (India) Limited (CIBIL) score. Your CIBIL score is a three digit numeric between 300-900 that is assigned to you by India’s premier credit bureau. This score is based on your credit behavior or how you have serviced your credit lines you have availed of thus far. In order to maintain a good CIBIL score (750 and above) it is necessary for you to have serviced debt regularly and well before applying for a fresh loan.

One of the best ways to ensure that your CIBIL score remains intact is by making a habit of not building up credit card debt. Spending small amount and ensuring that you make a habit of repaying your credit card bills before the end of each billing cycle is a good way to ensure that you do not get into a debt trap and also maintain a good CIBIL score.

5 The quest for your first home

In this world dominated by the internet, the search for your first home must necessarily begin online. It is a good idea to go through all of these portals and shortlist properties that you would like to see personally. Besides using such websites, make the best use of the internet and social media to reach out to actual buyers and check the reputation of the builder, the living experiences and the problem areas if any. A thorough virtual search gives you firms footing before you start visiting the properties personally and finally zero in on a choice that is best suited to your needs and budget.

6 Be aware of your rights

The real estate market can turn out to be a head spinner when you are out there on a house hunt. It is important to be mindful of what your requirements are and be aware of your rights when seeking out a home.

7 The final step

Once you have taken possession of your new house, the first thing to do is store all your property documents. Make a few photocopies and keep them in at least three different locations. It is a good idea to get all your property documents digitized and locked in an e-safe. Next, update all your official documents with your new address and finally transfer all property related paperwork such as water and electricity meters, society membership and property tax records in the local municipal body in your name.

[Source: http://www.thehindu.com/features/homes-and-gardens/a-property-buying-guide-for-millennials/article9197544.ece]

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