FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Festive season home loans!
The interest rate for home loans has been going through the roof for the last couple of quarters. At the same time, CPI inflation is stubbornly at double digit. As a result, people have postponed their decision to buy a home or invest in real estate. In such a scenario, banks are looking for ways to become innovative with their loan offerings with all the more reason to do so, as we are in the thick of the festive season!
In this article, we will discuss the discount schemes that are on offer.
Dual rate scheme
Dual rate scheme fixes the interest rate for first few years and then changes it to the prevailing interest rate. The prime example of this type of loan offered by banks is ICICI bank. ICICI bank is giving home loans with interest rate fixed for 1st year and 2nd year. After 2nd year, the interest rate charged will follow the prevailing interest rate. The prevailing interest rate will be the base rate of ICICI bank plus the premium. The premium can be anywhere between 0.5% and 1.5% depending on the size of the loan. Here is what ICICI bank is offering:
|ICICI Bank Dual interest rate scheme||Fixed for 12 months||Fixed for 24 months||Fixed for 36 months|
|Less than 25 lakhs||10.50%||10.75%||10.75%|
|Between 25 and 75 lakhs||11.00%||11.25%||11.25%|
|Above 75 lakhs||11.50%||11.75%||11.75%|
Discount on processing fee
This is one of the ways to provide discount on total cost of loan. Punjab National Bank has done away with processing fee completely. This will certainly lower down the cost of home loan by few points.
Concession on home loan
State Bank of India, Dena Bank, and Corporation bank are giving discount of few basis points for home loan till the end of this year. SBI and Dena bank have offered discount of 25bps while corporation bank has offered up to 100 bps discount. Corporation bank has also waived off 60% of the processing fee.
Progressive monthly instalment scheme
Few banks are providing loans on progressive monthly instalment scheme where the borrower’s liability or EMI is based on increase in salary. Hence the EMI will be lower in first few years and will be regular after the period. Corporation bank offers this scheme. This scheme is especially good for young people who expect their salaries to rise in future.
Fixed rate home loan scheme for few initial years
This is another addition to the schemes offered by banks to home loan borrowers. HDFC bank is offering two variants of the scheme. Home loan borrowers can choose either 3 years fixed or 5 years fixed home loan scheme. The offers are as follows:
|HDFC Bank fixed rate for few years||Fixed for 3 years||Fixed for 5 years|
|Less than 30 lakhs||10.75%||11.25%|
|Between 30 and 75 lakhs||11.25%||11.50%|
|Above 75 lakhs||11.75%||11.75%|
Fixed rate home loan scheme
Fixed rate home loan scheme is offered by Axis bank. This fixed rate will remain fixed for the complete tenure of the loan. This scheme is known as “Nischint”. There is no change in EMI and no surprises. The EMI will be set once and for all. The interest rate is 11.75%.
Points to note
Due to the rising interest rate scenario, product innovations abound in the market, however borrowers should take care to weigh the pros and cons of the scheme. Finally, borrowers should compare the rates and overall charges from different banks to arrive at the effective cost of the loan and then make their decision.
The general perception in the market is that interest rates are near its peak; it might go up once or twice and then begin a downward trend. Keeping this aspect it mind, explore the home loan options available with an open mind, especially if you have bagged a good home deal, which could become a lost opportunity, if you failed to latch on to it.
On the other hand, borrowers should do their due diligence and research loan schemes where the interest rate or EMI in the initial years is low. Borrowers should arrive at a rough estimate of the possible interest rates after the initial years. They should check the base rate, premium over base rate, and historic data on past loan schemes to arrive at this possible interest rate as part of their decision making process.