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Yogi Zone

Useful articles for your finance management by our team of experts

Be Smart, When Buying a Home with High Borrowing Cost

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buyingfirsthomeThe problems for home loan buyers are increasing day by day. The calls that the rates can be tapered down has met a contrary result. The home loan rates have been revised higher, thanks to the adjustments in the Repo window of the RBI. Lenders have no choice but to make alteration in the loan rates. Meanwhile, home loan seekers have issues with financial affordability. The loans of some banks have crossed double figures and inching up to 11%. There are smart measures that can be taken at this time rather than shunning off the idea completely. These measures are as follows:

Search for the right option:

An exclusive search is required when it comes to buying of property. This exercise does not hold good only for houses, it is also required for home loans. This search is required for making the right decision as to which banks offer low home loan rates with minimal formalities. Sometimes, lead time in home loans play a crucial part. This means the time within which you get the funds released from the financial institution. Suppose, the client has made a deal with the seller to purchase a flat at a stipulated time, it is very necessary that the loan is disbursed within that time; otherwise the deal could be cancelled.

One can go for home loans from public sector banks like SBI and LIC that generally hike rates rather slowly compared to private sector banks like ICICI and HDFC. However, one must note that not all public sector institutions are suitable. Some have a primitive and laggard process, with lack of responsibility from the assistants. Just to see a loan comparison you will find that the rates of public sector institutions are on the lower side compared to private ones.

Home Loan Interest Table

Financial Institution Home Loan Rate (%)
SBI 10.3
LIC 10.3
HDFC 10.4-10.9
ICICI10.65-11.25
Axis Bank10.75

Source: Respective Bank’s websites

Keep floating rate as an option

A rationale decision at the current interest rates scenario is to keep the home loan at floating interest rates. Although, the last few months have been difficult and the rates are getting revised on the upside, it will also be assisting when the rates of interest will be slashed downwards. A fixed rate will not tease when the interest rates are revised higher, but for loan tenure of 15-20 years, it does not help either when the rates drop down. This means that the option of choosing the type of interest is with you.

You can Check Transfer of Loan as an Alternative

Suppose you had taken a home loan of Rs 20 lacs for a period of 20 years, with interest rate of 10.4%, which has been revised upwards to 10.65%. Meanwhile, if you decide to switch the loan, you have the option of getting the loan at 10.3%. This will bring down your EMI by 0.3%. This option can be exercised any time during the loan tenure.

However, it is advised that the loan transfer should be done after taking into account the processing charges and fees. Loan transfer is a process which is similar to taking a fresh loan. This means that all the documentation and surveys will be done once again.

Option to Adjust the EMI:

You can also ask for EMI adjustment of the home loan in case of prepayment. The loan EMI can be adjusted in the case of prepayment by the borrower. The person has the option to either go for decline in the EMI or in the tenure of the home loan.

Home loans are getting problematic for the clients these days. The northwards movement of the borrowings has made most of the potential investors quiet. However, there are options even in tough times. It is up to the investor, how well he/she harnesses these alternatives.

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