Select lender that will offer amount needed to buy chosen property

While you should evaluate festive offers, criteria like ease of prepayment are also crucial

With Diwali about 10 days away, lenders have started announcing their special offers on home loans. State Bank of India (SBI) is offering a discount of up to 25 basis points on interest rate to new borrowers (also on home loan balance transfer). It has also waived the processing fee till January 31, 2023. HDFC is offering discounts of up to 20 basis points to new borrowers. Both SBI and HDFC have pegged their lowest rate at 8.4 per cent. Several other lenders have announced waivers of processing fee.

Rate depends on credit score

Remember that the low rates announced in festive offers are not available to everyone. The interest rate on a home loan is now linked to your credit score. Only if your score is above 750 (in some cases, above 800) will you get the best rates.

Between a cut in interest rate and a cut in processing fee, opt for the former as it is a recurring benefit. The processing fee waiver is likely to result in a saving of Rs 10,000-15,000.

“Waiver of processing fee also means that even if you don’t take the loan despite it getting processed, you won’t lose much money,” says Adil Shetty, chief executive officer (CEO), Bankbazaar.com.

Special offers are available for a limited period. “The interest rate and other loan-related conditions that apply are the ones that prevail on the date of disbursement. Suppose you apply for a loan with a special offer till November 30. Your loan gets sanctioned before this date but is disbursed afterwards. In that case, you will not get the benefit of the special offer,” says Aditya Mishra, director-home loan desk, 4B Networks.

Experts say offers shouldn’t be your primary guiding criteria when choosing the lender.  

Key factors you must consider

The foremost factor in selecting a lender is the amount it is willing to provide. “Once you have chosen the property and decided on the amount you can pay out of your own pocket, you will require a loan of a certain size. Opt for a lender willing to lend the required amount,” says Mishra.

If more than one player is willing to lend this amount, then you may compare interest rates and processing fees.

The tenures for which different lenders give loans also vary. A longer tenure reduces the EMI. “But a longer tenor also means a bigger cumulative interest outgo, so choose carefully,” says Mishra.

If you buy an under-construction property, you will pay pre-EMI till possession. This will keep rising as the amount disbursed by the lender increases. Make sure you have adequate cash flows to match the rising pre-EMIs. “Go for a lender who offers what is called a tranche loan. Normally in a pre-EMI you only pay the interest. In a tranche loan, you also pay part of the principal. This reduces your overall interest outgo,” says Mishra.

Currently, the Reserve Bank of India (RBI) is hiking the repo rate. Home loan rates of most banks are linked to this benchmark rate, so loan rates are rising and borrowers’ cumulative interest burden is increasing. One way to control it is to prepay part of the principal periodically. “Some lenders have lenient terms and conditions for prepayment while others have highly restrictive norms. Opt for the former type of lender,” says Shetty.

Taking a home loan means entering into a long-term relationship with the lender. Rishi Mehra, CEO, Wishfin.com suggests selecting a lender with a reputation for good service. Also, select a player that will fulfil many of your service requests online.