An update of Home Loans

This is the time to buy your own home. The cost of acquiring your own home for your own use is a most wise decision currently.
There are reasons:

Demonetisation, resulting in drastic reduction of the black money component in our day to day life has taken the sting out of the real estate market. The market is very stable. The market is welcoming the genuine buyer now.

The cost of acquiring home loan is low now. The interest rates on home loans are in single digits. You can go for either a floating rate or a fixed rate home loan.

There is ample choice. The inventories are high and you can choose a
home of your preference in your preferred location.

As there is a reasonably high inventory available in the market, you
can avoid getting into the trap of ‘under construction’ properties
where the chances of cheating, mis-representation and manipulation are
high.

You can opt for many genuine ‘freebies’ offered by the builders to you such as free parking, no registration fee, hard furnishing etc.

You have the protection under RERA, implemented by almost all state governments in case of still some wrongdoing by the developer / builder. Though I do not support speculation, but after a five year trough, now
starts the time for peaking the value of your investment in real estate.

Home loans are probably the biggest loans that individual borrowers ever avail of. These are large not only in terms of the loan amount, but also tenures, which can easily be of 15 years or even higher. The final amount that the borrower ends up paying by the time the loan ends, could easily be double of the principal amount borrowed. But, a home loan is among the cheapest loans available, and most often, it is the only way a person can buy a property for a life long use.

Thus, a Home Loan is called an ‘Investment’ and not a loan because it helps you acquire a tangible asset that appreciates over the long term. This is so much unlike a vehicle loan, a consumer durable loan or consumption loan.

There is always an argument between the two sets of people: whether they should 1) buy a house or 2) or they should take the house on rent for the purpose of use. Though the EMI on a home loan will always be higher than the current rent you pay on the same property, yet the capital appreciation on the property will offset any such imbalances in future. Secondly, the yearly increasing rents will put a bigger hole in your pocket while the EMIs would remain the same.

Hence, it is always suggested to buy a residential property for the personal use. And never suggest anyone to ‘invest’ in the so called ‘second home’. It makes social, financial and psychological sense to buy a house if you plan to live in it. But again, a word of caution here: one should buy a ready-to-move-in house.

There is no dearth of Home Loan providers in the country. The sector qualifies for the Priority Sector Loans (PSL) and hence, every financial intermediary rushes into it. The major players in the Home Loan market are the Public Sector Banks, the Private Sector Banks and the NBFCs (prominent amongst NBFCs being HDFC Limited). SBI is the number one player here but the highest marks for professionalism and quality of portfolio go to the combination of HDFC Bank + HDFC Limited.

Rate of Interest on a low ticket Home Loan (from Rs. 10 lacs to Rs 1 cr) starts from a low of 8.5% p.a. and goes upto 9.9% p.a. for majority of the lenders (exceptions will always be there).

The other component of the Home Loan cost (apart from EMI) is the Processing Fee (PF). This is a one time fee and varies from 0.25% to 0.50% of the loan amount. A creditworthy and knowledgeable borrower can always negotiate the rate of interest o home loan as well as the Processing Fee.

Equated Monthly Instalment (EMI): the EMI calculation formula is given below. You can calculate your EMI yourself.

EMI=P*RPM (1+RPM)^N / (1+RPM)-1

Here,

P=Principal

RPM=Rate Per Month (a rate of 12% p.a., on monthly basis will become 1%)

^=To the power of

N=Tenure in months (a 10 year loan will be denoted as 120 months)

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