Where will I get a loan as quickly as possible? Which is a better option-a loan with a fixed interest rate or one with a floating interest rate? Is it possible to get a loan that financed 100% of the property value of the house I have in mind?

These are a few questions that weigh on the minds of homebuyers when they seek to avail a home loan for purchasing their very own home. And rightly so.  Normally, the quantum of a home loan is large and it requires a heavy financial commitment. Therefore, to save on money, you need to consider the above questions and take other factors into account before availing a home loan.

When you seek out the lending options available to you, other than interest factors such as turnaround time and the proportion of property value covered by the loan amount is also important. This article attempts to answer some of these questions and nudge you into considering these questions for your benefit.

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Which bank gives the fastest home loan?

  • ICICI Bank

ICICI Bank is a lender that is known for its expeditious processing of loan applications and sanctioning of loan amounts. This Bank provides for an instant, pre-approved home loans to the tune of Rs. 1 crore exclusively for existing ICICI bank customers. In this case, it also requires no submission of documents at the time of sanction and levies a discounted processing fee. You can also avail this facility using the mobile app or Internet Banking facility. They have competitive interest rates and a simplified documentation process. It is also known to give a reduced interest rate if the applicant of the home loan is a woman.

  • HDFC Bank

HDFC Bank is another great home loan lender that facilitates the receipt of home loan funds with great efficiency. The Bank provides door to door services and provides for an easy application and document submission process. Its interest rates are competitive and it has a Flexible Loan Installments Plan (FLIP) that provides for the flexible payment of EMI that is higher in the initial years but subsequently reduced in proportion to your income in the future.

  • Dewan Housing Finance Ltd. (DHFL)

Dewan Housing Finance Ltd. (DHFL) is a deposit housing finance company that has one of the fastest loan disbursement processes in the sector. Its documentation process is also one of the least cumbersome processes for borrowers. It offers loans only on a floating interest basis.

  • Kotak Mahindra Bank

Kotak Mahindra Bank is another good option for availing home loans for home purchase, home extension and home repairs and costs with the institution disbursing loans at a good pace. The application process is online and the applications are processed fast.

  • Aditya Birla Capital Home Loans

Aditya Birla Capital Home Loans offers loans for home purchase, home extension, home construction and home improvement. They are known for their speedy processing of loan applications which results in quicker disbursement of loan amounts.

A few platforms where you can compare loan options, interest rates, loan tenures and other important details are Mymoneymantra, Bankbazaar and Deal4loans where you can compare these important factors of loans to make your decisions.

How is the interest rate calculated?

 When it comes to home loans, there are two types of interest rates that are on offer to you:

  • Fixed Interest Rate:

A fixed interest rate applies when you avail a loan from a lender with an interest rate that remains fixed and unchanged during the tenure of your loan. It proves advantageous when the market is relatively less volatile and the loan tenure is relatively long term. It works for one’s long term gains.

  • Floating Interest Rate:

A floating rate of interest, as opposed to a fixed interest rate, is a rate that changes according to market conditions and RBI policies. This rate is advantageous when the loan is relatively short term. It is also for your benefit to consider this if you find the market very volatile to save money on your EMI.

The factors that influence interest rate calculation are:

  • RBI policy: As mentioned above, the RBI is a statutory authority that regulates the players in the home loan sector. The RBI formulates policies that set the interest rates and reset them after periodic intervals after assessing the market conditions like the demand for housing, the growth of the real estate sector, inflation or deflation in housing prices, economic boom or recession etc. Accordingly, it changes interest rates through circulars and notifications, which causes the lenders to follow suit.
  • Credit-worthiness: Your credit-worthiness ascertained by the lender greatly determines the interest rate on your home loan. If the lender found you to be in the “risky” category when it came loan recovery, they will most likely charge or present high-interest rate home loan schemes to you. Risky borrowers will find themselves paying more interest as compared to low-risk borrowers despite the terms of both the loan agreements excluding interest being similar.
  • Increased money supply in the banking system means more money to lend to the common public. In such a situation, the RBI reduces interest rates on home loans by doing so, banks are bound to pass on the benefit to the borrowers. Thus lending activity increases. Likewise, if there is a deficiency of money in the system, the RBI increases interest rates for discouraging lending activity. With high-interest rates prevailing in the market, borrowers are discouraged from seeking home loans.

The calculations regarding interest rate and quantum may seem tedious. However, lenders make it a point to inform you about the interest rates and whether you have the rights to convert from interest rates to floating rates in your home loan agreement. Note that interest is the element that is the contributing factor to the change in your EMI. The EMI can be calculated using a mathematical formula :

EMI=[P x R x (1+R)^N]/[(1+R)^N-1] where:

  • ‘P’ represents the loan amount or principal
  • ‘N’ is the number of monthly installments
  • ‘R’ is the interest rate per month. Therefore, if the rate of interest per annum is 11%, then the value of ‘R’ will be 11/(12 x 100)

For example: If P is Rs 100,000, N is 12 and R is 7%, then the formula looks like this:

EMI= [100,000x(7/12×100)x(1+7/12×100)^12]/[(1+7/12×100)^12-1]

=625.50/1.0661

=Rs.586.77

This answer comes on calculating EMI on the reducing balance and the formula is found on the Bajaj FinServ website.

Higher the interest rate and payment, higher will be your EMI. Nowadays it is advised to not only compare the interest rates on offer on different home loan options but to actively seek out the prevailing interest rates in the market to decide if it is the right time to seek a home loan.

There are several websites of banks and lenders where they provide a “Home Loan EMI calculator” for your usage to calculate your potential EMI outflows and whether your current or future interest rates are favorable for you. Websites of major banks like HDFC Bank (www.hdfc.com), ICICI Bank (www.icicibank.com), SBI Bank (homeloans.sbi). These sites allow you to adjust parameters on a scale and calculate your EMI outflows according to the amount, tenure, and interest rates. It is very nifty.

How can I get a 100 percent home loan?

According to the prevailing regulations of the RBI issued in June 2017, the current Loan to Value ratio (LTV) for individual home loans can be financed to a maximum of 90% if the total loan amount is Rs 30 Lakh. For loan amounts from Rs 30 to 75 lakh, the LTV ratio can be up to 80% and loans above Rs. 75 lakh can be given up to 75 % of the value of the property.

As such, availing a 100 percent home loan is not possible, but you can fund the part not financed by a home loan with a personal loan that comes at cheaper interest rates than that of a home loan. It is also easier to avail a personal bank loan from a bank. Over and above that, the provisions of the Income Tax Act, 1961 contain deductions when it comes to the head “Income from House Property” under Section 80 C.

Also, the Act provides for claiming stamp duty and registration of house expenses in the year when you purchase the property. Thus, even though availing of a 100% loan is not possible, there are alternate avenues by which you can save money.

Conclusion

Home loans are a favored way of financing the purchase of your dream house. There are several banks and lenders out there that offer speedy sanction of loans at competitive interest rates. The ones mentioned above are but a few for your reference. RBI policies and market conditions cause home loan interest rates to fluctuate now and then. It is best you thoroughly research the prevailing interest rates in the market, for it is an important factor to decide the right time to avail of a home loan.

RBI regulations do not permit lenders to finance the purchase of residential property on a 100 percent basis. As such, you have to seek out alternate avenues to fund the part that remains unfinanced by the home loan amount sanctioned. The place, time, and options you seek to avail your home loan goes a long way in ensuring a healthy balance between your financial status and funding your dream house.