All crises come with opportunities. The COVID-19 pandemic may have hurt many financially, but if you have a dream home in mind, you must thank your stars. Record low home loan interest rates along with festive offers at a time when property prices are depressed make it an enticing time to go ahead with your 'dream home' plans. And why not? Interest rates have fallen below 7 per cent in most banks. Union Bank of India is offering loans up to Rs 75 lakh in the interest rate range of 6.7 to 7.1 per cent. This is the lowest among all public and private sector banks. Besides, several banks have reduced or done away with processing fees for home loan applications received during the ongoing festive season.
"Apart from comparing interest rates, prospective home loan borrowers should also compare the processing fee and the tenure offered while comparing various home loan options. While the processing fee can add significantly to the overall cost of availing a home loan, the loan tenure would decide the EMI for the borrower. A longer tenure would result in lower EMI and vice versa. As lenders usually require EMIs (including that of the new home loan) to not exceed 50 per cent of a borrower's monthly income, the loan tenure can play a major role in deciding the loan eligibility of a prospective borrower having limited surplus for EMI repayment," suggests Ratan Chaudhary, Head of Home Loans, Paisabazaar.com.
We give you a lowdown on interest rates across public and private sector banks and festive offers.
Interest rates in public sector banks
Union Bank of India, Central Bank and Bank of India are among public sector banks offering cheapest home loan rates.
Interest rates in private sector banks
ICICI Bank, Kotak Mahindra Bank and HDFC Bank are the only private banks offering home loan at less than 7 per cent.
Festive offers across banks
Festive offers could be in the form of interest rate concessions or reduction in loan processing charges. Some banks have done away with loan processing charges altogether.
Floating rate versus fixed rate
Now that interest rates are at record lows, you may feel home loan at a fixed rate will be a good idea. But, remember that fixed rate on home loans is always higher than floating rate. Besides, very few banks have provision to offer home loan at fixed rates. Currently, Axis Bank, HDFC Bank, IDBI bank and Union Bank of India are offering fixed rate home loans.
Also note that most banks levy pre-closure charges on fixed rate home loans, while the Reserve Bank of India (RBI) has prohibited banks to levy such charges on floating rate home loans.
"As home loans are long term loans with tenures mostly extending to 15-20 years, the interest rate scenario may change multiple times during longer loan tenure. Thus, what seems to be low interest rates right now may not be considered so after several years depending on the development stage of our economy. As it is very difficult to predict interest rate scenarios for mid or short term, scouting for a fixed rate home in the hope of booking lower rates for the long term might prove futile. Additionally, opting for a fixed-rate home loan may also lead the borrower to incur prepayment charges on prepaying or foreclosing home loans," says Chaudhary.
Most of the borrowers who start a long-term home loan of 20-25 years often end up prepaying their loan much earlier. If frequent change in interest rate on your home loan will not trouble you, going for floating rate home loan appears a better option as it will help you focus more on prepaying home loans post-disbursal. Chaudhary of Paisabazaar says many lenders also offer mixed rate home loans, which is a variant of fixed and floating rates. "The interest rate of such home loans remains fixed for a year or two post-disbursal of the home loan after which it becomes a floating rate home loan."
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