Cheapest Variable Home Loan Rates – Home / Money / Personal Finance / Don’t just think about the interest rate when taking out a home loan
Don’t just think about the interest rate when you take out a home loan 4 min read. Last Updated: 03 July 2020, 08:07 AM IST Tinesh Bhasin Premium
Cheapest Variable Home Loan Rates
Interest rates on home loans have been falling since the lockdown, with the Reserve Bank of India (RBI) opting for a deep cut in policy rates to revive demand and economic activity. In its last monetary policy meeting, the central bank reduced the repo rate by 40 basis points (bps) to 4% and 3.35% respectively. One bps is one hundredth of a percentage point.
Infographic] Pros And Cons Of Variable And Fixed Home Loans
New buyers can get home loans at lower interest rates than what was available before. “Sub-7% is the lowest interest rate on a floating home loan in the last 15 years,” said Gaurav Gupta, CEO, Myloancare, a marketplace for loans and credit cards.
While interest rates are one of the main factors lenders look at when choosing a lender, it’s important to consider a few other factors. When interest rates fall, borrowers may feel that they are dealing with higher rates but there is a way out. Read on for more information.
From July 1, State Bank of India (SBI) is offering home loans starting at 6.95% per annum. Other public sector banks (PSBs), including Union Bank of India, Bank of India, Central Bank of India and Bank of Baroda, have offered home loans from 6.70% or 6.85% above.
Actual rates vary depending on the size of the loan and the borrower’s history. For borrowers disbursed through SBI, the interest rate is 7% for loans up to ₹ 30 lakh. For loans between ₹ 30 lakh and ₹ 75 lakh, it is 7.25% and 7.35% for loans above ₹ 75 lakh.
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In the past, interest rates for private and government lenders were the same. “But since the beginning of the lockdown, some private lenders have not been serious because the operations are slow. They will keep the prices when the transactions increase,” said Pankaj Bansal, the vice president and Head, Capital Management, Bankbazaar, a marketplace for financial products.
For payday borrowers, home loans from ICICI Bank start at 7.45% (for ₹ 35 lakh) and go up to 8.45% (for loans above ₹ 75 lakh), according to the website – its website . Axis Bank home loan rate starts at 7.75% and Kotak Mahindra Bank offers it from 7.35% above.
Need to check utility and EMIS: Low interest rates from BRP can help borrowers to reduce monthly installments (EMIs) or get proper utility. Assume a borrower borrows ₹ 25 lakh from SBI for 20 years and a private lender charges 50 bps. The EMI for a loan from SBI at 6.95% is ₹ 19, 308 and from a private lender, it is ₹ 20, 064. The interest rate over 20 years will increase by ₹ 1, 81, 429 in the case of a private creditor.
A lower interest rate means higher profitability for the borrower. A person earning ₹ 45,000 is eligible for a loan of ₹ 25.23 lakh at an interest rate of 7.45%. If interest rates fall by 50 bps, an individual’s benefit can increase by about ₹ 1 lakh, all else being equal.
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However, eligibility criteria vary from lender to lender and there are many other factors to consider.
Low interest rates can help you save. “But generally, the lenders who offer the lowest rates have a strict assessment and reasonable criteria,” said Ratan Chaudhary, head of home loans, Paisabazaar.com.
Banks that offer low interest rates may offer loans to borrowers with a high credit score or offer a lower interest rate than other lenders. In such cases, borrowers may need to look at non-banking financial companies (NBFCs) that offer higher rates.
Many PSBs have different rates depending on the size of the loan. The lowest rates for the loan are below ₹ 30 lakh. Maximum for those seeking loans above ₹ 75 lakh. But private lenders don’t offer different rates depending on the amount of the loan. So borrowers looking for a higher loan amount can look to private banks that pay off loans faster or offer better services.
Compare Variable Home Loan Rates
Then there are borrowers who need a loan quickly. “Usually, BRP’s turnaround time is very high. If all the documents are complete, private lenders can provide a loan within two weeks. There are others, they can provide to a loan within seven working days, if all documents are in place,” Bansal said.
Almost all banks have passed on the benefit of RBI’s repo rate reduction to their borrowers. But if you are on the MCLR rate, your payments will change as the interest rate rises due to the adjustment. The interest rate on home loans fixed at MCLR is generally available on a quarterly or semi-annual basis.
According to the middlemen, it is better for customers at MCLR to switch to new related loans. “The interest rate on MCLR linked loans depends on the bank’s cost of capital. It’s an internal signal that a lender can’t measure. So it is better to move to repo rate linked loans,” said Chaudhary.
If your home loan repayments go up in the next four to six weeks, you can use it and then move, he said.
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RBI has directed banks to charge nominal interest from borrowers if they apply to switch loans from MCLR out.
Don’t just go for a single payment when taking a home loan. Choose a lender based on your needs. If you are servicing a loan at MCLR, it is time to switch to a loan linked to a more reliable repo rate.
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How To Get The Lowest Home Loan Interest Rate From Your Lender
You are subscribed to our newsletter. If you cannot receive any email from our page, please check the spam folder. The two main types of mortgages are fixed mortgages and adjustable rate mortgages (ARMs). Although the market offers several types in these two categories, the first step in buying a mortgage is to decide which of the two main types of loan will suit your needs.
A fixed rate mortgage pays interest for the life of the loan. Although the amount of principal paid each month differs from the mortgage payment, the total amount of the payment remains the same, making it easier for homeowners to finance their mortgage.
The partial amortization table below shows how the principal and interest amounts change over the life of the mortgage. In this example, the mortgage term is 30 years, the principal is $100,000, and the interest rate is 6%.
As you can see, the payments made during the first few years of the mortgage are mostly interest payments.
Fixed Rate Home Loan
The main benefit of a fixed-rate mortgage is that it protects the borrower from higher monthly mortgage payments if interest rates rise. Fixed rate mortgages are easy to understand and don’t vary from lender to lender. The downside to fixed rate mortgages is that the higher the interest rate, the harder it is to get a loan because the payments are lower. A mortgage calculator can show you how different payments affect your monthly payments.
Although the interest rate is fixed, the amount of interest you pay depends on the term of the mortgage. Traditional mortgage companies offer fixed mortgages for a variety of terms, the most common of which are 30, 20, and 15 years.
The 30-year mortgage is the most popular option because it offers the lowest monthly payment. However, the price for that low payment is high, as the extra ten years, or more, is spent paying off the interest. Monthly payments are higher for short-term mortgages because the principal is paid off over a short period of time. In addition, short-term mortgages offer low interest rates, where the principal amount can be paid off with each mortgage payment. Therefore, short-term mortgages tend to be cheaper. (For more information, see Understanding mortgage payments.)
The interest rate for an adjustable rate mortgage is variable. The initial interest rate on an ARM is set below the market rate on a similar fixed-rate loan, and then the rate increases over time. If the ARM is held for a long time, the interest rate will be higher than the going rate for fixed rate loans.
Seven Factors That Determine Your Mortgage Interest Rate
ARMs have a fixed term during which the initial interest rate remains constant, after which the interest rate changes at a predetermined frequency. The holding period can vary – anywhere from one month to 10 years; interest rates tend to be lower during short adjustment periods. After the first term, the loan is refinanced, meaning the new interest rate is based on current market rates. This is the stage until the renovation, probably next year.
ARMs are more complex
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