Low Interest Government Home Loans – HDFC hikes lending rates by 5 basis points and 1 minute read. Updated: May 1, 2022, 10:36 PM IST Shayan Ghosh Premium
HDFC raised its benchmark RPLR by bps on Sunday, leading to a commensurate rise in mortgage rates for existing customers. (iStock)
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New Delhi: Home loan lender Housing Development Finance Corp. Ltd (HDFC) on Sunday hiked its prime retail lending rate (RPLR) by 5 basis points (bps), leading to a commensurate hike in home loan rates for existing customers.
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However, there will be no change in interest rates for new customers as they will receive an additional discount of 5 basis points to the benchmark, negating the rise in RPLR. The new RPLR is 16.1% and loans in this benchmark are offered to customers at a discount, unlike the banks’ benchmark where loans are offered after adding a spread. The new home loan from HDFC will be available in the range of 6.7% to 7.15% depending on the credit score of the borrower along with the loan amount and gender. Like many other lenders, HDFC offers women borrowers a discount of 5 basis points on certain card rates.
As of December 31, HDFC’s outstanding loans after sales stood at Rs 5.39 trillion, of which Rs 4.08 trillion were to individuals.
Last month, India’s largest lender State Bank of India (SBI) raised lending rates for corporates and some small borrowers by 10 basis points, setting the stage for a wave of rate hikes in the banking sector. The rate hike, the first by SBI in more than three years, marks a reversal in the interest rate cycle. Others such as Axis Bank Ltd, Bank of Baroda Ltd and Kotak Mahindra Bank Ltd raised lending rates by 5 basis points each in April.
The interest rate scenario in India and globally is changing as central banks tighten the easy money policies of the Covid era to bring down prices. The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) said on April 8 that it will now focus on phasing out housing.
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“We expect to raise rates by 25 basis points in June and August, with a cumulative rate hike of 75 basis points over the cycle,” SBI Group Chief Economic Advisor Soumya Kanti Ghosh said on April 13.
Shayan Gosh is a national writer at the Mint who reports on traditional and shadow banks. He has more than a decade of experience in financial journalism. Since 2018, he has been working in Mint’s Mumbai office, monitoring changes in interest rates and their impact on businesses and the wider economy. His interests also include the troubled debt market, especially as India’s bankruptcy code tries to recover billions in toxic assets.
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You are now subscribed to our newsletter. If you can’t find any of our emails, please check your spam folder. A home is usually the largest investment a person makes, and most people need a home loan to finance the purchase. The type of mortgage you get affects the interest rate, terms, eligibility requirements and ultimately the type of home you can afford. FHA loans and conventional loans are the two most common types of home loans.
FHA loans are backed by the Federal Housing Administration (FHA) and offered by FHA-approved lenders. These loans are generally easier to qualify for than conventional loans and require a lower down payment. However, you will owe mortgage insurance premiums (MIP) for at least 11 years – possibly as long as you have a balance on the loan.
Unlike FHA loans, conventional loans are not insured or guaranteed by a federal agency. These loans have stricter lending standards and higher down payments than FHA loans. But private mortgage insurance (PMI) is only required if you put less than 20 percent down. If this happens, you can ask your lender to cancel PMI when your balance drops to 80% of the home’s original value.
FHA loans and conventional loans allow borrowers to finance the purchase of a home, but they are not the same. Here’s a rundown of the key differences to consider when looking for a mortgage for your next property.
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An FHA applicant can qualify with a credit score as low as 500, although 580 is preferred (and many FHA-approved lenders won’t go below that). These have tighter limits on your down payment, debt-to-income (DTI) ratio, and housing cost ratio. This loan will also be a low credit loan, resulting in a much higher annual percentage rate (APR) than an FHA loan with a 580 credit score or a conventional loan.
If your credit score is 580 or higher, FHA loans require a 3.5% down payment. However, those with scores between 500 and 579 must pay 10 percent. FHA loans can only be used to purchase a primary residence.
First-time home buyers can get a classic loan with a down payment of at least 3% of the purchase price. You will need to put 20% down to waive your mortgage insurance. If you are not buying your first home and earn less than 80% of the median income in the area where you are buying a home, the lower cap is 5%. If you buy a second apartment, it goes up to 10 percent, and if you buy a multi-apartment home, it goes up to 15 percent.
The debt-to-income ratio (DTI) compares your income to your debts. Lenders look at this number to determine if you can afford a home and qualify for a mortgage.
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With an FHA loan, if your credit score is below 580, your DTI ratio cannot be higher than 45 percent. Most conventional and FHA mortgages require a DTI ratio of 50 percent or less.
Depending on the terms of your mortgage and the size of the deposit, you may be required to pay mortgage insurance. Unlike other types of insurance, mortgage insurance does not provide protection
FHA borrowers must pay a mandatory mortgage insurance premium (MIP) regardless of the down payment. There is a deposit that can be put into the loan and paid over the life of the loan, as well as a monthly premium. Borrowers who put down 10 percent or more pay those premiums for 11 years. Anyone who puts down less than 10% must pay these premiums over the life of their mortgage.
With conventional loans, if you put less than 20 percent down, you must pay private mortgage insurance (PMI). You can ask your lender to waive PMI when your mortgage balance is expected to drop to 80% of your home’s original value (contract sale price or appraised value when you bought the home). Otherwise, your lender must remove PMI when your balance drops to 78%.
Fha Loans Vs. Conventional: What’s The Difference?
Both types of loans limit the amount of borrowing. For 2022, the FHA loan cap is $420,680 in low-cost areas and $970,800 in higher-cost markets. Conventional loans are subject to restrictions set by the Federal Housing Finance Agency (FHFA). For 2022, that’s $647,200 for most of the United States.
FHA loans are insured and made by FHA-approved lenders, including banks, credit unions and other lenders. FHA loans are designed for borrowers with limited savings or a lower credit score.
FHA loans can be used to purchase or refinance single-family homes, multifamily homes up to four units, condominiums, and certain industrial and mobile homes. There are also special categories of FHA loans that can be used to finance new construction or renovations to an existing home.
Because FHA loans are federally insured, these lenders can offer more favorable terms, including lower interest rates, to borrowers who might not otherwise qualify for a home loan. This means that it is also easier to qualify for an FHA loan than a conventional loan.
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Qualifying standards for FHA loans make buying a home more affordable for many people. With an FHA loan, you can borrow up to 96.5% of the home’s value. FHA home loan applicants with a credit score of less than 580 can be approved for a home loan if they can cover a 3.5% down payment. Those with a credit score below 580 can still qualify, but typically must put down at least 10% of the purchase price. Many lenders require FHA mortgage loan applicants to have credit scores of 620 to 640 to be approved.
A conventional loan is a mortgage that is not backed by a government agency. Conventional loans are originated and offered by private mortgage lenders such as banks, credit unions and other financial institutions.
Conventional loans pose the most risk to lenders because they are not insured by the federal government. For this reason, lenders extend conventional mortgages to applicants with the strongest financial profiles. Typical deposit terms range from 3% to 40% depending on the mortgage product.
To qualify for a conventional loan, consumers typically must have excellent credit reports with no major blemishes and a credit score of at least 680. Conventional loan interest rates vary based on the amount of the deposit, the consumer’s choice of mortgage product, and the current market. Conditions
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