You’ve decided on getting a home loan. Choosing the right bank to get the best loan offer for you is the next crucial action you must take! But, it is easy to get lost when there are so many banks to choose from and complicated finance terms to understand. Read ahead as we make it all simple for you – below are 8 key factors you must consider on how to choose a bank for home loan.
Page Contents
- 1. Get Convenient Interest Rates
- 2. Check If The Bank Is Linked To The RBI Repo Rate
- Difference Between RLLR & MCLR Home Loan
- 3. Look For banks That Don’t Charge Prepayment Fees
- 4. Choose Your Home Loan Tenure Carefully
- 5. Look For Banks With Lower Processing Fees
- Banks With Low Home Loan Processing Fees
- 6. Check If The Bank Has Good After Sales Service
- 7. Opt For Bank Offers & Schemes
- 8. Know That You Can Negotiate With Banks
- FAQs
1. Get Convenient Interest Rates
Rather than getting the lowest interest rates, compare a few loan offers and look for the best-suited plan.
You must also decide if you want to go for fixed or floating interest rates as per your finances.
While Fixed Interest Rates give you security in an unstable market, floating interest rates can be a great option too, contrary to popular opinion.
Remember that fixed interest is usually charged at a high rate by most banks (at least 2 to 3% more than floating.)
On the other hand, floating interest rates could go higher if the base lending rate is increased. But, this increase is temporary and the resulting rate could still be lower than fixed rates, in most cases!
For example – If you’re paying a fixed rate of 11%, but the floating rate is 8%, you still end up saving if the interest rates increase by 2.5%!
2. Check If The Bank Is Linked To The RBI Repo Rate
Borrowers often complain that banks are slow to reduce interest rates even when the government has lowered them!
To protect your interests, the RBI has set an external benchmark called RLLR – Repo linked lending rate.
Banks that follow this system can quickly provide the rate cut benefits to you, when interest rates fall.
RRLR is quite different from MCLR – Marginal Cost Lending Rate.
MCLR is an internal system set by the lending bank, and is the lowest rate that the bank can offer you.
Difference Between RLLR & MCLR Home Loan
|
RLLR |
MCLR |
| It is an external benchmark set by the RBI, hence more reliable. | It is an internal benchmark set by the bank. |
| It is based on the repo rate (the rate at which RBI lends to the banks) | It is based on factors such as bank funding, operating costs, repo rate etc. |
| Borrowers can track the repo rate themselves. | Borrowers have to rely on the bank to inform them about rate changes. |
| Usually revised every 3 months | Usually revised in 6 months or a year. |
| Change in rate cuts is transferred quickly | Rate cut transmission is relatively slow |
3. Look For banks That Don’t Charge Prepayment Fees
If you choose to pay off your home loan early, some banks may charge you a prepayment fee.
However, no prepayment fee is levied on home loans with floating rate of interest.
Banks also cannot charge you this fee, if you are a salaried professional and choose to prepay the loan from your own funds.
Otherwise, banks may charge you prepayment fees that can even go up to 2%!
This is why you must read the fine print to see if the bank is not charging you the prepayment fee.
4. Choose Your Home Loan Tenure Carefully
Evaluate your financial conditions and then choose a bank that is offering a loan tenure suitable for you.
If you choose a long tenure, the EMI payments are lower but the total interest amount is higher.
For a shorter tenure, you would be paying higher EMIs with less interest on your total loan amount.
Consider a case where you want to borrow a loan of 50 lakhs at 7% Fixed Rate of Interest.*
* The loan figures are a rough estimate and are calculated as per the EMI Calculator.
Pro-Tip – Choose a long tenure to get lower EMIs. Then, when you acquire surplus funds in the future, you can prepay your loan and reduce the total interest outgo.
5. Look For Banks With Lower Processing Fees
When you apply for a home loan, the bank charges you some amount for handling your application.
These charges vary for every bank and can be anywhere between 0.5 to 2% of your total loan. It also depends on whether you are a salaried professional or self-employed.
You also have to pay a service tax (GST) on the home loan processing fee.
So, choose a bank that offers you low processing fees and you could save a significant amount!
Banks With Low Home Loan Processing Fees
|
Bank |
Processing Fee in % (Min) | Processing Fee Charge (Min) |
Rate of Interest (P.A.) |
| SBI Bank | 0.1% | Rs. 5,900 | 8.50% |
| Bank of Baroda | 0.25% | – | 8.20% |
| Bank of India | 0.25% | Rs. 5000 | 8.10% |
| HDFC Bank | 0.5% | Rs. 3,560 | 8.60% |
| Central Bank of India | 0.5% | – | 7.99% |
| Kotak Mahindra | 0.5% | – | 8.49% |
You should also get all the details of the other types of charges levied by banks. These include legal fees, loan conversion, loan stamp duty, & notice of intimation charges.
To know more about these, read Home Loan Processing Fee & Other Charges
6. Check If The Bank Has Good After Sales Service
Consider that you’ve gotten the best loan offer suited to your needs.
But what about After-sales service?
Remember that filling in the loan application and getting it approved is only the first step of the process!
Since you have to deal with the bank for at least 10 to 15 years, it is very important to consider how its customer service is.
Check if the bank has a good turnaround time, quickly transmits rate cuts, and is well-known for its good customer service.
7. Opt For Bank Offers & Schemes
Gone are the days when the only option you had was a home loan with a fixed interest rate and monthly EMIs. Banks offer many home loan repayment schemes today!
You could take advantage of these offers, look at the pros & cons, and find out what suits your finances best.
A few options you can check out are –
1. Interest Saver Scheme
Interest Saver Schemes allow you to link your loan account with a current account.
The bank considers the balance in this surplus account to reduce the interest component on your loan.
Eg – Axis Bank Super Saver Home Loans
2. Pre-EMI Offers
The bank offers a time period (2 to 5 years) during which you only pay the interest component on the home loan.
The EMIs then increase in the later years, once the pre-EMI period is over.
Eg – SBI Flexi Pay Scheme
3. EMI Waivers
A few banks also waive off a couple of EMI payments (6-12 months) if you consistently pay off your EMI instalments for a number of years.
Eg – Axis Bank Fast Forward Home Loan
8. Know That You Can Negotiate With Banks
Keep in mind that a home loan is another product/service being sold by the bank.
This means that you can negotiate for better terms!
You can negotiate for lower processing fees, better interest rates, and other documentation fee waivers, especially if you have a good credit score.
To know which is the better bank for home loan, read the 10 best banks for home loans in India.
Finally, always consult your financial advisor and choose the best loan repayment plan that is suitable for your needs.
The quicker you repay your home loan, the sooner you can truly call it a place of your own!
FAQs
| How can I get a 100% home loan?
You cannot get a 100% loan, as per RBI rules. The maximum loan that banks can offer is 90%. |
| Which documents do I need to apply for a home loan?
1. Identity Proof 2. Address Proof 3. Bank Statement of last 6 months 4. Form 16 5. IT Returns for last 2 years 6. Property details 7. Filled Loan Application Form 8. Passport size photos |
| Which bank is better for a home loan, government or private?
Government banks generally offer lower home loan interest rates than private banks But, you should look at the overall home loan offer when choosing the best bank for a home loan. |
| What are the best banks for home loans in India?
SBI Bank, Axis Bank, Bank of Baroda, ICICI Bank, Bajaj Housing, & HDFC are some top banks for getting a home loan in India. |
| How can I lower the interest rate on my home loan?
1. Improve your credit score 2. Opt for a short home loan tenure 3. Look for Interest Saver Offers by banks 4. Consider transferring your home loan 5. Revise your EMI payments |
