It is every Indian's dream to own his or her home. For many of us it is difficult to acquire it on our own resource. So many us have to knock the doors of a financial institution/ bank for a loan.
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In such cases, you may like to know about eligibility criteria, interest rates (fixed/ floating), plethora of fees and charges, documentation and so on. Well, you may have many questions unanswered.
Here are few Frequently Asked Questions (FAQs):
What are the eligibility criteria for availing a housing loan?
The bank's assessment of your repayment capacity determines your eligibility for a loan. Some of the important factors considered by the banks are-
- Monthly income
- Family expenses and net disposable income
- Assets and Liabilities
- Credit history
- Cost of the property you propose to acquire
When do banks start charging interest on a housing loan?
Banks start charging interest from the date the loan is first disbursed. The rate of interest offered in the sanction letter is applicable to loans disbursed within a particular period after the sanction of loan. If the loan is disbursed after that period, revision, if any, in the interest rate may be applied to the loan. Banks will not charge any interest for the loan sanctioned but not disbursed.
Should banks communicate changes in interest rates?
Yes. The banks must inform you when they change interest rate on housing loan.
What is a fixed rate loan?
Interest rate is fixed for the entire period of the loan or it may be revised after the first few years depending upon the terms and conditions of loan.
This option is preferable if prevailing interest rates are low when you take a loan. Even if interest rates in the market go up in future, interest rate on your housing loan remains unchanged.
Know more on Fixed and Floating rates.
What is ‘Floating' or ‘Variable' Rate Loan?
Interest rate is not fixed and can be varied by the bank. The rate is linked to a reference rate (generally, prime lending rate) declared by the bank from time to time.
If the PLR goes up, interest rate on housing loan and monthly repayment will go up and vice versa.
How interest is computed under monthly-reducing basis?
The principal amount paid every month reduces the principal amount interest for the following month is computed on the reduced principal outstanding at the start of each month with the repayment of loan periodically, interest portion of the instalment gets reduced and principal portion rises.
What are the fees and charges applicable to the loan?
Generally, banks levy fees/ charges for:
- Processing loan application
- Late payment
- Changing the loan tenure
- Switching to a different loan package during the tenure
- Prepaying a portion or full loan
- Restructuring the loan
- Changing from fixed to floating interest rate loan and vice versa
Some of the other charges levied by banks are:
- Legal fee
- Technical inspection fee
- Recurring annual service fee
- Document retrieval charges, etc.