Real Estate

Your home loan LTV: The factors that matter

There are certain calculations and sums in your home loan that affect the overall repayment sum. This article examines these factors.

In today’s competitive real estate market, it has become practically impossible to buy a house without taking a home loan. Fortunately, there are several good housing finance companies and banks that offer good home loan products to suit a variety of needs. Applying for a loan has become really simple, and the loan is disbursed within a few weeks of application.

There are certain factors ingrained in the home loan that influence the LTV (Loan to Value). It simply means that these factors have a bearing on how much money you repay to the lending institution. They include:

→ Interest rate. This is the most important factor that determines how affordable or expensive your loan is. The interest rate for home loans across banks and financial institutions in India ranges between 8.5% to 10% at the moment. While the country’s biggest lender, SBI, offers 8.5% interest rate, other institutions like Punjab National Bank Housing Finance Limited (PNBHFL), HDFC Ltd. and Axis Bank, among others, offer 8.5% to 10.25% fixed interest rate for home loans, for two years. The lower the interest rate, the more affordable the loan becomes. It influences how much money you totally repay to the housing finance company at the end of the loan tenure.

→ Processing charges. Each bank and financial institution deducts processing charges on the loan. These charges account for application processing, verifying the applicant’s information and property location, giving an estimate of the property cost, legal charges for studying the sale agreement, etc. These charges vary across institutions, but they are normally in the range of 0.25% to 2% of the loan amount. If you share a long relationship with the lender, you can ask for the processing charges to be waived off or reduced. These charges have a bearing on the final repayment sum.

→ Stamp duties on the loan agreement. Many first time buyers are unaware that they must pay multiple stamp duty on the same sale agreement. The first stamp duty is paid before registering the sale agreement at the local Collector’s/Registrar’s office. The next stamp duty is paid to the lender at the time of signing the loan paperwork and taking the disbursal cheque. Lastly, depending on your city of residence, you might have to pay a final stamp duty on the transaction to the local municipal body. This last is operational in States like Maharashtra, and it must be paid within a month of the loan disbursal.

→ Foreclosure and loan transfer charges. Some lenders levy foreclosure charges on those who pre-pay the loan before the tenure is up. Reputed lenders like PNBHFL, Bank of Baroda and HDFC Ltd. do not levy foreclosure charges on home loans. However, there are transfer charges involved if you wish to effect a loan balance transfer from your current lender to another one. A loan transfer is effected so that the borrower may take advantage of lower interest rate for home loans offered by another lender.

Consider the above factors carefully when you choose your lending institution. After all, they could be the difference between a great loan product and an expensive one.

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