Where to get a home loan?

K. ARAVIND

People who take out a home loan often have doubts as to whether it has to be from a bank or a housing loan institution. The decision to take a home loan is based on the repayment period of the home loan, the interest rate, the processing fee and so on.

Banks have strict requirements regarding the required documents when applying for a loan. Home loan companies are adopting a more lenient approach to documents. Delays in getting loans from home loan lenders are less compared to banks.

It is not easy to get a loan from a bank without a good credit score. According to credit information company CIBIL, 80 per cent of new loans are granted to those with a credit score above 750. People with low credit scores may have to rely on home loan companies. At the same time, such mortgage lenders charge higher interest rates than banks. While home loans are currently available at 7 to 7.50 per cent interest for those with a high credit score, those without a good credit score may not be eligible for that rate. The interest rate on the loan is determined after examining various factors such as the applicant’s income, loan term and the nature of the job.

Banks offer lower lending rates compared to home loan lenders. Banks do not include any expenses such as stamp duty and registration fee in the loan amount. At the same time, mortgage lenders include such costs.

In Kerala, the stamp duty is 8 per cent and the registration charge is 2 per cent. That is, the total cost of this item will be 10 percent of the value of the home. For example, for a house worth Rs.50 lakh, the stamp duty and registration fee will be around Rs.5 lakh.

Normally 80 per cent of the value of the house is lent. For a house worth Rs.50 lakh, the maximum loan available from banks is Rs.40 lakh.

At the same time, mortgage lenders offer higher costs, including stamp duty and registration fees. That is, for a house worth Rs.50 lakh, a loan of up to Rs.44 lakh can be obtained from a home loan institution. Some home loan companies offer loans above 80 per cent of the total value of the house.

Banks generally adjust the rate of mortgage lending faster than mortgage lenders, depending on the variability in interest rates. Banks’ home loan interest rates are linked to the Marginal Cost of Lending Rate (MCLR). At the same time, the interest rates of home loan companies are linked to the benchmark prime lending rate.

One of the benefits of taking a home loan from a bank is the overdraft facility. Overdraft can help reduce the liability on interest items. All customers need to do to access this service is to open a current account linked to a home loan account. At the same time, home loan companies do not allow overdrafts. The reason is that home loan companies cannot provide overdrafts like banks.