Many consumers take a mortgage when they need cash. Loans for which an asset is offered as collateral turn out to be cheaper than unsecured loans. Many borrowers therefore opt for a loan for gold or a fixed deposit in case of emergency. But if you are looking for a sizable amount, a home loan is one of the options you should go for.
According to data from Paisabazaar.com, mortgage interest rates start at 8.2%. But they can go as high as 14.5%, depending on the lender, the customer’s credit profile, and the property. Although Bank of Baroda is among the lenders that offer better rates, the maximum interest rate it charges is also high. The interest rate starts at 8.2% and goes up to 13.85%. Indian Bank, meanwhile, offers rates between 10.5% and 10.65%.
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As a borrower, consider processing fees, maximum loan amount, and how long you can use this product. Keep these three criteria as a key to choosing your lender.
Lenders charge between 0.5% and 2% of the value of the property as a processing fee. However, they have a cap on the maximum fees they would charge. For example, Baroda Bank charges a maximum processing fee of ₹1.5 lakh, State Bank of India and Canara Bank charge a maximum of ₹50,000.
There are also caps on the minimum and maximum loan amount. Bank of Maharashtra, Karur Vysya Bank and Tata Capital offer a maximum loan amount of up to ₹3 crores. Some lenders, such as Bank of Baroda, Union Bank of India, and Canara Bank, offer a maximum loan of up to ₹10 crores.
Most lenders grant a maximum term of 15 or 20 years. However, Bank of Maharashtra and Canara Bank offer loans up to 10 years, and Karur Vysya Bank up to 100 months (just over eight years).
Processing fees and length of occupancy can have a huge impact on your loan. A difference of ₹1 lakh as a processing fee is significant. The difference in duration can have an impact on the equivalent monthly payments (EMI) as well as on the total amount of the loan.
Suppose a borrower takes out a loan from ₹50 lakh at an interest rate of 10% for 10 years. IME will come ₹66,075, and the total outflow of interest will be ₹29.29 lakh. If the same loan is for 20 years, the EMI will come to ₹48,251 and the total outgoing interest will be ₹65.80 lakh. So find a balance between the two.
(Do you have personal finance questions? Send them to [email protected] and get answers from industry experts)
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