The Reserve Bank of India has issued a deadline to all housing finance companies to ensure that 60% of their financing assets are deployed to housing loan customers.
- This, along with the projected CAGR of 22% of the home loan market between 2021 and 2026, should ensure increased disbursal of such credits.
Nevertheless, while the availability of housing finance in the market is set to increase, the responsibility among borrowers to service these advances in time and evaluate them periodically remains a priority. A regular evaluation of housing loans is an essential aspect to consider if an individual is planning to avail such credit to purchase a suitable house property.
Due to their extended tenures, the market as a whole may change substantially between the start and end of repayment timing. Borrowers should thus be aware of these changes to ensure maximum profitability.
Home loan evaluation: Why is it necessary?
Home loan rates are intricately tied to the repo rate changes implemented by the Reserve Bank of India at regular intervals. Depreciation in this key policy rate determining the benchmark rate forces housing finance companies to adjust their home loan interest rate accordingly. For instance, if the repo rate drops by 50 basis points, lenders may respond by slashing their housing credit rates by an equivalent 0.5% as well.
As these changes affect floating rates only, existing borrowers servicing housing loansat fixed rates would not be able to take advantage of such rate cuts. They would still need to bear EMIs at the previous rates. However, requesting a switch to a floating rate or undertaking a home loan balance transfer can help such borrowers leverage the existing market rates.
Still, without constant evaluation of one’s loan factors, assessing whether or not such refinancing would be beneficial is impossible. Here are some valid reasons for such evaluation of home loans from time to time.
To consider part-prepayment and foreclosure options
One of the essential aspects to keep in mind when prepaying one’s home loan is that the amount goes toward principal repayment. For example, suppose the current principal outstanding on such credit is Rs.24.50 lakh, and the borrower decides to prepay Rs.1 lakh. In such a case, the new principal outstanding would be Rs.23.50 lakh.
It thus lowers the EMIs associated with the loan, along with the total interest outgo. Use a home loan EMI calculator to determine the extent by which your monthly instalments reduce for a suitable assessment.
Individuals with sufficient funds to clear the entire loan outstanding at once can consider foreclosing their home loan as well. Still, keep in mind that foreclosure involves certain additional charges and penalties. A home loan foreclosure calculator can help gauge whether such a move would result in sizable benefits for the borrower or not.
Keep an eye on available home loan offers
As stated previously, a home loan balance transfer can help borrowers take advantage of lower interest rates when servicing housing loans. An individual must keep close watch over the market to notice any changes in interest rates. A good indicator to follow, in this case, is the repo rate published by the Reserve Bank of India at regular intervals.
- In May 2020, RBI decided to slash its repo rate by 40 basis points, bringing it down from 4.4% to 4%.
- This followed a series of repo rate cuts between February 2019 and May 2020, resulting in a total decrease of the rate by 2.5% until May 2020.
Individuals with existing repo-linked home loans can take advantage of such repo rate cuts without needing to opt for a balance transfer. However, others should explore a balance transfer facility for the existing principal to avail the said benefits. Even so, such individuals would need to keep track of several things when opting for a home loan balance transfer.
Use for top-up loans
Evaluation of existing housing credit can also help borrowers understand whether they are eligible for additional financing, such as a top-up loan. These advances are often available to balance transfer customers who decide to switch their existing principal amount to a new lender.
While these are some of the factors to evaluate for existing borrowers, an individual planning to avail such a loan would also need to evaluate some other essential aspects. For instance, housing credit borrowers must decide on the loan amount based on their ability to down pay as per a property’s price.
Down paying a significant amount can reduce one’s EMI liabilities considerably while also minimising interest payments. When borrowers apply for home loans online, additional facilities may be available to them as well.
For instance, some lenders provide pre-approved offers to simplify and hasten the process of financing. These offers are available on home loans, loans against property, among several other financial products. You can check your pre-approved offer by submitting your full name and phone number.
Home loan evaluation can aid one in understanding how far he/she is into repayment. Additionally, it can enable borrowers to ascertain whether better terms are available elsewhere on their existing dues or not.