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Essential Questions to Ask Your Bank Before Taking a Home Loan in India

Posted on 16 Jun 2024
Author: Sayan Sircar

Tags: FAQ ; House Purchase ; Loans

11 mins read
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This article lists out the most important questions to ask your bank before taking a home loan.

Essential Questions to Ask Your Bank Before Taking a Home Loan in India

📚 Topics covered:

Printable list of questions
Loan Terms
EMI
Fees
- What are the processing fees and other charges associated with the loan?
- What are the charges for MODT creation and cancellation?
Insurance
- What kind of insurance options are available or required for home loans?
- What is the process of hypothecation of the insurance policies?
Loan Process
Loan Rate
Loan Type
Prepayment

Printable list of questions

Here is a printable document that you can take with you when you visit the bank: link.

To understand what are the best terms to agree for your home loan:

Loan Terms

What is the maximum loan amount I am eligible for based on my income and credit history?

Eligibility varies, but banks typically offer loans up to 80% of the property value based on your income, repayment capacity, and credit history (CIBIL Score from cibil.com)

What are the loan tenure options available?

Loan tenures vary from 5 to 30 years, depending on the borrower’s age, loan amount, and repayment capacity.

Read more on this topic: What is the best home loan tenure?

What are the repayment options?

Repayment options include monthly instalment payments (EMI), step-up repayment, flexible loan instalments, and balloon payments.

Is there an option for loan restructuring in case of financial difficulties?

Yes, banks may offer restructuring options like extending the loan tenure or temporary payment relief based on the borrower’s financial situation.

What happens in case of default on a home loan payment?

In case of default, banks initially provide reminders and notices. Prolonged non-payment may lead to legal proceedings and eventual foreclosure of the property.

What will be the eligibility for co-borrowers?

Banks will generally give you a higher loan amount if you apply jointly with your spouse. Check the eligibility norms there.

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EMI

What will my EMI be?

It is always good to understand the exact EMI of the loan since it depends on how the loan interest is calculated

Read more on this topic: How much EMI do I have to pay for my home loan?

What is the interest calculation method?

The best interest rate calculation method is on daily reducing balance since any prepayments will hit the principal immediately

What will be the new EMI if interest rates go up?

When RBI hikes rates like the repo rate, your EMI will go up or your loan duration will go up. The bank will offer you a choice here and you can of course prepay some money to keep the EMI the same.

Fees

What are the processing fees and other charges associated with the loan?

Processing fees can range from 0.25% to 1% of the loan amount. Other charges might include legal fees, documentation fees, and stamp duty.

What are the charges for MODT creation and cancellation?

A Memorandum of Deposit of Title (MODT) is needed when you hypotheticate your property to the bank and is typically 0.2-0.5% or 25,000 whichever is higher. This MODT must be cancelled when the loan is repaid.

Insurance

What kind of insurance options are available or required for home loans?

Banks often require property insurance and may also suggest life/loan insurance policies tied to the loan amount.

What is the process of hypothecation of the insurance policies?

Insurance policies like loan/term insurance (optional) and property insurance (mandatory) have to be hypothecated to the bank.

Also read
Should you stretch to buy your dream home?

Loan Process

How is my eligibility determined and what documents are required for the loan application?

Eligibility is based on income, employment status, and credit history. Required documents typically include ID proof, address proof, income proof, and property documents.

What is the typical timeline for loan approval and disbursement?

The process usually takes 2-4 weeks after all required documents are submitted.

Yes, banks provide a customer service helpline for any post-disbursement queries or issues related to the home loan.

What kind of document verification will the bank do and what are the charges for that?

Banks have their teams that perform document verification even for under-construction buildings. While the bank will always safeguard their own interest in case of verification, it is the minimum amount of due diligence that you should arrange for.

Loan Rate

What is the current interest rate for home loans?

Interest rates vary by bank but generally range from 6.5% to 8.5% per annum, depending on the borrower’s credit profile and the loan terms.

Are there any special rates for women or other groups?

Yes, many banks offer concessional interest rates for women applicants to promote homeownership among women. Some banks offer 0.05% or similar concession on the interest rate if the first applicant is a woman. If you are buying property jointly, this is a good option to look for.

Is the interest rate fixed or floating, and what are the implications of each?

Banks offer both fixed and floating interest rates. Fixed rates remain the same throughout the loan period, whereas floating rates can vary with market conditions.

How will interest rate changes in the market affect my loan?

For floating-rate loans, the EMI can increase or decrease based on changes in the market interest rates. Fixed-rate loans are not affected. The best home loans are those linked to the RBI Repo rate.

Can I switch from a floating rate to a fixed rate or vice versa during the loan tenure?

Yes, most banks allow you to switch from floating to fixed rates or vice versa during the loan tenure, possibly with a switching fee.

Is the loan repo-linked or based on some other benchmark?

A floating rate loan linked to the RBI Repo Rate is the best loan to take. The interest rate of the loan will then move up or down along with the repo rate.

Will there be charges for interest rate reduction post a rate cut from the RBI?

Banks generally charge a small amount (plus 18% GST) to reduce the loan rate once RBI cuts the repo rate. Even if the bank refuses to waive this fee, it is highly beneficial to pay the charge and reduce the loan rate.

Will RBI rate cuts be passed on immediately or will I have to make an application?

Banks, for obvious reasons, will drag their feet in passing on rate cuts. You will have to keep an eye on the news and then make an application.

Loan Type

What are the types of home loans available?

Banks in India typically offer various home loans such as basic home loans, loans for self-employed individuals, home improvement loans, and loans for under-construction properties.

Do you offer an Overdraft home loan?

An overdraft (OD) loan allows you to park money in the linked OD account to lower the interest you have to pay. OD loans are generally offered at a higher interest rate than non-OD loans.

Can you give us an overdraft loan at the same rate as the normal loan?

Some banks, in order to get more customers, will offer an OD loan at the same rate as a non-OD loan. You should negotiate hard on this point.

Read more on this topic: How does an overdraft loan like SBI Maxgain work?

Prepayment

Are there any prepayment charges if I decide to pay off the loan early?

For floating-rate loans, there are usually no prepayment charges, but fixed-rate loans may have a prepayment penalty.

Do you charge for large prepayment near the end of the loan?

Banks might want to charge you some amount in case you wish to pay off the loan near the end from your own funds. You should clarify this point.

What are the rules regarding pre-payment?

Banks are not supposed to charge prepayment fees. However, there might be rules regarding the number of prepayments being made in a year.

Will the prepayment hit the principal immediately?

Normally banks will apply the prepaid amount to the principal but there might be cases where they might not. You should clarify this point.

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