Rates slashed, but consider these factors while taking home loan

Sarbajeet K SenMoneycontrolMany banks, including the country’s largest lender State Bank of India, have signalled reduction of their retail lending rates over the weekend by slashing their Marginal Cost of Funds based lending rate (MCLR).The reduction in MCLR has pulled lending rates to multi-year lows. While SBI announce a 90 basis points reduction in one-year MCLR to 8 per cent, Union Bank reduced its MCLR by 65 bps to 8.65 per cent and Punjab National Bank announced a 70 basis points cut from 9.15 per cent to 8.45 per cent. IDBI Bank reduced its MCLR by 15 basis points to 9.15 per cent.Cut in interest rates is likely to give a big push in offtake feels Rishi Mehra, Founder, Deal4Loans. “The new home loan rates are the lowest in the last 6 years and is surely going to give a dream home to a lot of people,” Mehra said.However, should the current round of reduction of lending rates be the only loan criteria to prompt you to go for the home buy?“Interest rates is one of the factors and probably the most important one to consider while taking a loan. However, there are other things that are important to consider such as spread and processing fees that you should look for while availing a loan. These factors can have a considerable effect on your outflows,” Adhil Shetty, CEO, Bankbazaar.com told Moneycontrol.Spread is a percentage added to the loan on top of the minimum rate. This is usually in the range of 0.25-0.5 per cent However, there might be special schemes or offers where the spread of the loan is 0%. The spread is charged at the discretion of the bank and usually remains the same throughout the loan tenor unlike the interest, which is volatile and would change at frequent intervals to reflect the change in repo rates and market conditions. “The lower the spread, the better. Select the lender with the lowest spread as the market forces and regulatory policies would bring the rates at par eventually, however the spread would remain constant,” says Shetty. The next important criteria are the processing fees and repayment terms. The terms and conditions pertaining to the repayment of loans depend on the type of loan and vary from lender to lender. “Potential borrowers must clarify the terms related to settlement/foreclosing the outstanding amount, transferring the balance to another lender’s account, prepaying a part or full amount of home loan, and other things, before finalizing a lender. There are also processing and legal fees associated with home loan approval and disbursal. Make sure you understand them well before applying,” Shetty advises.Naveen Kukreja, CEO & Co-founder, Paisabazaar.com says borrowers should also consider your own disposable income to arrive at the amount of loan you can repay and limit your EMI repayments to 40 per cent of that disposable income. “Other than the interest rate, one should consider the loan tenure, disposable income, EMI amount, loan processing fees and prepayment penalties.  Your loan tenure, disposable income and EMI amount are inter-linked to each other. Longer your loan tenure, lower would be your EMI amount. And ideally, your EMI amount should not exceed 40 per cent of your monthly disposable income.”