With an ever-evolving technological advancement and improvement in lifestyle habits, more and more people are seeking an assistance of home loans to fulfil their dream of buying a house. Even when availing home loans has become so rapid and easy, many people are still on the look out to avail cheap home loans to make the burden of repayment a little more feasible and comfortable to bear. However, numerous financial institutes offering a galore of attractive home loans doesn’t really establish the credibility of these as cheap home loans. Of course, they are packed with a host of features and flexible repayment options, but the interest rates levied are still very high on most of them, which don’t really show a sign of decrement any time soon!

Cheap home loans – a distant dream or a delayed reality?

There is no such solid hope of a decrease in the rate of interest levied on home loans at least in the near future. In fact, owing to various economic and financial factors, the interest rates of home loans are on a higher scale and may continue to hike even further in the near future.

One can make a rough prediction of it from the market situation that has also influenced the banks to stick to the current rates without lowering them, even after a steep reduction in the risk burden on home loans amounting to up to Rs.20 Lakhs.

A number of factors including the cost of funds tend to determine the rate of interests on home loans. Therefore, the increasing cost of funds will only push the lending rates for home loans in the upward direction. As for the banks under the public sector, which have refrained from increasing the interest rate on home loans may opt for a hike in rate in forthcoming days. Such a decision on the part of public sector banks may also trigger a usual response in the private banks to raise their interest rates on such loans too in the due course of time.

The impact of the impending hike in the rate of interest can be escaped by new borrowers but it will definitely affect the existing borrowers. On the basis of the amount raised as loan and its tenure, the rate of interest to be levied on the borrower a home loan would be set.

Post risk weight classification, loans will be priced differently from now on. Borrowers with a loan above Rs.20 lakh would pay more than those below a loan of Rs.20 lakh and of a specified tenure.

Instead of waiting around in the hope that the banks and other prominent institutions would make cheap home loans available to the public, new and existing borrowers can reduce the brunt of home loans and their related costs by getting an insight of the following avenues:

·       Credit Linked Subsidy Scheme:  Borrowers can avail up to 4% subsidy on their choice of home loans under the CLSS scheme. Such a scheme is designed especially for those people who fall under the annual income bracket of Rs.6-18 lakh. If the borrowers match the eligibility laid down for availing a subsidy on the interest rate for home loans under CLSS, they should avail the opportunity and reduce the burden of loan rate.

·       Home Loan Balance Transfer: If a borrower has availed a home loan under the base rate system, they can transfer to the Marginal Cost of Funds based Lending Rate system to reduce the burden of the interest rate. The base rate undergoes a revision on a quarterly base, while the MCLR undergoes a revision on a monthly basis. Borrowers can reduce their interest burden by transferring into MCLR of a bank that charges lower rates or into the same bank at a lower cost of documentation and processing fee.

·       EMI Option: When dealt with smartly, the EMI option can allow a borrower to reduce the burden of loan considerably. By opting for a higher amount of EMI, the borrower can help reduce the outflow of the interest on the sum. In a similar way, by deciding to make a prepayment or a part-payment of their home loan can allow the borrower to reduce their burden of EMI. Since most banks and financial institutions do not levy a penalty charge on part-payment of a loan, with an increase in their income borrowers can opt for this mode of loan repayment to reduce their brunt of EMI.

Compare the features and the interest rates of the top home loans in the market before picking a random one for your requirements. Since there is no stamp on when the financial institutions may start offering cheaper home loans; borrowers should find other effective ways of bringing down the burden of their respective loan amount that will turn their choices into cheaper home loans.