What is Housing Finance?

Housing finance refers to the process of providing funds or financing for the purchase,
construction, or improvement of a home.

This can include mortgages, home equity loans, and other types of financing that are
used to help individuals and families purchase or improve a home.

Housing finance can also refer to the industry that provides these financial services,
including banks, mortgage loan companies, and other financial institutions.

Why do We Need Housing Finance?

● Housing finance is needed because buying a home is often one of the largest
and most important investments that an individual or family will make.
● The cost of a home can be quite high, and many people are unable to pay for it
all upfront, which is where housing finance comes in.
● Housing finance allows individuals to borrow money to purchase or improve a
home and then pay it back over time with interest.
● This makes it possible for people who may not have enough money saved up to
buy a home to become homeowners.
● Additionally, housing finance can also help individuals to improve their existing
homes, which can increase their property value and improve their quality of life.
● Moreover, a healthy housing finance sector can also help to promote economic
growth by making it easier for people to purchase homes, which can stimulate
demand for new homes and construction, creating jobs and boosting the
economy.
 In summary, housing finance enables individuals and families to purchase a home
and improve their quality of life; it also helps to promote economic growth by creating
jobs and stimulating demand for new homes and construction.

What are the Types of Housing Finance in India?

There are several types of housing finance available in India; some of the most common
include:

● Home Loans: Home loans are the most popular type of housing finance in India.
They are provided by banks and housing finance companies to individuals and
families to purchase or construct a house is also a type of housing finance.
● Home Equity Loans: Home equity loans are another type of housing finance in
India. These loans are provided to individuals who have already purchased a
home and have built up equity in it. The loan is secured against the equity in the
home and can be used for various purposes, such as home improvement, debt
consolidation, or even investing in a business is also a type of housing finance.
● Construction Loans: Construction loans are a type of housing finance in India
that are provided to individuals or developers to fund the construction of a new
home or building is also a type of housing finance.

Home Improvement Loans: Home improvement loans are provided to individuals to

renovate or improve their existing home is also a type of housing finance.

● Reverse Mortgages: Reverse mortgages are a type of housing finance in India

that are designed for senior citizens. They allow senior citizens to convert their
home equity into cash without having to sell their homes or make any monthly
payments is also a type of housing finance.
● Pradhan Mantri Awas Yojana (PMAY): Pradhan Mantri Awas Yojana is a
government housing scheme in India that aims to provide affordable housing to
 the economically weaker sections of society. It provides interest subsidies on
home loans to eligible beneficiaries and is also a type of housing finance.

These are some of the common types of housing finance available in India; depending
on the specific needs and circumstances of the borrower, different types of housing
finance may be more appropriate.

Top Housing Finance Companies in India

You can avail a home loan from banks or non-banking finance companies (NBFCs).
Housing Finance Companies (HFCs) are a part of NBFCs. You can choose between a
bank or an HFC by comparing tenure, interest rate, and processing fees offered by
them. Let's take a look at some of the top housing finance companies in the country.

List of Top Housing Finance Companies in India

1. HDFC Housing Finance

2. LIC Housing Finance Limited
3. Indiabulls Housing Finance Limited
4. L&T Housing Finance Limited
5. PNB Housing Finance Limited
6. IIFL Housing Finance Limited
7. GIC Housing Finance Limited
8. Sundaram Home Finance
9. Tata Capital Housing Finance Limited
10. Aavas Financiers Limited
11. Repco Home Finance
12. Akme Star Housing Finance Limited
13. Sahara Housing Finance
14. India Home Loan Limited
15. Cholamandalam Housing Finance
16. Dewan Housing Finance Limited (DHFL)
1. HDFC Housing Finance

HDFC Housing Finance offers different types of home loan products such as plot loan,
rural housing loan, home improvement loan, and home extension loan among others.
The interest rates for home loan starts from 8.65%. The home loan schemes are
available for salaries and self-employed resident Indians in the range of 18-65 years.

Loan Amount Interest Rates

(p.a.)

For Women (up to 30 Lakhs) 8.95% - 9.45%

For Others (up to 30 Lakhs) 9.00% - 9.50%

For Women (30.01 Lakhs to 75 9.20% - 9.70%

Lakhs)

For Others (30.01 Lakhs to 75 9.25% - 9.75%

Lakhs)

For Women (75.01 Lakhs & 9.30% - 9.80%

Above)

For Others (75.01 Lakhs & Above) 9.35% - 9.85%

2. LIC Housing Finance Limited - LIC Housing Finance offers home loans at
attractive interest rates for Indian residents, Non-Resident Indians (NRIs), and
pensioners. You can avail loan for purchase, construction, extension, house repair, plot
purchase, and top up loan. LIC Housing Finance offers benefits such as flexible
repayment periods, quick loan processing, zero processing fee, zero pre-closure
charges, and no partial pre-payment charges.

3. Indiabulls Housing Finance Limited - Indiabulls Housing offers instant home loan
approvals at competitive interest rates for a tenure of up to 30 years. It offers benefits
such as zero pre-payment charges, flexible tenure options, and zero pre-closure,
among others. The interest rate ranges from 8.95% to 13.00% p.a. The processing fee
is 0.50% to 1% of the loan amount.

4. L&T Housing Finance Limited - L&T Housing Finance offers home loan at attractive
interest rates for construction, house improvement, and house extension. The loan
repayment tenure is up to 20 years and the amount ranges from Rs.3 lakh to Rs.10
crore. You can avail home loans up to 90% the property value. L&T Housing Finance
offers benefits such as quick and transparent loan processing, instant online loan
approval, attractive interest rates, minimal documentation, multiple repayment options,
and zero pre-payment charges.

5. PNB Housing Finance Limited - PNB Housing Finance offers home loan at
competitive interest rate for resident Indians as well as non-resident Indians. It offers
home loans under different schemes that are aimed at government employees, general
public, and others.

Loan Amount Interest Rate for Salaried/ Interest Rate for

Self-Employed Businessmen
 Up to Rs.35 lakh 8.95% - 10.45% 8.99% - 10.65%

Above Rs.35 lakh up to 8.85% - 10.45% 9.25% - 10.85%

Rs.75 lakh

6. IIFL Housing Finance Limited - IIFL Housing Finance Limited offers home loans
with attractive interest rates that start at 8.20% p.a. onwards. The maximum repayment
tenure is 20 years. Any Indian citizen between the age of 18 and 75, both self-employed
and salaried, as well as Non-Resident Indians (NRIs) are eligible for the home loan. The
company provides a wide range of home loan products such as balance transfer, home
improvement, etc. There is also a special loan product, Swaraj Home Loan, for those
individuals without formal income documents.

7. GIC Housing Finance Limited - GIC Housing Finance Limited provides home loans
that range from individual housing loans and composite loans to balance transfer, home
extension, and renovation/repair loans. Interest rates start at 8.10% p.a. There is free
accidental death insurance and free property insurance provided along with the home
loan. Loan application and approval can be done online with minimal documentation.

8. Sundaram Home Finance - Sundaram Home Finance offers home loan products
with attractive interest rates for both salaried and self-employed individuals who are
between the age of 18 to 65 and are Indian citizens. There are attractive interest rates
for women applicants. The home loan products that are offered include plot loans, home
improvement loans, home extension loans, top-up loans, takeover loans, and loan
against property.

9. Tata Capital Housing Finance Limited -Tata Capital Housing Finance Limited offers
home loans starting at 8.95% p.a. Eligible individuals are those who are salaried or
self-employed, with a CIBIL Score of above 750, and between the age of 24 and 65 (at
the time of loan completion). NRIs are also eligible for the home loan. The maximum
home loan amount is Rs.5 crore with a maximum repayment tenure of 30 years. Up to
80% of the property value can be availed as the home loan. The company also offers
flexible repayment options such as a standard EMI plan (for those whose income will
remain constant throughout) and a step-up flexi EMI plan (for those whose income is
expected to increase at regular or frequent intervals).

10.Aavas Financiers Limited - Aavas Financiers Limited offers home loans that start at
Rs.1 lakh with the maximum home loan amount depending on your income and credit
history. The repayment tenure is 20 years for the self-employed, 25 years for the
salaried, and 30 years for government/private sector/PSU employees (who have a
minimum salary of Rs.35,000 per month). The home loan products that are offered
include loans for home purchase, land purchase, home construction, home
improvement, home loan balance transfer, and loan against property. The loans can
also be used to buy resale properties from recognised authorities or builders.

11. Can Fin Homes Limited - Can Fin's home loans have attractive interest rates that
start at 9.60% p.a. Loans are provided with a margin of up to 25%. The maximum
repayment period is 30 years. Home loan borrowers who are diligent with paying their
EMIs can also avail top-up home loans and personal loans from Can Fin. There are also
Affordable Housing Loans for the urban and rural sector. Composite loans are also
provided to purchase a plot of land and construct a house on it.

12. Repco Home Finance - Repco Home Finance provides home loans with interest
rates that start at 9.25% p.a. Professionals, salaried, and business class individuals are
eligible for these loans. NRIs are also eligible for these loans. There are also specially
customised home loans schemes for salaried individuals who are above the age of 50
which are structured to align with their pension income. The maximum repayment
period for this loan scheme, called the 50 Plus, is 15 years with the loan to be repaid by
the age of 70. Up to 85% of the property cost can be availed for home construction and
up to 80% of the property cost for the purchase of a flat or house. The maximum
repayment tenure is 20 years. Home makeover loans and plot loans are also available.
What Is Repricing?

Repricing is when a borrower negotiates a new interest rate with their current lender
without changing the loan itself. Repricing aims to save money in interest payments
over the life of the loan. This will help reduce monthly payments and improve cashflow,
which can be particularly helpful during financial hardships.

What Are The Benefits Of Repricing Your Home Loan?

The benefits of repricing your home loan are:

● It is cost-effective: Repricing is generally less expensive than refinancing, since

it only involves changing the interest rate and does not require any legal and
admin fees associated with refinancing.
● It is a fast process: It typically takes less time to complete than refinancing,
since it’s an internal process.
● It is convenient: Repricing allows you to stay with your current lender and avoid
the hassle of shopping around for a new one and making application
submissions.

What Are The Drawbacks Of Repricing Your Home Loan?

The drawbacks of repricing your home loan are:

● There are limited options: You are limited to what your loan package offers,
which may not be as lucrative as other banks offer.
● You will have limited savings: Repricing usually offers a small reduction in your
interest rate, which means borrowers may not see significant savings in their
monthly payments, compared with refinancing.
● The terms you can change are limited: Repricing does not allow borrowers to
change other aspects of the loan, such as the term or the frequency of
repayments.
 ● You will have limited negotiation power: Because your lender is aware of your
current interest rate, you may not be able to negotiate as much as with a new
lender who doesn’t know. You can have the upper hand with a new lender.
● You may not be eligible for repricing: The current lender may not be willing to
reprice your rates if you have been behind on your repayments.

What Is Refinancing?

Refinancing is the process where you pay off your existing loan by taking out a new one
with different terms and conditions, from a different lender. Homeowners refinance to
obtain better loan features, secure a lower interest rate, access equity in their home or
consolidate debt.

What Are The Benefits Of Refinancing?

The benefits of refinancing your home loan are:

● You can enjoy lower interest rates: More competitive rates can be offered to
you, as there is a wider pool of lenders to look at compared with when you are
repricing.
● You can make lower monthly payments: With lower interest rates, your
monthly payments will be lower, leading to much more savings over time and
lowering your cost of living.
● You can opt for a fixed rate for more certainty.
● You can get access to cash: You can tap into your home’s equity to obtain the
cash to pay off other debts, make home improvements or invest in other
opportunities.
● You can get cashback: Lenders are offering up to $6,000 cashback to refinance
with them. This can be used to pay for refinancing costs or other expenses.
● You can reduce your loan pay-off period: If you aim to repay your loan
quicker, you’ll reduce the duration of the loan term and the associated interest
payments, resulting in a lower total amount of interest paid.
 ● You can switch to a different loan type: Refinancing allows you to change to a
different loan type than what you have, like a more stable fixed-rate loan, a
flexible variable home loan or a split loan.

What Are The Drawbacks Of Refinancing?

The drawbacks of refinancing your home loan are:

● Refinancing takes time: The refinancing process involves discussing your

scenario with your broker and shopping around for lenders. It continues through
to settlement. It takes more time than repricing. A standard home loan
refinancing process can take up to a month, but it can be shorter or longer
depending on the lender’s turnaround times and the complexity of your
application.
● Closing costs: Refinancing can involve closing costs ranging from 2% to 5% of
the loan amount, depending on the lender.
● Lenders Mortgage Insurance (LMI): You must pay LMI if your equity is less
than 20%.
● Savings may be minimal: The new interest rate you get from refinancing may
not be worth the cost, time and effort. Be sure to compare the cost of refinancing
and the amount you would save with the new loan before proceeding.
● Potential impact on your credit score: Applying for refinancing will leave a
credit enquiry on your credit report. Making multiple credit enquiries while
shopping for a loan can result in a temporary drop in your credit score, affecting
your ability to qualify for other loans and credit in the short term.
Repricing Vs Refinancing – Which Is Better?

Repricing is a good option for borrowers who are happy with their lenders and want to
lower their interest rates quickly and easily without all the hassle of refinancing.
However, note that staying with your lender means you may be paying the loyalty tax.
Refinancing opens doors to more competitive rates in the market. Suppose your lender
is not willing to give you a lower rate that they are offering to new customers. In that
case, you can always explore elsewhere and look for loan packages that can provide
you with more savings in the long run. But keep in mind the costs involved.

What are Floating Rate Loans?

Floating rate loans are loans that have an interest rate that changes
periodically, depending on a benchmark rate or the base rate.
● This base rate, such as the repo rate - rate at which RBI lends
money to financial institutions - is influenced by market forces.
Floating-rate loans are also known as variable or adjustable-rate loans, as
they can vary over the term of the loan.
Floating rate loans are common for credit cards, mortgages, and other
consumer loans.
Floating rate loans are beneficial to borrowers when interest rates are
expected to drop in the future.
● In contrast, a fixed interest rate loan requires a borrower to pay set
installments during the loan tenure. It offers a greater sense of security
and stability in times of fluctuations in the economy.

Fixed Interest Rate?

Home Loan on a fixed rate is exactly the opposite of floating rate. Here, the interest
remains the same throughout the loan tenure. Moreover, with fixed interest loans, the
initial few years of EMI payments are used for servicing the interest part of the credit
and not the principal component. There is a gradual shift to the principal part in the later
years.

Key advantages of fixed interest rate

As the interest remains the same throughout the loan tenure, it becomes easier for the
borrowers to manage their finances as the EMI amount does not fluctuate. This type of
loan is also an excellent choice for bringing a sense of security and certainty.

Disadvantages of fixed interest rate

In most cases, the fixed interest rate per annum can be 1.5% to 2% higher than that of
the floating interest rate. Moreover, even if the base rate of Home Loan falls, borrowers
who have taken a fixed interest Home Loan will not benefit from this fall and will
continue to pay the same monthly instalments.

Fixed vs floating home loan interest rate

FIXED INTEREST RATES FLOATING INTEREST RATES

Home loan interest rates remains fixed all through Interest rate on your home
the loan tenure. loan changes based on the
benchmark rate of the lender
 proportionate to market
fluctuations.

Fixed rates interest rates come at higher price than Floating rates are slightly lower
floating interest rates. than fixed rates when loan is
for a shorter tenure.

The fixed home loan interest rate is for those who Those unsure of where the
are unsure of the market standing in long term interest rates will head should
loans and prefer to repay loans at a fixed amount. go for floating loan interest
They are sure that the market rates will rise rates.
increasing the interest on floating loan interest
rates

Suitable for those hoping to repay loans within Suitable for younger borrowers
3-10 years expecting to repay loans in
long term within 20-30 years

It must be remembered that fixed home loans Floating home loans come with
come with a prepayment penalty. As lenders do no prepayment penalty. When
not risk loss in interest rate which fixed interest the interest rate drops,
rates bring. borrowers can prepay a few
EMIs together.

You can plan your financial budget and other Financial budget planning gets
investments tricky and difficult
 Gives you a sense of security You can generate savings

Risks are lower Risks are higher

Seven Problems That One May Encounter While Availing

a Home Loan

To ensure a hassle-free loan journey, avoid these some common Home Loan problems
in India that applicants generally face:

1. Rejection of Application

One of the main Home Loan problems faced by borrowers is rejection at the first stage.
This could happen due to discrepancies in the borrower’s qualifications that may not
match the lender’s parameters such as age requirements, financial standing,
documentation and so on. Hence, confirm the eligibility criteria and other details before
you submit your application. Also, provide accurate information along with the
supporting paperwork as requested.

2. A Higher Interest Outgo

When lenders promise lower EMIs, make sure you understand the implications. A lower
EMI per month may translate into a higher interest outgo making your loan expensive.
Therefore, check and compare the interest amount for different EMIs using a Home
Loan EMI calculator and negotiate for the best possible rates. Further, Home Loans are
offered at either a fixed or floating interest rate. Calculate both types of interest for
feasibility before you select the ideal loan.
3. Insufficient Down Payment

As per RBI guidelines, lenders can finance up to 75% - 90% of the property price. They
cannot fund its entire value. Borrowers need to pay the remaining 10% - 25% as down
payment for the property.

For instance, if you wish to buy a house worth Rs.60 lakh, you can secure funds up to
Rs.48 lakh. The balance amount, i.e. Rs.12 lakh has to be paid as down payment from
your own savings pool. As lending norms vary across lenders, check these
requirements beforehand and arrange for the necessary money so that you don’t fall
short.

4. Issues Related to Legal and Technical Evaluation

Any property you seek to buy with a housing loan undergoes rigorous legal and
technical assessments. Certified lawyers visit the property and examine the legal
documents like sale deed, property chain, property map, etc. for authenticity. If they find
anything suspicious, a report is issued to the effect, based on which, lenders may reject
your loan application.

Lenders also carry out technical verification of the property with the help of structural
engineers. They assess the building construction in line with the property map. In case
of deviations or other issues, they may reduce its valuation which will impact your
principal amount; and you may have to contend with a lower loan amount at higher
rates of interest.

You can get the property evaluated by experts before you apply to establish its market
value and also estimate the loan amount that you could obtain.

5. Failure to Meet the FOIR

A fixed obligation to income ratio (FOIR) denotes the proportion of EMIs to the net
monthly income. Lenders will be reluctant to extend loans if you have an unfavourable
FOIR. They apply FOIR based on your earnings. High-salaried applicants can be
approved for a loan even if the EMI comprises 50% - 60% of their income in hand.
Whereas, those with a modest salary should ensure that the EMI does not exceed 30%
- 40% of their earnings.

6. Processing Fee Complications

Every loan applicant has to pay a processing fee of up to 7% of the loan amount + GST
as applicable. While some lenders include legal and technical costs in their processing
fees, others may not do so. Be extremely cautious about what such fees and other
additional loan charges entail to factor them into your total credit cost.

7. Problems with Title Deeds and NOC Documentation

A No Objection Certificate (NOC) from local authorities is necessary for the

commencement of any building construction. NOC papers and title deeds must be
furnished as per the lender’s prescribed format for easier loan processing. Incorrect
paperwork, errors in property details, forged documents and the like can prove to be
hiccups during the verification process. Hence, ensure proper documentation before
you submit them.