Unlocking Festive Home Loan Discounts: What Borrowers Need To Know Before Buying House This Diwali

Since most people rely on home loans to buy a property, banks and non-banking finance companies come up with discounted offers, processing fee waivers, or special repayment schemes to attract buyers

Many lenders reduce their loan interest rate by 0.50 per cent to 1 per cent during the festive season. A cut in interest rate can help you repay your loan quicker, and you will make substantial savings on the repayment amount. ( Image Source :Getty )

By Atul Monga

The festive months constitute the season of happiness and joy in the minds of Indian consumers and retailers alike. People purchase new things or make investments with the belief that initiating them on an auspicious occasion will bring prosperity to their lives.

Purchasing a home is also one such decision. Since most people rely on home loans to buy a property, banks and non-banking finance companies (NBFCs) come up with discounted offers, processing fee waivers, or special repayment schemes to attract buyers.

While the aim of a lender is to increase sales through such offers, home buyers can cash in on the opportunity to save money on a loan. Since these offers are short-term, as a homebuyer, here’s what you need to know about availing them.

Types of offers

Slashed interest rate: Many lenders reduce their loan interest rate by 0.50 per cent to 1 per cent during the festive season. A cut in interest rate can help you repay your loan quicker, and you will make substantial savings on the repayment amount.

Waiver of processing fee: Since the loan amount doesn't include the processing fee, a lender can partially or completely waive the processing fee.

Waiver of pre-payment charges: Lenders take prepayment charges if you want to repay your home loan earlier than the original duration. During the festive season, a lender may choose to completely waive home loan pre-payment charges in order to encourage customers to close pending dues.

Waiving EMI: Some banks also offer to cut down on the number of equated monthly instalments. However, in this situation, they don't let you repay the loan early.

How does a reduced interest rate help a home loan borrower?

If you avail the offer of a reduced interest rate during the festive season, you can save your money on the repayment amount considerably. For instance, supposing you have taken a home loan of Rs 50 lakh at an interest rate of 10 per cent for 20 years, your monthly EMI comes to Rs 46,607. You will pay Rs 61.85 lakh on interest, and the total amount you will pay in 20 years will be nearly Rs 1.11 crore.

But if you get the same loan at an interest rate of 9 per cent during the festive season, your EMI will be Rs 44,391. You will pay Rs 54.14 lakh on interest, and the total loan repayment will be Rs 1.04 crore. Just a 1 per cent interest rate difference can help you save Rs 7 lakh over a period of 20 years. 

How discounts on processing fees save you money

Most of the leading banks and NBFCs keep the home loan processing fee between 0.50 per cent and 1 per cent plus taxes. However, there is a cap on the processing fee, and it can go up to a certain limit.

The lender may also charge a legal and technical verification fee from the borrower. If a lender waives these fees during the festive season, it can save you money, which you can use to repay the loan early. Before extending your home loan application, research on the lending rates, processing fees, type of loan (floating or fixed), and early repayment charges offered by different lenders. This will help you close in on the best deal.

Terms and conditions of reduced interest rates

During the festive season, a lender can also offer to switch your loan from floating to fixed. In a floating interest home loan, the lender is forced to tweak the interest rate, either upwards or downwards, due to a change in the Reserve Bank of India's repo rate.

For a fixed-rate home loan, the interest rate remains the same through the tenure, irrespective of the policy changes. Here again, proper research on what banks offer fixed interest rates and upto what extent is advised.

Will a good credit score make you eligible for more substantial discounts?

A high credit score proves your creditworthiness to a lender. If your score is 700 and above, you are expected to get the best interest rate offer from the lender.

When you are applying for a loan, a missed deadline on the credit card bill can cost you as much as 100 points in your credit score, which can translate to an increase of up to 2 per cent in the interest rate offered to you by the lender.

The vibes of the festive season give you a reason to give up worries and start afresh. People imbibe the change by purchasing new things, including homes. Lenders cash in on the opportunity by extending offers on home loans. A borrower can do due diligence to avail offers and save substantially on their repayment amount.

Home loan offers from different lenders

At present, the State Bank of India is giving a concession of up to 65 basis points on regular home loans, flexipay, NRI, non-salaried, privileged, and Apon Ghar, till December 31, 2023.

Bank of Baroda also has waived the processing fee on home loans and is offering them starting at 8.40 per cent p.a. till December 31, 2023.

As part of the ‘Festive Home Loan Offer’, Bajaj Housing Finance, too, is offering a reduced home loan interest rate of 8.45 per cent p.a. for select salaried applicants. As part of this offer, prospective borrowers availing of Home Loan advances benefit from EMIs starting from only Rs 729/Lakh. The offer is valid only for loans disbursed between September 13 and November 12, 2023.

The writer is the CEO and co-founder at BASIC Home Loan.

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