Diwali season home loan trends: What to expect this year

A recent report by real estate advisory company Palladian Partners shows there was a 32% jump in bookings in Mumbai in September 2023 year-on-year (YoY) while stamp revenue rose 53 per cent during the same period. Anarock Group’s data for September showed a jump of 29% YoY in new bookings in Bengaluru.

These figures represent demand for homes ahead of the festive season. A higher surge can be expected as the season has set in now.

With the Reserve Bank of India not increasing the repo rate since February, the Indian economy gaining strength, and consumers’ purchasing power getting better, it was all a positive signal to the home loan industry and real estate companies.

So how does the home loan industry lure in customers during the season? By reducing the home loan interest rate; by waiving the processing fee; and/or by waiving EMIs and loan prepayment charges.

Benefits of low-interest rate loan to homebuyers

Since home loans are high in amount and have a long duration, the borrowers pay a hefty amount in interest. They always look for ways to save some money on the repayment.

If a lender reduces the home loan interest rate by 0.5% or 1%, a borrower can save huge money on the overall loan repayment. For instance, on a home loan of ₹80 lakh for 20 years at an interest rate of 10%, a borrower has to pay the EMI of ₹77,202.

While they have to pay the interest of ₹1.05 crore on the ₹80 lakh principal amount, the total repayment amount will be ₹1.85 crore.

But if the same borrower gets the same loan at an interest rate of 9% due to the festive offer sale, their EMI will be reduced to ₹71,978, the interest they have to pay will be nearly ₹92.75 lakh, and the total repayment amount will be nearly ₹1.73 crore.

It means a 1% reduction in your home loan can help you save ₹12 lakh in 20 years, or ₹60,000 a year.

Home loan products that cater to specific season needs

While purchasing a home is the main benefit of a home loan, there are also other types of home loans, such as home renovation and eco-friendly home loans, which cater to the different requirements of borrowers during the festive season.

Home renovation loan: It allows you to update the existing interior and exterior of your home to create a modern and comfortable living space. These loans are similar to home loans and can be taken for up to 15 years.

Home renovation loans can also fetch you tax benefits of up to ₹30,000 per year on the interest component. One can take them as individuals or jointly. Loan sanction and tenure depend on a person’s profile, age at loan maturity, age of house, and income, among other factors.

Special schemes for first-time buyers: A first-time home buyer can be somebody who has never owned a primary residence or who has yet to own a primary dwelling for three years preceding the date of the new home’s acquisition. Such buyers are eligible for government schemes such as Pradhan Mantri Awas Yojana (PMAY), where they can get a tax subsidy when purchasing a home.

Under Section 80 EE of the Income Tax Act of 1961, a first-time homebuyer who is using a home loan to purchase it is eligible for tax savings up to ₹50,000.

Lenders provide manageable down payments, lower interest rates, and advantageous terms to first-time home loan borrowers. The first-time homebuyer needs to have a good credit history, sufficient income, and no prior student loan against their name to get the home loan easily. 

Eco-friendly home loans: Many people want to buy eco-friendly homes because such housing options help improve their health, reduce the cost of electricity bills, and conserve water. Eco-friendly homes also have a good resale value.

Lenders, including non-banking finance companies (NBFCs), understand the importance of sustainable living and are extending eco-friendly home loans at attractive interest rates and flexible repayment options.

When a borrower extends their green home loan application, the lender assesses if their green home has a certification from LEED India, Indian Green Building Council, TERI-GRIHA from TERI-BCSD, or a similar green home rating agency.

Along with that, they also see the borrower’s source of income, repayment capacity, credit score, etc.

Importance of digital technology

All leading banks and NBFCs in India are focusing on reducing the paperwork and timeframe for extending loans. As a result, they are inclined towards online apps and have shifted most of their loan process to the digital platform.

While it saves time and money on the lender’s and borrower’s sides, it also lets the borrower know in advance the eligibility criteria, terms, and conditions of home loans.

The more competition among lenders, the more attractive the loan conditions. Heightened competition among lenders during the festive season benefits consumers hugely. For example, if we talk about this festive season, State Bank of India is giving a concession up to 65 basis points on regular home loans, while HDFC is offering a flat rate of 8.4% on home loans for a credit score of 750 and over.

It comes down to a borrower to do due diligence before extending their home loan application.

Importance of early planning to secure best deals

Since a home loan is one’s life’s big decision, one should not be in a hurry. It’s always better to be prepared for the festive season by doing research on the best loan conditions, best interest rate available, lowest processing fees, and best prepayment charges before applying for a loan.

The borrower should weigh all home loan options and use a loan calculator to calculate the EMI, interest, and repayment amount before applying for a home loan.

Since the festive season is on and home loan demand is likely to rise, lenders will come up with attractive loan offers. It can be an ideal time for a borrower to weigh options and choose the lender with the best conditions. So, keep the festive spirit high during the season.

Always remember to consult your financial advisor before taking any decision related to loans.

Atul Monga, CEO and Co-founder, Basic Home loan

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Updated: 07 Nov 2023, 01:14 PM IST