best bank to get a home loan

Our Basic Home Loan is a low-rate, low-fee option for buying, refinancing or building your property. A straightforward home loan with feel-good features. This should be nearly 10% of the property's purchase price. However, if you have not obtained financial approval, you may well lose the bank's. Compare top mortgage deals; Find the right mortgage for you; Take the stress The base rate is the interest rate at which high street banks borrow money.

: Best bank to get a home loan

Best bank to get a home loan

Best bank to get a home loan -

Home Loan

Home Loan Application Process Before you apply for a home loan, you can check your home loan eligibility here.

Also, just to get an estimate of your loan amount you can use Axis Bank’s EMI Calculator for home loans.

“Loans are at the sole discretion of Axis Bank and are subject to fulfilment of its terms and conditions and eligibility criteria stipulated by the Government/Reserve Bank of India (RBI) or such other statutory/ Regulatory Authorities from time to time.

Please note that submission of documents for Bank's perusal/scrutiny, by itself, does not constitute sanction, and final sanction would be subject to the loan proposal fully complying with the Bank's norms/eligibility criteria.

Images herein are provided only for pictorial representation and Axis Bank does not undertake any liability or responsibility for the same. The bank may use the services of agents for sales, marketing and promotion of the product. RBI does not keep funds or accounts of any individual/public/trust.

Don’t be a victim to any such offers coming to you on phone or email in the name of RBI".

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Home Loan Interest Rates

Home Loan Interest Rate All Bank

Last Updated 29th Nov 2021

BankHome Loan RateProcessing FeeEMI Per Lakh
SBI6.65%0.50%, Min ₹ 1,000₹ 642
HDFC6.70%0.50%, Min ₹ 3,000, Max ₹ 10,000₹ 645
Bank of Baroda6.50% Min ₹ 7,500₹ 632
ICICI Bank6.70%0.25%₹ 645

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Compare Home Loan Interest Rates of All Banks 2021

BankHome Loan RateBenchmark TypeProcessing Fee
SBI Home Loan Interest Rates6.65%RLLR0.50%, Min ₹ 1,000
HDFC Home Loan Interest Rates6.70% PLR0.50%, Min ₹ 3,000, Max ₹ 10,000
Citibank Home Loan Interest Rates6.50%TBLR NIL
Bank of Baroda Home Loan Interest Rates6.50%RLLR Min ₹ 7,500
ICICI Bank Home Loan Interest Rates6.70%RLLR0.25%
Axis Bank 6.65%RLLR0.20% , Min ₹ 2,021, Max ₹ 25,000
PNB Housing Finance 6.99% PLR0.50%, Min ₹ 10,000
LIC Housing Finance 6.66% PLR Min ₹ 10,000, Max ₹ 15,000
Bajaj Home Finance 6.80% PLR0.35%
Sundaram Home Finance 6.95% PLRNIL
Kotak Bank 6.55%RLLR Max ₹ 10,000
Yes Bank 6.65%1 Year MCLR1.00%, Max ₹ 15,000
Syndicate Bank 6.95%RLLR0.13% , Min ₹ 500, Max ₹ 5,000
IDFC First Bank 6.90%RLLRMin ₹ 10,000
Karnataka Bank 8.55%RLLR0.25% , Min ₹ 250
Indian Bank 7.55%RLLR0.23% , Max ₹ 20,381
GIC Housing Finance 10.25% PLR Min ₹ 2,500
Tata Capital Home Finance 6.90% PLR0.20%, Min ₹ 500
Dhan Laxmi Bank 7.85%RLLR1.00% , Min ₹ 10,000
Aadhar Housing Finance 11.75% PLR Min ₹ 3,500
Corporation Bank 6.80%RLLR0.50% , Max ₹ 50,000
Bank of Maharashtra 6.90%RLLR0.25%
LT Housing Finance 7.70% PLR2.00%, Min ₹ 4,999
Andhra Bank 6.85%RLLR0.50% , Max ₹ 10,000
UCO Bank 6.90%RLLR0.50% , Min ₹ 1,500, Max ₹ 15,000
Standard Chartered Bank 6.99%3 Month MCLR1.00%, Min ₹ 5,000, Max ₹ 10,000
Reliance Capital 9.75% PLR0.50%
PNB 6.80%RLLR0.35% , Min ₹ 2,500, Max ₹ 15,000
OBC 7.35%RLLR0.50% , Max ₹ 20,000
Jammu And Kashmir Bank 7.20%RLLR0.25% , Min ₹ 500, Max ₹ 10,000
IDBI Bank 6.75%RLLR0.50% , Min ₹ 2,500
Federal Bank 7.65%RLLR0.50% , Min ₹ 3,000, Max ₹ 7,500
DCB Bank 8.25%1 Year MCLR2.00%, Min ₹ 5,000
Aavas Financiers 12.00% PLR1.00%
Central Bank of India 6.85%RLLR0.50% , Max ₹ 20,000
Bank of India 6.95%RLLR0.25% , Min ₹ 1,500, Max ₹ 20,000
United Bank of India 6.95%RLLR0.59% , Min ₹ 1,180, Max ₹ 11,800
Allahabad Bank 8.25%RLLR0.40% , Max ₹ 50,000
RBL Bank 9.50%1 Year MCLR1.50%
Karur Vysya Bank 7.15%RLLRMin ₹ 5,000
Indian Overseas Bank 7.05%RLLR0.53% , Min ₹ 8,900, Max ₹ 13,350
HSBC Bank 6.45%RLLR1.00% , Max ₹ 10,000
India Shelters 12.00% PLR2.00%
Edelweiss 10.50% PLR0.25%
DBS Bank 7.30%RLLR Max ₹ 10,000
Piramal Housing Finance 9.00% PLR0.10%
Canara Bank 6.90%RLLR0.50% , Min ₹ 1,500, Max ₹ 10,000
IIFL 8.45% PLR1.25%
Union Bank of India 8.25%RLLR0.50% , Max ₹ 15,000
Indiabulls 8.65% PLR1.00%
South Indian Bank 8.05%RLLR1.00% , Max ₹ 10,000
Punjab and Sind Bank 8.05%RLLR0.25% , Min ₹ 1,000, Max ₹ 15,000
Lakshmi Vilas Bank 9.70%RLLR0.40% , Min ₹ 10,000, Max ₹ 20,000

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Current Home Loan Interest Rates

As on 29 November, 2021, home loan interest rates range from 6.45% to 20.00%. You can avail of the lowest rates on home loans if you are an existing bank customer or working with top corporations. Currently, Citibank offers the lowest home loan interest rate of 6.45%. Apart from the interest rate, banks also charge processing fees and penalty fees for pre-payment, foreclosure, and late payment.

Home Loan Rates and Charges

The table below mentions the current home loan interest rates and charges.

Bank NameInterest RatesProcessing FeeForeclosure ChargesCharges Post Loan Disbursement
Bank of Baroda6.50% Min ₹ 7,500Nil for floating rates
  • Repayment mode/Cheque Swap Charges - Nil
  • Charges for Statement of account / amortization schedule - ₹ 1000
Kotak Bank6.55% Max ₹ 10,000Nil for floating rates
  • Repayment mode/Cheque Swap Charges - ₹ 500
  • Duplicate No Objection Certificate - ₹ 500
  • Loan Cancellation Charges - 0.10% of Loan Amount or ₹ 25,000 whichever is higher
Axis Bank6.65%0.20% , Min ₹ 2,021, Max ₹ 25,000Nil for floating rates
  • Repayment mode/Cheque Swap Charges - ₹ 500
  • Cheque Cancellation Charges - ₹ 500
  • Document Retrieval Charges - ₹ 500
  • Duplicate No Objection Certificate - ₹ 100
Yes Bank6.65%1.00%, Max ₹ 15,000Nil for floating rates
  • Repayment mode/Cheque Swap Charges - ₹ 500
  • Document Retrieval Charges - ₹ 500
  • Duplicate No Objection Certificate - ₹ 100
  • Charges for Statement of account / amortization schedule - ₹ 100
  • Loan Cancellation Charges - ₹ 2000
HDFC6.70%0.50%, Min ₹ 3,000, Max ₹ 10,000Nil for floating rates
  • Repayment mode/Cheque Swap Charges - ₹ 500
  • Cheque Cancellation Charges - ₹ 500
  • Document Retrieval Charges - Up to ₹ 500
ICICI Bank6.70%0.25%Nil for floating rates
  • Repayment mode/Cheque Swap Charges - ₹ 500
  • Cheque Cancellation Charges - ₹ 500
  • Document Retrieval Charges - ₹ 250
  • Duplicate No Objection Certificate - ₹ 50
  • Charges for Statement of account / amortization schedule - ₹ 250
IDFC First Bank6.90%Min ₹ 10,000 Nil for floating rates
  • Repayment mode/Cheque Swap Charges - ₹ 500
  • Cheque Cancellation Charges - ₹ 500
  • Document Retrieval Charges - ₹ 500
  • Duplicate No Objection Certificate - ₹ 500
Indiabulls8.65%1.00%Nil for floating rates
  • Repayment mode/Cheque Swap Charges - ₹ 500
  • Cheque Cancellation Charges - ₹ 500
  • Charges for Statement of account / amortization schedule - ₹ 200

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Home Loan Interest Rates For Salaried

The housing loan interest rate for salaried individuals starts at 6.50%. However, you can avail the lowest rate if you have a good CIBIL score and repayment history. Also, the lenders offer home loans at lower rates if you want to avail the lower loan amount. The table below mentions the home loan rates of top banks for both male and female borrowers.

Bank NameHome Loan Interest RateHome Loan Rates for Female Borrowers
Yes Bank6.65%6.65%
ICICI Bank6.70%8.20%
Corporation Bank6.80%6.80%

Self Employed Housing Loan Interest Rate

If you are self-employed between 18 to 70 years, you can avail of home loans from top banks and NBFCs. The leading banks offer the lowest rates starting at 6.50%. Following are the interest rates provided by different banks for home loans.

Bank NameHome Loan Interest RateHome Loan Rates for Female Borrowers
Yes Bank6.65%6.65%
Corporation Bank6.85%6.85%
Canara Bank6.90%6.90%

Home Loan Rates for Government Employees

If you are a government employee and want to avail of a home loan, you have an added benefit as you can get a lower interest rate than the general public.

Bank NameInterest RateBenchmark
HSBC Bank6.45%RLLR
Bank of Baroda6.50%RLLR
Kotak Bank6.55%RLLR
Axis Bank6.65%RLLR

Housing Loan Rates for Women

Various leading top banks and NBFCs offer discounted rates for women borrowers. As per the current rates, SBI offers the minimum rate on a home loan for women. The bank also charges a processing fee of . Check top home loan lenders for women borrowers in this table:

Bank NameInterest RateTenure
SBI6.65%30 years
Yes Bank6.65%25 years
HDFC6.75%30 years
Corporation Bank6.80%30 years
Bank of Maharashtra6.90%30 years

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Floating Rate Home Loan V/s Fixed Rates Home Loans

Fixed rate of interests: If your loan is on a fixed interest rate, the rate of interest charged on the loan amount remains constant throughout the loan tenure which means your home loan EMI also remains constant throughout the repayment schedule.The biggest advantage of taking home loans at a fixed rate is that your Home Loan EMI remains constant and it allows you to manage your finances easily. These loans are easily the best if you expect the interest rates to go up in the near future. However, the flip side of fixed rate loans is that if market interest rates go down, you would still be paying high interest and hence, may end up in a loss. Some of the top banks that offers fixed or semi-fixed rate on home loan are:

Bank NameInterest RateProcessing Fee
ICICI Bank8.20%0.25%, Min ₹ 3,000, Max ₹ 5,000
Standard Chartered Bank6.99%0.25%, Min ₹ 5,000, Max ₹ 10,000
HDFC7.40%0.25%, Min ₹ 3,000, Max ₹ 10,000
PNB Housing Finance10.75%0.25%, Min ₹ 10,000

Floating rate of interest: If your loan is on floating rate of interest, your home loan rate is not fixed and keeps changing over the tenure of the loan. In floating interest rate home loan, the rates are linked to the external benchmarks like Repo Rates or T-Bill Rates that are market determined. Your Home Loan EMI may increase or decrease subject to changes in interest benchmark rates. You may opt to change the tenure of the loan, if you want to keep your EMI stable and not fluctuate with any rate changes.Floating rates are best suited when interest rates in the economy are on a declining trend. The flip side is that if interest rates go up, your EMIs may also go up which may negatively impact your monthly budget. The table below captures the various types of floating rate loans as defined by the external benchmark.

Bank NameFloating Interest RateProcessing Fee
SBI6.65%0.40%, Min ₹ 1,000, Max ₹ 30,000
HDFC6.70%0.40%, Min ₹ 3,000, Max ₹ 10,000
Bank of Baroda6.50%0.40%, Min ₹ 7,500
ICICI Bank6.70%0.25%, Min ₹ 3,000, Max ₹ 5,000

How is Home Loan Interest Rate Calculated?

There is a difference in the way banks and HFCs in India calculate home loan rates. Banks have been instructed by RBI to use an external benchmark rate like repo rate or treasury bill rate for rate calculation, while housing finance companies rate still use an internal benchmark PLR to price their loans.

Formula used by banks to calculate rates on home loans is External Benchmark rate + Markup. Banks add a markup which includes profit margin, operations cost and credit risk. Most of the top banks now link their home loan to repo rate which is announced in the RBI monetary policy. Any change in repo rate results in a similar increase or decrease in home loan rates for loans taken on floating rate.

Formulas used by NBFCs to calculate rates on home loans are PLR + or - Markup. PLR, popularly known as Prime Lending Rate is an internal benchmark rate of NBFCs that is estimated using their cost of funds, cost of operations, processing fees and their profit. Often, NBFCs set a high PLR and offer rates at PLR-Markup as discounted rate to their customers.

Housing Loan Rates linked to external benchmarks are easy to understand and more transparent from the point of view of home loan borrowers.

ParticularDefinitionLowest RateWhich rate type is currently used?
Base Rate linked Home LoanIt is a rate which is set by the Reserve Bank of India and below which a lender cannot charge interest rate. Base rate was used before April 1, 2016. 5.55%Banks have discontinued base rate and have now shifted to RLLR. However, few borrowers continue to hold base rate linked loans from the past.
MCLR linked Home LoanMCLR was introduced on April 1, 2016. Marginal Cost of Fund based Lending Rate (MCLR) is the internal benchmark rate used by banks to fix the interest rate on floating rate loans.5.55%MCLR rate-based loan have been discontinued. However, few borrowers continue to hold MCLR rate linked loans from the past.
PLR linked Home LoanPrime Lending Rate (PLR) is an internal benchmark rate used by NBFC and HFC to sanction home loans on floating rate.14.35%All NBFCs and HFCs continue using PLR as the benchmark rate to fix their home loan rates.
Repo Rate linked Home Loan (RLLR)Repo rate is the interest rate at which the RBI lends money to commercial banks to provide short term funds requirements. 4.00%Repo rate is now used as an external benchmark for fixing the price of home loan by all banks like SBI, HDFC, ICICI in India.

What are the Factors that Affect Home Loan Interest Rate?

Home loan interest rate is decided by the lender in accordance with the required terms and conditions to determine the home loan rate. However, there are certain factors taken into consideration to offer a home loan interest rate. These are listed as follows:

  • Interest rate type: The type of interest rate is distinguished into two-fixed and floating. In general, fixed home loan interest rate is higher than floating home loan interest rate.
  • Borrower’s credit score: A good credit score can help one grab a good home loan deal, while a lower credit score can force the home loan lender to charge a higher interest rate.
  • Occupation: Salaried individuals are likely to get a lower interest rate when compared to other employee types because salaried employees have fixed source of income.
  • Loan type: Home loan is an exclusive term that covers under its arm various home loan products such as home improvement loan, home renovation loan, and home purchase loan, among others.
  • Loan amount: A higher home loan amount will attract a lower home loan rate, while a small home loan amount will attract a higher interest rate.
  • Loan offers: In case one applies for a home loan with the applicable offers when the lender is offering various customer-centric promo offers, a negotiable home loan interest rate can be availed.

Home Loan Eligibility Calculator

You can check the home loan eligibility for the best banks based on your age, net income, existing obligations, property type, LTV ratio, and other factors. You can also add co-applicants to increase your loan eligibility. A maximum of 6 members can be added as co-applicant. High CIBIL score and stable job increases the chances of approval of your loan application.

Home Loan Eligibility calculator

Home loan Interest Rate Comparison on Loan Schemes

While all banks and HFCs in India offer multiple home loan schemes, some new schemes like Pradhan Mantri Awas Yojana and DDA are quite popular in India due to their unique features and special discounted rates. Banks like SBI, Axis Bank, Citibank, ICICI Bank, PNB and HDFC have many popular schemes for women loan borrowers, businessmen and existing bank customers. Some of the popular housing loan schemes have been captured in the table below:

BankHome Loan SchemeFeaturesLowest Rate
SBIFor Women BorrowersSBI, the largest public sector lender in the country, offers concessional home loan rates for women borrowers. The bank offers a discount of 05 bps than the regular home loan rates on various home loan schemes.6.65%
MaxgainUnder this scheme, you can avail of SBI home loans as an Overdraft wherein you are charged interest only on the used amount. The home loan account operates like a savings bank or current account wherein you can maximize savings on interest7.35%
SBI Shaurya Home LoanSBI Shaurya Home Loan scheme is a dedicated home loan scheme for the Army and Defence Personnel of the nation. The eligible borrowers can avail of a home loan at lower interest rates with other added benefits like the ease of repayment, longer repayment period of the loaned amount.7.35%
Axis BankHome Loan Top UpIf you want to avail extra funds of upto Rs. 50 Lakhs you can avail Axis Bank home loan top-Up Loan amount for multiple purposes such as the construction of residential/commercial property, personal requirements or for business purposes. 6.66%
Shubh Aarambh Home LoanWith Axis Bank's Shubh Aarambh Home Loan, you can avail benefits of subsidy on interest under the PMAY scheme. Also, you can be rewarded with 12 EMI waivers if you have a good repayment record.7.75%
HDFCHDFC ReachHDFC Reach is a specially designed scheme for micro-entrepreneurs and salaried individuals who want to purchase a house but may not have sufficient income documents. You can avail of a home loan with benefits like minimum documentation requirement, top-up facility and more.8.75%
HDFC Trufixed Home LoanThis type of home loan offers you a part term with a fixed rate interest and another part term with an adjustable rate of interest. Under this variant, you are able to avail a fixed rate for a maximum term of 3 years. After the tenure of 3 years, the loan automatically converts to an adjustable rate.7.40%
Bank of BarodaPre-approved Home LoanYou can avail in-principle approval for a Home Loan prior to identification of a specific house/flat/plot under the Pre Approved Home Loan. Some of the other benefits of HDFC pre-approved home loans include greater flexibility in negotiations, assurance of eligible loan amount etc.8.65%
CitibankHome Credit LoanCitibank offers a unique home credit loan that provides both the benefits of a regular term loan and a current account. It is basically an overdraft facility where all amounts deposited in excess of the threshold amount is transferred on a daily basis.6.85%
Citibank T-Bill Home LoanUnder the scheme, floating rate home loans are benchmarked to 91 days Govt. T-Bill rate, thus making them completely transparent6.50%


✅When did Home Loan Rates Drop?

Yes, on 13 May 2021, the home loan rates have been cut by 0.15%, from 6.66% to 6.50%. As per the current rates, Citibank offers a home loan at the lowest rate of 6.50% . Previously, Bajaj Home Finance was providing the best rate starting at 6.66%

✅What is the current interest rate for Home Loans?

The present Home Loan interest rates ranges between 6.50% to 20.00%. Home loan rates are dependent on your loan amount. Lower the loan amount, lower is the rate. However, some banks offer same rates for all loan amounts. Compare and calculate the overall cost while searching for a home loan.

✅Which bank has the lowest housing rates of interest for the self-employed & salaried?

Generally, the home loan rates for self-employed are higher than those for salaried borrowers as banks perceive a higher credit risk for self-employed borrowers. HSBC Bank offers the lowest housing rates to self-employed at an interest rate of 6.50%. If you are a salaried employee, you can avail of the lowest housing loan rates at 6.45%.

✅What is the EMI for 20 lakhs Home Loan?

The EMI for 20 lakhs loan at the latest Home Loan interest rate of 6.50% for the tenure of 30 years is ₹ 12,641.

✅Which banks give the cheapest Home Loan?

Lowest Home Loan interest rate in India is 6.50% which is offered by Citibank, Bank of Baroda. Even after including the processing fees they charge on the loan, Citibank, Bank of Baroda are the cheapest Home Loan providers in India.

✅Is balance transfer a good idea for Home Loan?

Yes, if you are getting a higher interest rate than the market rate and paying a higher EMI than other banks, then you can opt for housing loan balance transfer and reduce your monthly burden.Current lowest balance transfer home loan rate in India is 6.45%.

✅Which banks home improvement loan interest rates are best?

If you are looking to take a loan for home renovation or repairs, you can avail of a home improvement loan. As per the current rate, Citibank offers the lowest rates on home loan starting at 6.50%. Other banks that provide attractive interest rates for home improvement are Bank of Baroda.

✅What are the documents required for home loan?

The documents required for a home loan varies based on your occupation. In general, you may however need to submit documents for identity proof, address proof, income proof, age proof, property documents etc. along with a home loan application form signed with photographs.

✅How can I check the total interest payout for my housing loan?

You can calculate the monthly EMI, total interest output for your housing loan using the MyLoanCare EMI calculator. It is an online tool that uses mathematical algorithms to calculate the interest you need to pay at the end of your tenure. It is calculated based on factors such as loan amount, rate of interest and loan tenure.

✅How to Reduce Home Loan Interest Rate Burden?

A home loan is a big responsibility that needs to be fulfilled in order to maintain one’s creditworthiness in the financial markets. However, the burden of home loans can always be reduced. This can be done by following the below mentioned:
(i) Transferring of home loans to lenders with the lowest home loan interest rate
(ii) Increasing home loan EMIs can help one get rid of home loan quickly
(iii) Prepayment or part payment of home loans can help you save on home loan interest and can reduce the EMI burden
(iv) Making home loan down payments can also reduce the burden, as due to the reduction in the principal amount, the home loan EMI is also reduced
(v) Opting for a longer loan tenure can distribute the EMIs finely. Thus the monthly home loan EMI burden can be altered

✅How does Repo Rate affect the interest rate of home loans?

Repo rate is the rate at which commercial banks borrow money from RBI. As the repo rate increases, banks can borrow money from the RBI at a higher interest rate. This, in turn, increases the home loan rates for individual borrowers. Similarly, a decrease in repo rate translates to lower home loan rates.

✅What are Home Loan Rates for Loan of ₹ 30 Lakh and below as of 29 Nov 2021?

The interest rate for a home loan of ₹ 30 Lakh and below is slightly lower than the loan rate for the higher loan amount. As per the current rates, Citibank offers the lowest rate on home loan for upto ₹ 30 Lakh starting at 6.50%.

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Home Loan News - Nov 2021

  • 2021-11-23 : RBI Reports Jump in Digital Loan Disbursement
    As per the Reserve Bank of India, the overall volume of digital loan disbursement by banks and non-banking financial institutions has increased 12 fold between 2017 to 2020. As a result, the number has increased to Rs. 1.42 Lakh crores.
  • 2021-11-18 : Bank Credit Grows At 7.14 percent And Deposits 11.4 percent
    According to the RBI, bank credit has grown to 7.14% and deposits 11.4%. Bank loans stood at Rs 104.19 lakh crore and deposits at Rs 144.03 lakh crore. In the previous fortnight ended October 2021, bank credit had grown by 6.84 per cent and deposits by 9.94 per cent.
  • 2021-11-17 : Indian Overseas Bank Lowers Yearly Profit
    State-owned Indian Overseas Bank has reported a downward profit of Rs 646 cr for 2020-21. The profit is after reporting a divergence in asset classification and provisioning for bad loans.
  • 2021-11-16 : LIC Housing Finance Increases Home Loan Rates
    LIC Housing Finance has revised the home loan interest rate from 6.00% to 6.66%. The processing fee is Rs 10,000 and maximum tenure is 30 years.
  • 2021-11-16 : HDFC Bank Announces Campaign for Financial Frauds
    HDFC Bank has announced that it will hold the second edition of the campaign titled Mooh Band Rakho. The campaign aims to hold around 2,000 workshops to prevent financial frauds.

*Terms and conditions apply. Credit at sole discretion of lender, which is subject to credit appraisal, eligibility check, rates, charges and terms. Information displayed is indicative and collected from public sources. MyLoanCare is an independent professional service provider and is not related to the government or government bodies or any regulator or any credit information bureau in any way. Information carried at this website is not and should not be construed as an offer or solicitation or invitation to borrow or lend. The Company does not undertake any liability with respect to the correctness of the content, information and calculations. Information is subject to change without notice. By submitting your query or using any tools or calculators, you authorize MyLoanCare to share your information with lender(s), consent for such lender(s) to access your credit information report and contact you regarding your query overriding your number being in National Do Not Call Registry. This is a free service and no charges are payable by the borrower to MyLoanCare. The Company may receive remuneration from lenders for services provided to them. Read MoreRead Less


Applying for a home loan always begins with a digital loan application, whether you apply for a loan personally or with another person. This is how the loan application process goes:

  1. Fill in and send a loan application online

  2. You will promptly get a preliminary loan offer or we will contact you

  3. You’ll enter into a loan negotiation with us where we together go through, for example, information that you have provided in the application and the loan collateral

  4. You’ll get a loan offer binding on the bank

You can apply for a home loan to buy or build a home or buy a plot. The home may be a permanent home, holiday home, or a holiday cabin or a buy-to-let home. Also apply for a home loan when you need loan for renovation of your home.

Are you planning to redecorate your home or make large purchases for your home? For financing such projects, a secured bank loan is suitable. It is a low-cost option compared to other consumer loans. It is advisable to go over these plans already in the home loan negotiation.

Live your life without a worry with your home loan

Home is the biggest investment of many people in Finland. When banking affairs run smoothly, your daily life will also go smoothly, and you can repay your loan without worries. As an OP cooperative bank owner-customer, you’ll get benefits throughout your life and for things that matter most in your life. Your student loan brings you OP bonuses that are used, for example, for your new home’s insurance premiums. You’ll also get considerable discounts on banking services and insurance policies as well as renewed benefits from investment

Safe home loan that adapts to your life situation

The borrower should prepare for changes in their own life and the world around it. Financial protection gives you future peace of mind. The interest rate cap enables you to ensure that your monthly repayment amount does not increase too high when interest rates rise. Loan protection insurance will help you to manage your monthly repayment if you become unemployed, unable to work, or disabled. It would also help your loved ones to repay the loan in the event of your untimely death. Our home loan also adapts to your life situations – you can also have a break in the repayments of the loan principal if needed. Learn more about loan repayment holiday.

When to apply for a home loan?

It is advisable to apply for a home loan well in advance before any home viewing when buying a home becomes topical. You can apply for a home loan even if you did not yet know the home you intend to buy or collateral for your loan. The home loan offer does not oblige you to take out a loan from us. It is only a request for proposal.

Can I get a home loan if...?

Are you thinking about how your personal financial standing or life situation affects your chances to get a home loan? Fill in a loan application first because it enables us to focus on you and your situation. After we have received your application, we’ll contact you, go through your information with you and answer your questions. In general, getting a home loan requires, for example, sufficient payment capacity and acceptable collateral. We’ll also check the applicant’s credit history.

Our loan calculator is of great help in planning the costs of a home loan. The home loan calculator enables you to easily test how the monthly repayment of your home loan changes when interest rates rise, and the loan term becomes longer or shorter.

Loan offer

Please note that it’s only after the loan negotiation that you’ll receive a loan offer that is binding on the bank. Then the bank is committed to granting the loan for a specific home on the terms agreed in the loan negotiation. The preliminary loan offer enables only a conditional bid for the home, in which case arranging lending is conditional on the offer.

Finding a suitable home may sometimes take time although you can’t hardly wait to use the loan offer by the bank. When you can find a suitable home, you can make a binding bid after you have first made sure with us that the home can be used as the loan’s collateral.

Loan negotiation and home transactions remotely or at a bank

The loan negotiation is conducted over the phone, online or at a bank branch, depending on your choice. This is when the bank ensures that collateral accepted by the bank can be found for your loan. The negotiation also involves going through the information in your loan application and the loan protection options.  Following the loan negotiation, you’ll receive a binding loan offer, or loan promise.

When you find a suitable home, you can sign the loan agreements with your personal online service user identifiers without the need for visiting a bank branch. You can also buy a home through digital services, independent of time and place.

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Home equity line of credit (HELOC) rates in November 2021

The Bankrate guide to home equity lines of credit (HELOCs)

Why trust Bankrate?

At Bankrate, our mission is to empower you to make smarter financial decisions. We’ve been comparing and surveying financial institutions for more than 40 years to help you find the right products for your situation. Our award-winning editorial team follows strict guidelines to ensure our content is not influenced by advertisers. Additionally, our content is thoroughly reported and vigorously edited to ensure accuracy.

When shopping for a HELOC, look for a competitive interest rate, repayment terms that meet your needs and minimal fees. Loan details presented here are current as of Aug. 4, 2021. Check the lenders’ websites for more current information. The top lenders listed below are selected based on factors such as APR, loan amounts, fees, credit requirements and broad availability.

Summary: HELOCs in 2021

Best home equity line of credit (HELOC) rates in November 2021

Third Federal Savings and Loan


10-year draw, 30-year repay


Not specified

Bethpage Federal Credit Union

Up to $500,000

10-year draw, 20-year repay

3.25%–18% (with autopay)

Not specified

Bank of America

$15,000–$1 million

10-year draw, 20-year repay

Starting at 4.4% (with autopay and customer discounts)

Not specified

Flagstar Bank


10-year draw, 20-year repay

3.74%–21% (with autopay)

Not specified



5–30 years

Starting at 3% (with autopay, partner credit union membership and origination fee)



Starting at $5,000

10-year draw, 15-year repay

2.75%–21% (with autopay)

Not specified

BMO Harris Bank


10-year draw, 20-year repay

Starting at 3.54% (with autopay)




10-year draw, unspecified repay


Not specified

PenFed Credit Union


10-year draw, 20-year repay




Not specified

Not specified

Not specified

Not specified

TD Bank

Starting at $25,000

Not specified

3.99%–18% (with TD Bank personal checking account)

Not specified

What is a home equity line of credit, or HELOC?

A HELOC is a variable-rate home equity product that works like a credit card — you have access to a credit line that you can draw from and pay back as needed. HELOC rates are tied to a benchmark interest rate. As the prime rate moves up or down, so does your HELOC rate. Payments vary depending on the interest rate and how much money you have used.

How does a HELOC work?

With a HELOC, you’re given a line of credit that’s available for a set time frame (known as the draw period), usually up to 10 years. While most HELOCs have an interest-only draw period, you can make both interest and principal payments to pay off the line of credit faster.

When the line of credit’s draw period expires, you enter the repayment period, which can last up to 20 years. You’ll pay back the outstanding balance that you borrowed, as well as any interest owed. A lender may allow you to renew the credit line.

What is a good HELOC rate?

Home equity line of credit rates are determined by your financial situation and your credit score. If you have good credit, your HELOC rate could be around 3 percent to 5 percent. If you have below-average credit, you'll likely fall within the 9 percent to 10 percent range.

The average HELOC rate, as of Sep. 22, 2021, is 3.88 percent. Generally speaking, any rate below the average would be considered a good HELOC rate.

Who is a HELOC best for?

Because you have the ability to draw only what you need from a HELOC over 10 to 15 years, it’s best for people who need access to funds over a number of years — for a series of home improvement projects, for example — and who are comfortable using their homes as collateral.

How do I qualify for a HELOC?

In addition to estimating your home equity, lenders look at your credit history, credit score, income and other debts. Most lenders require a combined loan-to-value ratio of 85 percent or less, a credit score of 620 or higher and a debt-to-income ratio below 43 percent to approve you for a home equity line of credit.

What are today's current HELOC rates?

Home equity loan


3.25% – 7.94%

10-year fixed home equity loan


3.50% – 7.94%

15-year fixed home equity loan


3.50% – 8.04%



1.74% – 6.85%

To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. The rates shown above are calculated using a loan or line amount of $30,000, with a FICO score of 700 and a combined loan-to-value ratio of 80 percent.

How does the coronavirus affect HELOCs?

HELOCs have been hit hard by the COVID-19 pandemic. Interest rates plunged, and as a result, many banks became overwhelmed by new applications. Now may be a good time to get a HELOC or lock in a fixed rate if you have the option, but economic uncertainty and the influx of potential borrowers have also caused some banks to tighten eligibility requirements and even suspend HELOC applications altogether. If you've been thinking about getting a HELOC, it may be worthwhile to send in your application now as home equity lending picks back up.

If you have a HELOC and you're having trouble making payments due to the COVID-19 pandemic, contact your lender; many lenders have extended hardship relief options.

Common uses of a HELOC

Some of the most popular ways homeowners use HELOC funds include:

  • Home improvements. Using your home equity to pay for home improvement projects that increase the value of your home is a smart move.
  • Medical expenses. A HELOC may be a good option if you have large or ongoing medical expenses and want to take advantage of low interest rates.
  • Large purchases. Because HELOCs have longer repayment periods than many loans, they may be an attractive choice for making large purchases.
  • Tuition or education costs. HELOCs often have lower interest rates than student loans, though some lenders may place restrictions on how you can use the funds.
  • Debt consolidation. A HELOC may be a good choice for consolidating credit card debt. However, be careful not to rack up even more debt during the HELOC's draw period.

Pros and cons of HELOCs

HELOCs offer a combination of relatively low interest rates and the flexibility to borrow what you need when you need it. If you need money over a staggered period, a line of credit is ideal. However, there are always risks when you take out a loan, especially one that's secured by your home. Here are some of the key considerations for getting a HELOC.


  • Typically lower upfront costs than with home equity loans.
  • Lower interest rates than with credit cards.
  • Usually low or no closing costs.
  • Interest charged only on the amount of money you use.


  • Lenders may require minimum draws.
  • Interest rates can adjust upward or downward.
  • Lenders may charge a variety of fees, including annual fees, application fees, cancellation fees or early closure fees.
  • Late or missed payments can damage your credit and put your home at risk.

HELOC vs. home equity loan

While HELOCs and home equity loans are similar in some ways, they have a few distinct differences. These are some of the key factors you should consider when deciding between a HELOC and a home equity loan.

Interest ratesVariableFixed
APRsSlightly lowerSlightly higher
Funds disbursementDraw as much as you need, when you need itLump sum
Repayment termsFirst 5–10 years: Interest-only payments

Last 10–20 years: Interest and principal

10–30 years of fixed payments
Best forOngoing home improvement projects, college tuition payments, medical expensesDebt consolidation, large home improvement projects, major purchases

HELOC vs. cash-out refinance

A cash-out refinance replaces your current home mortgage with a larger home loan. The difference between the original mortgage and the new loan is disbursed to you in a lump sum. The main difference between a cash-out refinance and a HELOC is that a cash-out refinance requires you to replace your current mortgage, while a HELOC adds a loan to your current mortgage.

A HELOC may be a better option for you if:

  • You want more flexibility.
  • You already have a good mortgage rate.
  • You plan to use your HELOC only for tax-deductible home improvement projects.

A cash-out refinance may be a better option for you if:

  • You prefer a fixed monthly payment.
  • You want a lower mortgage rate.
  • You want to withdraw more home equity.

How to apply for a HELOC

With most HELOC lenders, you can generally get the application process started in just a few minutes online. You’ll simply enter some personal and financial information, such as your name, address, salary, desired loan amount and estimated credit score.

To apply for a HELOC, start with these steps:

  1. Check your credit score. The higher your credit score, the better your rates and the more likely you are to be approved. If you have a credit score in the mid-600s or below, work to pay off existing debt and make timely payments on your credit cards to improve your score.
  2. Shop around. To make sure you're getting the best rate and terms possible, research a few lenders and take advantage of any prequalification offers available.
  3. Gather your application materials. Many lenders will ask for your Social Security number, salary, employment information and estimated home value. Now is also a good time to collect details about your home's outstanding mortgage balance. After you apply, lenders should reach out within a few days, although some online lenders offer same-day approval.
  4. Complete the verification process. Once you've accepted a loan offer, you'll have to provide verification documents, which may include pay stubs, W-2s or tax returns. You may also have to get an appraisal on your home. At this time, lenders will perform a hard credit check, which will temporarily ding your credit score.
  5. Receive funds.

The Types of Mortgage Lenders and How to Choose Between Them

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

If you’re looking for the perfect mortgage lender for your situation, you have many more options to consider than your nearest bank or credit union.

Some alternatives might even make it easier to qualify, help you save money, or allow you to close faster. In other words, choosing the right type of lender can alleviate stress during a potentially confusing process.

Here’s everything you need to know about the different types of mortgage lenders available to you:

What is a mortgage lender?

A mortgage lender is the company you turn to when you need to get a home loan. Whether you want to buy or refinance, cash out, or get a home equity loan, a mortgage lender can provide the money you need.

Mortgage lenders vs. mortgage brokers

A mortgage lender is a single company that offers its own home loans. A mortgage broker is a company or individual that offers home loans from multiple lenders.

Many people turn to mortgage lenders when they need a home loan because they recognize these companies’ names. But working with a mortgage broker can be a faster way to find the best deal on a home loan. Instead of applying multiple times to collect quotes from multiple lenders, you can apply once and receive multiple offers.

Credible allows you to easily compare rates. In just a few minutes, you can secure a streamlined pre-approval letter and see loan details from all of our partner lenders. We also provide transparency into lender fees that other brokers typically don’t.

8 types of mortgage lenders

While there are many types of mortgage lenders, not all of them work directly with consumers. Still, it’s helpful to know the differences so you don’t waste time on the wrong path when you’re shopping for a loan.

1. Mortgage bankers

  • At a glance: Individuals or companies that originate home loans

Mortgage bankers may use their own money to issue home loans, or they may help borrowers get mortgage funding from a bank. Unlike a mortgage broker, however, the banker will handle the loan application, underwriting, and approval directly.

Mortgage bankers may originate everything from government-backed loans, like FHA mortgages, to second home loans. They also have more flexibility to originate home loans to unconventional borrowers.

Examples: Mortgage 1, Ideal Home Loans, Paragon Home Loans

2. Retail lenders

  • At a glance: Banks or mortgage companies that work directly with consumers

When most people think about getting a home loan, they probably think about retail lenders. These include the banks you might already have a savings account with. Many retail lenders have brick-and-mortar locations and offer other types of loans as well.

Examples:Chase, Wells Fargo, Bank of America, SoFi

Learn More: 5 Types of Mortgage Loans: Which One Is for You?

3. Wholesale lenders

  • At a glance: Funders of mortgages for retail lenders

If you love a good bargain, you might have found ways to buy some of your favorite products wholesale. You can’t do that with your mortgage, though. Wholesale mortgage lenders don’t work directly with consumers; they work with retail lenders.

Retail lenders might not lend out their own money to originate mortgages. They might get that money from another source, like a wholesale lender. Some companies have both retail and wholesale divisions. That’s the case with Caliber and Freedom, for example.

Examples:United Wholesale Mortgage, Freedom Mortgage Wholesale, Caliber Home Loans

4. Direct lenders

  • At a glance: Mortgage specialty companies that work directly with consumers

A direct lender is a mortgage company that originates its own loans. Direct lenders overlap with some of the other lender types on this list — for instance, a direct lender can be a mortgage banker or portfolio lender.

Unlike a retail lender, which can offer several different types of loans, a direct lender specializes in mortgages.

A direct lender is also far less likely than a retail lender to have a physical location; many operate only online. But you’ll find all kinds of mortgages through direct lenders, from 30-year conventional loans to adjustable-rate mortgages and jumbo loans.

Examples:Quicken Loans, loanDepot, PennyMac

5. Portfolio lenders

  • At a glance: Lenders with more flexible underwriting for outside-the-box borrowers

After your loan closes, it’s common for a mortgage lender to sell it on the secondary market to Fannie Mae or Freddie Mac. But a portfolio lender doesn’t do this — instead of selling the debt, they’ll keep the loan in their portfolio.

Since they don’t sell their loans, portfolio lenders get to decide exactly who qualifies for a mortgage and on what terms. They can be a good choice if you don’t meet some of the more stringent requirements set by traditional lenders, or if you’re seeking a larger loan amount.

Examples: Axos Bank, Emigrant Mortgage, First Bank

6. Online mortgage lenders

  • At a glance: Efficient and cost-saving lenders for tech-savvy borrowers

Online mortgage lenders don’t have any physical branches. They streamline the application and approval process by doing everything online. You’ll apply through their website or app, then upload documents like tax returns, bank statements, and proof of income for underwriting approval.

You’ll be able to communicate with a loan officer on the phone or over email. In some states, you can even close your loan remotely. An online lender could also be a hard money lender, direct lender, retail lender, portfolio lender, or mortgage banker.

Examples:Rocket Mortgage, Ally, Better

7. Hard money lenders

  • At a glance: Short-term, high-interest financing companies for real estate investors

If you’re buying a home and you want to pay for it over 15 or 30 years, a hard money lender isn’t for you. But if you’re a real estate investor who only needs to borrow money for a few months to buy the home, fix it up, and resell it, then a hard money lender can be a good option.

While they charge high interest rates and origination fees, they’re less picky about a property’s condition and can close loans quickly. They’ll lend you money for renovations, too, not just the purchase price.

They may want proof of your track record as a successful flipper, or they may charge more if you’re new to the practice. A hard money lender can also be a direct lender.

Examples: Orchard Funding, Anchor Loans, Haus Lending

8. Credit unions

Credit unions have a reputation for providing more personalized service than big banks. When it comes to mortgage lending, you can see that in the loan programs they offer.

For example, one of the country’s biggest lenders, Navy Federal Credit Union, has loans that require no down payment and no private mortgage insurance (PMI). You won’t find that option at Wells Fargo, unless you meet the VA loan requirements.

Not every credit union and big bank will fit these molds, but if you do need extra help qualifying for a home loan, you might have better luck going through a credit union.

Examples: Navy Federal Credit Union, Pentagon Federal Credit Union, Alliant Credit Union

How to choose the right mortgage lender

Choosing the best mortgage lender for your circumstances might mean shopping around with different types of mortgage lenders. But many people only shop with lenders in one category, like online lenders, without ever knowing how a mortgage banker, mortgage broker, or portfolio lender might expand their options.

Comparing quotes from multiple lenders is key when you want to get the right loan, the best interest rate, and the lowest closing costs. On average, getting at least five quotes can potentially save you thousands of dollars.

Here are some items to consider when choosing between mortgage lenders:

  • Loan offerings
  • Interest rate
  • Closing costs
  • PMI requirements
  • Loan processing time
  • Minimum down payment
  • Customer service
  • Reputation

Shopping around for a mortgage can be stressful. Fortunately, Credible simplifies this process and makes comparing multiple lenders easy. You can see prequalified rates from our partner lenders and generate a streamlined pre-approval letter in just a few minutes by using the table below.


Loan Against Property

Whether you own a residential, commercial or special use property, it is an asset that can be used as collateral against a loan, when you have a financial requirement. Monetary problems pertaining to business expansion, child’s higher studies, wedding or medical emergency can strike anytime, but it can be settled conveniently, if you own a property. You can easily secure a loan by mortgaging your property. A Loan Against Property or LAP is a secured loan obtained by any individual or entity who owns a property in his/her name.

Put your financial worries to rest as ICICI Bank offers Loan Against Property (LAP) that can help you live your dreams. LAP can be used for personal or business needs. You do not need to sell your property; it will be used as collateral by ICICI Bank to offer you the required loan amount. ICICI Bank Loan Against Property is one of the effective ways to raise money. It offers a high loan amount, lower interest rate and a flexible loan tenure. Additionally, you can leverage our attractive offers to meet your financial needs, without any hassles. 

Applying for a Loan Against Property at ICICI Bank involves a simple online application process for salaried employees, business professionals and self-employed individuals, who own residential, commercial, or a special purpose property in their name. Enjoy comfortable EMIs with a long tenure of up to 15 years and also avail an Overdraft with it.

  For details, give us a missed call on 9022499400

  For details, give us a missed call on 9022499400

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Financing Basics for First-Time Homebuyers

Obtaining a mortgage is a crucial step in purchasing your first home, and there are several factors for choosing the most appropriate one. While the myriad of financing options available for first-time homebuyers can seem overwhelming, taking the time to research the basics of property financing can save you a significant amount of time and money.

Understanding the market where the property is located, and whether it offers incentives to lenders, may mean added financial perks for you. And by taking a close look at your finances, you can ensure you are getting the mortgage that best suits your needs. This article outlines some of the important details first-time homebuyers need to make their big purchase.

Key Takeaways

  • Obtaining a mortgage is a crucial step in purchasing your first home and there are several factors for choosing the best one.
  • Lenders will evaluate your creditworthiness and your ability to repay based on your income, assets, debts, and credit history.
  • As you choose a mortgage, you'll have to decide between a fixed or floating rate, the number of years to pay off your mortgage, and the size of your down payment.
  • Conventional loans are mortgages that the government does not insure.
  • Depending on your circumstances, you may be eligible for more favorable terms through an FHA, VA, or other government-guaranteed loan.

Loan Types

Conventional Loans

Conventional loans are mortgages that are not insured or guaranteed by the federal government. They are typically fixed-rate mortgages. They are some of the most difficult types of mortgages to qualify for because of their stricter requirements—a bigger down payment, higher credit score, lower income-to-debt ratios, and the potential for a private mortgage insurance requirement. However, if you can qualify for a conventional mortgage, they are usually less costly than loans that are guaranteed by the federal government.

Conventional loans are defined as either conforming loans or nonconforming loans. Conforming loans comply with guidelines, such as the loan limits set forth by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. These lenders (and various others) often buy and package these loans, then sell them as securities on the secondary market. However, loans that are sold on the secondary market must meet specific guidelines in order to be classified as conforming loans.

The maximum conforming loan limit for a conventional mortgage in 2021 is $548,250, although it can be more for designated high-cost areas. A loan made above this amount is called a jumbo loan, which usually carries a slightly higher interest rate. These loans carry more risk (since they involve more money), making them less attractive to the secondary market.

For nonconforming loans, the lending institution underwriting the loan, usually a portfolio lender, sets its own guidelines. Due to regulations, nonconforming loans cannot be sold on the secondary market.

Federal Housing Administration (FHA) Loans

The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), provides various mortgage loan programs for Americans. An FHA loan has lower down payment requirements and is easier to qualify for than a conventional loan. FHA loans are excellent for first-time homebuyers because, in addition to lower upfront loan costs and less stringent credit requirements, you can make a down payment as low as 3.5%. FHA loans cannot exceed the statutory limits described above.

However, all FHA borrowers must pay a mortgage insurance premium, rolled into their mortgage payments. Mortgage insurance is an insurance policy that protects a mortgage lender or titleholder if the borrower defaults on payments, passes away, or is otherwise unable to meet the contractual obligations of the mortgage.

VA Loans

The U.S. Department of Veterans Affairs (VA) guarantees VA loans. The VA does not make loans itself, but guarantees mortgages made by qualified lenders. These guarantees allow veterans to obtain home loans with favorable terms (usually without a down payment).

In most cases, VA loans are easier to qualify for than conventional loans. Lenders generally limit the maximum VA loan to conventional mortgage loan limits. Before applying for a loan, you'll need to request your eligibility from the VA. If you are accepted, the VA will issue a certificate of eligibility you can use to apply for a loan.

In addition to these federal loan types and programs, state and local governments and agencies sponsor assistance programs to increase investment or homeownership in certain areas.

Equity and Income Requirements

Home mortgage loan pricing is determined by the lender in two ways—both methods are based on the creditworthiness of the borrower. In addition to checking your FICO score from the three major credit bureaus, lenders will calculate the loan-to-value ratio (LTV) and the debt-service coverage ratio (DSCR) in order to determine the amount they're willing to loan to you, plus the interest rate.

LTV is the amount of actual or implied equity that is available in the collateral being borrowed against. For home purchases, LTV is determined by dividing the loan amount by the purchase price of the home. Lenders assume that the more money you are putting up (in the form of a down payment), the less likely you are to default on the loan. The higher the LTV, the greater the risk of default, so lenders will charge more.

The DSCR determines your ability to pay the mortgage. Lenders divide your monthly net income by the mortgage costs to assess the probability that you will default on the mortgage. Most lenders will require DSCRs of greater than one. The greater the ratio, the greater the probability that you will be able to cover borrowing costs and the less risk the lender assumes. The greater the DSCR, the more likely a lender will negotiate the loan rate; even at a lower rate, the lender receives a better risk-adjusted return.

For this reason, you should include any type of qualifying income you can when negotiating with a mortgage lender. Sometimes an extra part-time job or other income-generating business can make the difference between qualifying or not qualifying for a loan, or receiving the best possible rate.

Private Mortgage Insurance (PMI)

LTV also determines whether you will be required to purchase private mortgage insurance (PMI). PMI helps to insulate the lender from default by transferring a portion of the loan risk to a mortgage insurer. Most lenders require PMI for any loan with an LTV greater than 80%. This translates to any loan where you own less than 20% equity in the home. The amount being insured and the mortgage program will determine the cost of mortgage insurance and how it's collected.

Most mortgage insurance premiums are collected monthly, along with tax and property insurance escrows. Once LTV is equal to or less than 78%, PMI is supposed to be eliminated automatically. You may also be able to cancel PMI once the home has appreciated enough in value to give you 20% equity and a set period has passed, such as two years.

Some lenders, such as the FHA, will assess the mortgage insurance as a lump sum and capitalize it into the loan amount.

As a rule of thumb, try to avoid private mortgage insurance because it is a cost that has no benefit to you.

There are ways to avoid paying for PMI. One is not to borrow more than 80% of the property value when purchasing a home; the other is to use home equity financing or a second mortgage to put down more than 20%. The most common program is called an 80-10-10 mortgage. The 80 stands for the LTV of the first mortgage, the first 10 stands for the LTV of the second mortgage, while the second 10 represents the equity you have in the home.

Although the rate on the second mortgage will be higher than the rate on the first, on a blended basis, it should not be much higher than the rate of a 90% LTV loan. An 80-10-10 mortgage can be less expensive than paying for PMI. It also allows you to accelerate the payment of the second mortgage and eliminate that portion of the debt quickly so you can pay off your home early. 

Fixed-Rate Mortgages vs. Floating-Rate Mortgages

Another consideration is whether to obtain a fixed-rate or floating-rate (also called a variable-rate) mortgage. In a fixed-rate mortgage, the rate does not change for the entire period of the loan. The obvious benefit of getting a fixed-rate loan is that you know what the monthly loan costs will be for the entire loan period. And, if prevailing interest rates are low, you've locked in a good rate for a substantial time.

A floating-rate mortgage, such as an interest-only mortgage or an adjustable-rate mortgage (ARM), is designed to assist first-time homebuyers or people who expect their incomes to rise substantially over the loan period. Floating-rate loans usually allow you to obtain lower introductory rates during the initial few years of the loan, and this allows you to qualify for more money than if you had tried to get a more expensive fixed-rate loan.

Of course, this option can be risky if your income does not grow in step with the increase in interest rate. The other downside is that the path of market interest rates is uncertain: If they dramatically rise, your loan's terms will skyrocket with them.

How Adjustable-Rate Mortgages (ARMs) Work

The most common types of ARMs are for one-, five-, or seven-year periods. The initial interest rate is normally fixed for a period of time and then resets periodically, often every month. Once an ARM resets, it adjusts to the market rate, usually by adding some predetermined spread (percentage) to the prevailing U.S. Treasury rate.

Although the increase is typically capped, an ARM adjustment can be more expensive than the prevailing fixed-rate mortgage loan to compensate the lender for offering a lower rate during the introductory period.

Interest-only loans are a type of ARM in which you only pay mortgage interest and not principal during the introductory period until the loan reverts to a fixed, principal-paying loan. Such loans can be very advantageous for first-time borrowers because only paying interest significantly decreases the monthly cost of borrowing and will allow you to qualify for a much larger loan. However, because you pay no principal during the initial period, the balance due on the loan does not change until you begin to repay the principal.

The Bottom Line

If you're looking for a home mortgage for the first time, you may find it difficult to sort through all the financing options. Take time to decide how much home you can actually afford and then finance accordingly. If you can afford to put a substantial amount down or have enough income to create a low LTV, you will have more negotiating power with lenders and the most financing options. If you push for the largest loan, you may be offered a higher risk-adjusted rate and private mortgage insurance.

Weigh the benefit of obtaining a larger loan with the risk. Interest rates typically float during the interest-only period and will often adjust in reaction to changes in market interest rates. Also, consider the risk that your disposable income won't rise along with the possible increase in borrowing costs.

A good mortgage broker or mortgage banker should be able to help steer you through all the different programs and options, but nothing will serve you better than knowing your priorities for a mortgage loan.


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