Home Loan Eligibility Calculators and the Role of Cash Reserve Ratios

By Team Asianet Newsable | First Published Feb 15, 2024, 12:37 PM IST

An Eligibility Calculator for Home Loan can help determine your loan eligibility according to various factors. Let's see how it works.

The Indian economy is volatile and fluctuates according to several internal and external factors. These fluctuations largely impact a lender’s ability to approve loan applications. Regulatory compliance and proper financial management are the best strategies to streamline lending operations while maintaining liquidity. Cash Reserve Ratio is one method the RBI uses to regulate cash flow and reduce economic risks. If you are looking for a Home Loan, the CRR rate the RBI has set will largely impact your eligibility.

An Eligibility Calculator for Home Loan can help determine your loan eligibility according to various factors. Let's see how it works.

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What is the Cash Reserve Ratio?

Cash Reserve Ratio or CRR is the percentage of deposits a financial institution should always maintain. It is a crucial policy tool that dictates cash flow in an economy. Almost all countries implement this regulation via their central bank. It is a commercial bank’s percentage of time liabilities and net demand. The bank must reach this threshold with total balances in their savings accounts, current accounts, and fixed deposits.

Impact of CRR on the Economy

The CRR is crucial to the central bank’s monetary policy. The RBI uses this parameter to regulate inflation, cash flow, liquidity, and money supply in the economy. The bank’s liquidity reduces when the ratio increases, and vice versa.

When the inflation rate increases, the RBI increases the CRR to reduce the cash flow. Consequently, it limits the loan amount the lender can lend to borrowers, making loans difficult to access. When the cash flow decreases, the economy witnesses a slowdown in investments, negatively impacting the nation's economic growth. However, its primary aim is to reduce inflation by making loans costlier. So, if you apply for a Home Loan during this time, your eligibility may decrease, and you may end up paying a higher interest rate than usual.

Conversely, during low-inflation levels, the RBI reduces the CRR to boost the amount available for borrowing. As a result, lenders sanction larger loans at cheaper rates, increasing the overall money supply in the economy. It makes loans easily accessible and boosts the nation's economic growth rate.

Working of an Eligibility Calculator for Home Loan

A Home Loan Eligibility Calculator is an online tool, available on the websites of top financial institutions like Kotak Mahindra Bank, which lets you assess your loan eligibility in just a few clicks. It gives an accurate idea of the loan amount you may borrow based on your eligibility, credibility, and prevailing CRR and interest rates. Before applying for housing finance, remember that it is one of the most crucial decisions of your life, and it will keep your finances stretched for several years in the future. Here is how an eligibility calculator works:

Open an Eligibility Calculator for Home Loan online.
Select whether you are a salaried, self-employed individual or a self-employed non-individual.
Select whether you are the lender’s existing customer or not.
Enter your monthly in-hand salary.
Enter your current EMI.
Select your loan tenure.
Enter your current interest rate.

After providing these details, the online tool will identify whether you are eligible for a housing loan. An online calculator makes the decision more quickly and efficiently.

Factors Affecting Home Loan Eligibility

Here are a few factors affecting your Home Loan eligibility:

Monthly Income: Your monthly income lets lenders decide the loan amount you may borrow. Lower income makes you eligible for a smaller loan and vice versa.
Age: Age is another crucial factor affecting Home Loan eligibility. Young borrowers can opt for a longer tenure, reducing the EMI amount and making repayment more manageable.
Credit Score: A decent credit score indicates your sincerity towards paying your credit dues. Therefore, it leaves a positive impression on the lenders, increasing your chances of getting a hassle-free Home Loan plan.
Debt-to-Income (DTI) Ratio: Your current financial obligations will largely impact your new loan eligibility. These regular monthly expenses may affect your repayment capacity, reducing your chances of getting a loan.
Cash Reserve Ratio (CRR): The Reserve Bank of India sets a limit that decides the loan amount a lender can disburse. During high inflation conditions, the RBI increases the CRR to limit the loans available, reducing your eligibility for a Home Loan.

When you know what the Cash Reserve Ratio is and how it affects your Home Loan eligibility, you can make a better borrowing decision and time your loan application appropriately. So, before applying, stay updated about the current CRR and use an Eligibility Calculator for Home Loans to understand the economy’s liquidity situation.

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