Chartered Accountants


A home loan is a boon to almost all property buyers. It not only gives a person a sense of pride in owning a house, but also reduces the burden to finance the dream home (compared to other loans) but also reduces tax liabilities to a certain extent. Here are some important tips one must consider before opting for a home loan, to reduce hassles in the process, as well as to save some more money.        

Opt for the bank or institution offering best terms

Home loans are marketed pretty aggressively by most financial institutions, luring investors with attractive interest rates and schemes. It however pays to take decisions wisely before taking the plunge. Educate yourself about the terms and conditions of the loan agreement, penalties charges etc. Do not hesitate to ask the sales person or the bank to explain or clarify even the slightest information.


Decide about the risk you can take for Home Loan.

If you are holding a job where continuity of job is not assured, be careful because if you loose your job, you might find it difficult to service the EMI’s. Ensure you would be able to pay up your EMI’s on time. Penalties for delays in EMI payment are a heavy amount.


Negotiate the interest rate

Do negotiate your interest rate with the lender. Despite all claims of being fixed, lenders do accommodate up to a few basis points. Many a times, financial institutions reserve their best of rates for loans that are to be disbursed quickly. So approach them only when you have finalised your property deal and you require disbursement shortly. Sometimes, the month end may prove advantageous for you. Most lenders have monthly targets to complete, so if you are around the end of the month, your negotiating could probably fetch you an attractive rate.

Type of interest rate

The type of interest rate you choose has an impact on the monthly EMIs you pay. It is important that you know the difference between fixed rate home loan and floating rate home loan. If you opt for a fixed rate home loan, the EMIs don't vary over the loan tenure. It is beneficial when the interest rates are expected to rise in the near future. In case of a floating rate home loan, the interest rate is determined based on the prevailing base rates plus a floating rate. The EMIs vary based on the movement of base rates. It is beneficial when interest rates are expected to fall in near future.

Know your maximum loan eligibility

The loan amount to be sanctioned depends on your income and previous track record when it comes to repaying your loans and credit card dues. Home loan lenders generally provide 80 per cent of the value of the property as the loan amount, subject to your income. While assessing the income criteria, they do not consider some of your salary slip heads for calculating your net monthly income. They only consider the income heads which can be used to repay your loan. For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed.

Read the documents carefully before you sign

Don't let the bunch of home loan documents bog you down and just sign on the dotted lines. Check the documents to ensure that the terms are the same as what you negotiated and agreed upon. Read the documents carefully and know the different charges applicable. Importantly, know the processing fee, late payment fee, etc.


Deciding on the loan tenure

While deciding on the loan tenure, certain factors need to be considered. One such important factor is your disposable income at hand. It is from this disposable income that you would be repaying your loan. Factor in things like the nature of your job, promotions, job change etc… If you have a low net disposable income, long loan tenures may suit you fine. But be aware in such a case, though the EMI would reduce, you would be paying interest for a longer period of time. A loan with a short tenure, would bring with it payment of lesser interest, but of course a higher EMI. Opt for shorter loan tenure only if you have adequate disposable income at hand. Many experts advocate not to extend your loan tenure beyond your retirement age.

Increasing your loan eligibility

One of the basic eligibility aspects lies in the borrower’s credit history. Ensure you maintain a constant credit history, by timely repayment of debts such as credit card dues, car loans etc. Produce proof to show your track record of repayment and timely servicing of debt. This would make you more eligible for a loan. Also, opting for a loan with a longer tenure could get you a higher amount. The reason being, the EMI paid each month, per lakh of the loan, would be lower in such cases. Also, adding your spouse to the loan application would increase your loan eligibility as his/ her income would also be added to your income.


Charges you should know about

When opting for home loan, you should be aware of other charges that come with it. Lenders charge processing fees, service and administrative charges. These charges are a percentage of your loan amount that is actually sanctioned to you, and not on what you actually take home. When the EMI’s start rolling in, charges for swapping post-dated cheques, modifying monthly instalment or tenure etc would be billed to you. So check the lenders schedule of charges properly and if possible avoid making such changes.

Click here to download Home Loan Amount Eligibility File          

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