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
Click here to download Home Loan EMI Calculator |