Having a house in your name is seen as a great achievement. Everybody dreams of buying or building a home of their choice. If you do not want to liquidate any assets to buy a home, you can always apply for home loan. With easy monthly repayments and a housing loan interest rate, a home loan can help you build your dream house.
10 Important Things to Consider Before Taking a Home Loan
In this article, we discuss the critical factors you need to remember while taking a home loan so that the loan procedure and the repayment process get easier.
The Rate of Interest
The housing loan interest rate plays a crucial role. It helps you decide if you should or should not take a loan and which lender benefits you more. Therefore, one must research thoroughly before finalising a bank or a housing finance institution. The different types of interest rates are mentioned below.
- Floating interest rate: It may change during the tenure period, and subsequently, your EMI can increase or decrease.
- Fixed interest rate: As the name suggests, the interest rate in this type of loan remains the same throughout the tenure period. Therefore, one need not worry about their EMI getting increased.
- Hybrid Interest Rate: It is a combination of the above two interest rates. Initially, the interest will be fixed for a set period and later switched to a floating rate.
When you apply for Home loan, the loan amount is the key thing you need to consider. The housing loan interest rate varies according to the principal amount you borrow. For example, the interest rate for 30 lakhs will differ from the interest on 75 lakh rupees. Make sure you choose an affordable amount that you can pay over a duration of time but also ensure that the repayment does not negatively impact your CIBIL score because of late repayments.
Depending on your eligibility, you can choose a tenure period of thirty years or more to comfortably repay the loan over a long period. Longer tenure means smaller monthly payments. But remember, the longer the tenure, the higher interest you end up paying. On the contrary, shorter loan tenure can burden you with big EMI. Therefore, consider your budget and how much you can quickly pay back every month with less interest rate.
A down payment is the initial amount you pay before buying anything. The more down payment you make, the less loan you have to take. Therefore, try paying as much initial payment from your pocket as possible, as it can also reduce your housing loan interest rate and monthly EMI. A 10-20% down payment is seen as a decent amount.
Most banks charge a processing fee of 0.5% to 1% of the loan amount. So the amount of loan you take matters while deciding the processing fee. Some banks and housing finance institutions charge a fixed processing fee irrespective of the amount borrowed.
Most people strive to make a debt-free home. It may so happen that they may be required to borrow an amount initially but later have enough money to repay the entire loan immediately. Pre-payments allow one to clear their debts in lump sum part payments or total foreclosure before the tenure ends. Doing so can save a lot of interest. Find out the pre-payment charges a bank imposes and if there are any limitations on the number of pre-payments that can be done.
Pre-Approved Home Loan
A pre-approved loan comes in useful when you have not decided on which house or property to buy. It lets you know about the loan budget and housing loan interest rate so that you can negotiate with your dealers accordingly.
You need to submit various documents when you apply for Home loan. Ensure you have a decent CIBIL score and KYC documents, such as Aadhar, PAN, Passport, etc., ready. Other documents required are income documents such as bank statements, tax returns, etc., and property documents.
Home Loan Insurance
Home loan insurance ensures your family remains debt-free in case of the unfortunate demise of the loan recipient. If such a thing happens, the insurance company repays the outstanding loan, and hence the family members need not burden themselves with EMIs and housing loan interest rates.
Inability to Repay
Consider future financial conditions before you apply for Home loan. Missing monthly payments can affect your CIBIL score and also put you into legal complications if you become a regular defaulter. Therefore, negotiate the housing loan interest rate with your lender and discuss your future payments.
While a house can be a worthy asset, it can become a significant financial and emotional investment. Most government and private banks and other financial institutions in the country offer home loans. After considering the above-mentioned factors, you can apply for Home loan that suits you best.