Owning a house is an emotional investment and a financial decision. It provides several profitable and practical lending solutions, whether you want to purchase a house for personal use or as an investment. However, buying a house requires a massive financial investment. Applying for a home loan is a great option to acquire assistance if you’re strapped for cash or don’t want to spend all of your resources.
By providing affordable monthly payments and the freedom to choose your repayment term, financial institutions help you realise your dream of owning a home. However, consider these useful pointers before applying for a home loan, as they may make the application procedure less complicated and loan repayment easier.
1. The Rate of Interest
A fixed interest rate does not change over the tenure of the loan, regardless of changes in the financial market. On the other hand, a floating interest rate means that the rate at which the loan was sanctioned may change depending on the state of the market. Most borrowers today favour floating interest rates over fixed interest rates since they have been shown to have more long-term benefits. Always use a housing loan eligibility calculator before applying for a home loan.
2. Loan Amount
Your loan amount influences numerous aspects of the mortgage. Choosing a loan amount you can comfortably afford over a long period is advised because a house loan is a long-term commitment. You should only take out loans you can afford to pay back on time, without any delays or defaults, as doing otherwise will harm your credit score and future loan eligibility.
3. Down Payment
Consider a scenario in which you apply for an Rs. 70 lakh home loan, and the bank grants it for Rs. Fifty lakhs based on your eligibility. In this situation, you will be responsible for paying out of pocket Rs 20 lakh. A down payment is an amount you contribute on your own. To minimise applying for home loan amounts, you should put down as much money as possible without straining your finances. You will pay less interest the smaller the loan amount. Many banks will lend you 100% of the property’s value, subject to qualification. However, you should put down 10% to 20% at the very least to prevent paying excessive interest and guarantee a manageable payback schedule.
4. Processing Fee
The lender will charge you a processing fee to process your loan application. Since most banks and home finance businesses charge processing fees as a fixed percentage of the loan amount, the amount depends on the loan amount. A house loan’s processing charge typically ranges from 0.5% to 1% of the loan amount. However, some lenders offer flat processing fees regardless of the loan amount. Since home loan amounts are typically significant, even a little percentage change can have a big impact.
5. Loan Tenure
Ask for a housing loan eligibility calculator and ask the bank whether you may get a loan with a shorter repayment period before you choose any type of loan. Always choose a shorter term because the longer it takes to pay off the loan, the more interest you will have to pay.
6. Determine your capacity to make EMI payments
When making EMI payments, customers frequently assume a heavy load in the hope that it will gradually become simpler as their income rises. Take into account the potential for future pay cuts or other unforeseen events. A loan-to-income ratio of 20% to 30% is something to consider. Depending on your ability to pay, you can adjust the tenure to lower or increase the EMI amount.
7. Purchase a policy of insurance to cover the loan balance
Once you’ve taken out a loan, your family will be responsible for paying off the balance while you’re away. You can spare your family financial hardship by purchasing a mortgage redemption insurance cover while taking out a home loan. The cover amount diminishes as the loan is repaid because it is a diminishing term plan.
8. Prepayment and repayment
Partial prepayment is any payment made by the borrower above and above the normal EMIs. The overall interest decreases as the loan’s term is shortened through prepayment. Interest rates would be higher and vice versa the longer the duration. After receiving the cash for one month, EMI repayment starts.