5 key things to consider when obtaining home loans

Buying a home is one of the most cherished dreams of a large part of the population and without a doubt one of the most important financial decisions of their lives. More often than not, the whole family is invested financially and emotionally in the decision making. This makes it even more important for the buyer to diligently examine every aspect related to this great decision. Once you have finalized the property, the next big task is to identify the bank or financial institution for the home loan.

Before you move out, you need to do some prep work and some groundwork to avoid the hassle in your home loan process.

Here are some factors you should consider:

Advance payment:

Only part of the value of the asset is offered for loan by the financing institution. The owner must bear the rest on his own. Banks / institutions typically finance 75-90% of the cost of the property depending on the eligibility of the applicant, among other factors.

Potential applicants need to be careful about how much they want to receive as a loan and what they want to pay out of their savings to the builder or seller. A large down payment improves the chances of being eligible for a home loan. Hence, if at all possible, individuals can opt for a higher down payment. It will also reduce their repayment charge.

Credit score: A healthy credit score, preferably above 750, would help a potential candidate get a low interest loan. Thus, it is advisable for a potential candidate to check their credit score before applying for a home loan. It’s wise to clear all dues and look for ways to build a good credit rating in the months before getting a home loan.

Associated costs: Besides the outgoing interest, the borrower has to pay other fees like processing fees, late penalties and foreclosure fees etc. which must be taken into account when applying for a mortgage. It is in the applicant’s interest to sort them out with the lender beforehand.

Individuals may also note that foreclosure or prepayment charges only apply to fixed rate home loans. Therefore, this is also a factor to consider when choosing between a fixed rate and a variable rate, as prepayment is one of the ways to reduce the tenure period and save costs. lakhs.

Type of interest rate: One of the most important choices to make when obtaining a home loan is to carefully choose between the two types of interest rate plans provided in the market as below:

Floating – Floating interest rates are subject to change over time, depending on changes in the RBI base rate and general market conditions. Variable rates are typically 1% to 2% lower than fixed rates, resulting in savings in the long run. This option is suitable in the event of an expected drop in the interest rate in the near future.

Fixed – Fixed rates, as the term suggests, do not change over time. This option is suitable when economic conditions indicate an increase in interest rates.

For a short-term loan (less than 7 years), it is advisable to opt for a fixed interest rate. If the tenure is longer than 15 years, it is advisable to take out a variable rate loan because you cannot predict the changes over such a long period. Ultimately, the applicant has to choose between floating and fixed interest rates depending on his convenience.

Adequate insurance: A lot of people don’t give the same importance to insurance when buying a property. It is considered an unnecessary addition to the home loan. By availing such life and / or health insurance, in the event of a medical emergency, the applicant does not have to worry about organizing the money for the medical emergencies. In the event of accidental death, the family will not at least worry about other expenses as there is a policy amount to take care of the rest in the absence of the claimant. It is therefore advisable to take out insurance while considering taking out a mortgage.

Finally, individuals should also check the required documents and read the loan agreement carefully. Taking out a mortgage is an important decision that can impact your financial health for years to come. Therefore, it is essential to know all the aspects and to benefit from a loan in total adequacy with the financial interests of the borrower.

The author, Ashish Jain, is Managing Director of Star HFL. Opinions expressed are personal

(Edited by : Anshul)

First publication: STI

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