How to choose the best home loan for you?
How to choose the best home loan for you?
When you are planning to purchase a home the most important thing which will probably come to your mind is where to take a home loan from. Whether it should be from a private bank or a government bank or for how long you should take it and the most important part is the Interest rates. Before deciding on one home loan, it is important you know what factors you should look at in a home loan plan.
Here are the factors involved in a home loan that can help you to take the best home loan available –
- Rate of interest – The cost of borrowing money or the incentive for saving it, is determined by the interest rate. It’s computed as a percentage of the loaned or saved sum. When you get a house mortgage, you borrow money from banks. Borrowers are charged a little higher interest rate than depositors. Interest rates remain within a restricted range because banks compete for both depositors and borrowers. The interest rate is applied to the entire unpaid amount of your loan or credit card debt by the bank, and you are required to pay at least the interest in each compounding month. If you don’t, even if you’re making payments, your outstanding debt will grow. The rate of interest is important for you as it is added to the principal amount which constitutes your EMI or the total amount that has to be paid to the bank. The higher the interest rates, the higher will be your EMI which you don’t want. So even though there is a slight difference in the rate of interest it is important to look for the lower ones.
- Maximum Loan amount – The maximum amount of money you may borrow for a house is determined by two factors: the estate’s worth and your financial status. Banks typically cover 70-75 percent of the property’s worth, while some competitive lenders may go up to 80 percent. Another factor to consider is your ability to repay the loan. The bank will examine your present cash stream and existing liabilities before issuing a loan, assessing your monthly payback capabilities. Unless there are exceptional circumstances, keep your home loan EMIs to less than 40% of your net family income.
- Pre-payment charges
The Reserve Bank of India (RBI) prohibits banks and housing finance businesses from imposing prepayment penalties on floating-rate house loans, although they can apply prepayment penalties on fixed-rate home loans. Your cash surpluses might be used to pay off your outstanding debt in full or in part during the term of your loan. As a result, it is critical to reduce or eliminate any future pre-payment charges.
- These are the fees for processing the loan application as well as the costs paid by the bank in determining the property value and validating the borrower’s other information. Charges for self-employed borrowers vary by lender and can range from 0.25 percent to 1 percent of the loan amount. The rates for salaried people (from banks or other financing institutions) are substantially lower, ranging between INR 2,000 and INR 10,000. With your lender, there is always room for discussion.
- Pre-approved home loan
It might take weeks, if not months, to find the right property. It’s a good idea to have a pre-approved house loan before you make a final decision on a property.
Your loan application will be evaluated based on your income and repayment capabilities in order to acquire a pre-approved loan. You will obtain in-principal loan approval once the bank has finished this procedure. Only the property’s worth and legal ownership need to be validated at this point.
This task is beneficial since it will help you gain a better understanding of your buying budget, allowing you to confidently make the best decision for yourself.
These were some of the factors which are involved in the loan process. Here are things you need to look out for when deciding upon taking a loan –
- Check out your options – You might go to the websites of individual lenders to learn more about what they have to offer, but gathering and comparing information on interest rates, ancillary fees, and other terms and conditions can be time-consuming. You might go to a loan aggregator website to compare different fees, rates of interest, loan amounts, and other terms and circumstances that apply to your loan. While aggregators make it easier to find important information in one location, it is still a good idea to seek expert counsel. Multiple home loan inquiries should be avoided at all costs, since they may harm your rating. Loan inquiries are submitted to credit bureaus in order to verify a person’s credit score. A high number of inquiries indicates that the individual is credit-hungry, which might harm your credit score.
- Loan tenure – While picking the best lender is critical, choosing the right loan term is equally important. A longer term ensures low EMI and so makes it easier on the wallet, but the interest expense is significant. A shorter-term, on the other hand, will result in higher EMIs, which may be expensive.
- Decide between fixed or floating rates – Choosing a floating rate loan while interest rates are low means you may have to pay more interest if rates rise. Given the current situation, a fixed-rate home loan that locks in the current low rates may be beneficial. It’s a good idea to lock in a low-interest rate for the next 15-20 years, assuring consistent EMIs even when interest rates rise.
These are some of the factors which can help you to decide what home loan will be suitable for you. All of these factors are common and are useful for everyone who is approaching for a home loan.