A home loan from various lenders like SBI home loan, Axis Bank, HDFC bank, Bank of India, etc. endows you with the necessary funds to purchase your dream house. There are various choices that you might have; however, there is a specific set of crucial points that require being factored in before availing a home loan. Discussed in this blog are the distinct things you must ensure to factor in before availing a home loan –
Loan proceeds –
This is one of the important lookouts. While you can avail a massive amount if you hold a strong score, you must not overstretch. Remember that home loans are commitments for the long term. You must go for an amount you can repay quickly on time without any fail, not just now but even in the future.
Factor in all your future and existing liabilities before determining the loan proceeds. Remember that purchasing a home is only one of the crucial life goals. As you go ahead, there will be more responsibilities your way. In such scenarios, it may turn out to be challenging to meet the high EMIs (equated monthly instalments).
The EMI that you meet towards your home loan is directly proportional to loan proceeds. This means the higher the proceeds, the higher would be the EMI. So go for a loan that is light in your pocket. Ensure to also remember that the maximum loan proceeds that you opt for depend on your property value and income. Also, lenders factor in your current liabilities and cash flow before approving the proceeds.
Rate of interest –
This is another important consideration as the interest rate has a direct impact on your loan EMI. You can get a home loan either on floating or fixed interest. In the latter case, the interest rate stays constant across the repayment tenure. In the former case, the rate of interest differs as per the market conditions. For instance, suppose you avail SBI home loan at a fixed rate then the SBI home loan interest rate, if offered to you at 8 per cent per annum, would remain the same across the repayment tenure. However, if you avail the SBI home loan interest rate on a floating rate, then the rates may vary based on market movements.
Regardless of the rate of interest selected, ensure it is a competitive one. In simpler terms, you must ensure to opt for the lender who provides you with a competitive rate of interest. Compare the rates across distinct lenders and opt for the one which best matches your requirements and budget. Remember that women are at all times provided a concession on home loan rates and thus, it makes complete sense to go for a joint loan to enjoy the benefit of a lower home loan interest rate.
Loan repayment tenure –
Often individuals fail to factor in this account. However, you should keep a thorough watch on this aspect. While a home loan is a long-term commitment, selecting the correct repayment tenure is important as it directly impacts the interest outgo. In the case the repayment tenure is short, your loan EMIs would be high but the interest would be lower. In contrast, if the repayment tenure is long, then the interest constituent would be high and subsequently would be the overall repayments. Loan repayment tenure can even be utilised to increase the eligible loan proceeds. A higher repayment tenure while offering higher loan proceeds, enhances the interest constituent, hence this is a trade-off that you must balance.
So, ensure to select a repayment tenure where you can repay the loan and keep a thoroughly tight lid upon the interest constituent outgo.
Processing and other crucial fees –
Lenders charge processing fees for processing your loan application. These are to cover expenditures incurred on evaluating the value of the property. Fees differ across lenders, and it is important to go for the lender with the most competitive fees as high fees can considerably push up borrowing expenses.
Equally, it is important to look at other fees that are charged. Ensure to be clear on such fees before you seal the deal.
Home loan eligibility parameters and the necessary required documents –
Ensure to beware of the eligibility parameters and the documents required to process your home loan application. Most lenders come with a specific set of parameters that you must meet before you are eligible for a home loan. In the case you are unable to meet these, your home loan application may be rejected. Thankfully, most home loan lenders ensure to specify the eligibility parameters along with the documents required on their site. Ensure to go through the site before you place an application for the home loan. Doing so would enhance the chances of securing approval for the home loan application on the very first go.
Home loan insurance –
Loan cover insurance is a kind of insurance plan that offers financial protection to a family member in the scenario of your unfortunate death. In the case of an unfortunate death, the insurance company tends to repay the outstanding loan proceeds for which the insurance was bought. This ensures all your family members are covered against the financial burden of unpaid dues. Many housing finance companies and banks insist on purchasing a loan cover insurance plan to avoid defaults in the case of any unfortunate case.
Inability to make repayment –
Before you avail a home loan, you must anticipate your future financial situation as not having the potential to make home loan repayments or defaulting on a home loan can negatively affect your score. Apart from this, if you constantly missed out on making the monthly instalments, a lender may take legal action as well as sell off your home or property to recover the outstanding dues. Thus, if you are witnessing any monetary crunch, it is recommended to discuss with your lender and negotiate to get long repayment tenures. In the case you are an existing customer of the bank with a strong credit past record, the lender may accept your request.
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