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Diwali offers: How to choose the right home loan

Friday, October 20, 2017
By Property Team

During festival season, many banks and institutions offer home loans at discounted interest rates. However, before making any decision, you must cautiously check as well as have a clear understanding of the concept of home loan

Planning to buy your dream home? It is not always possible to have so much savings or ready cash for purchasing a home. Thanks to the facility of home loans, we get the opportunity to own our dream home. Many banks and financial institutions give us tempting offers to avail loans in the real estate market. However, one must be careful to collect all the related information before opting for any offer for loans. There are certain aspects of home loans that you must be familiar with before you make that application.

Choose with care
Since the loan taker is the customer, the option of choosing from the lenders is in his court. So, one should do enough research to decide on the bank or the financial institution. Keep in mind that don’t go by the offers of just one, but consider at least 5-6 companies before making your decision. Do check the terms and conditions they are offering and what exactly suits your requirements. While evaluating the lenders, consider both quantitative and qualitative aspects of the loan. For instance, the interest rate is important and may not vary much between the banks but customer service, internet banking facilities and other such features may differ extensively. You must consider these things as you have to manage with them for the rest of the loan tenure. The relationship between you and your loan provider is one that will continue for a very long time; make sure it does not turn sour.

Down payment and additional costs
True, you are taking a loan due to your inability to currently finance your purchase but keep in mind that a housing finance company (HFC) can only disburse 80 per cent of the total cost of the home. Things like registration fees and stamp duty amounts (10 or 12 per cent, depending on which state you reside in) are also included. You will have to make arrangements for the remaining amount of money and depending on how much capital you have, you can approach an HFC that requires you to make a lower down payment. Remember, even HFCs charge a fee that covers processing and administration.

Rate of Interest
First of all, people obviously look for loans that come with lower interest rates. The question is whether you’ll go for fixed or variable interest rates. As we know fixed rate of interest is generally higher, and the monthly EMIs would obviously be higher. So, it is always better to go for variable or floating rate of interest on your loan. Keep a check of the interest rate trend. If the interest rates have drastically increased in a short span of time, you need to reconsider your decision as it may increase your future EMIs considerably. For this, it would be better to have a timely follow up with the bank so that you can save on interest, when the rate changes in your favour

Eligibility
Applicants for the loan must be 21-years-old when the loan is sanctioned. The loan should be repaid by the time he or she turns 60 years old or before retirement, whichever happens first. To avail of a loan you must be employed or self-employed and have a steady source of income. The amount you can take as a loan will depend on your repayment potential, which is measured by your age, income, qualifications, number of dependents, assets, liabilities, continuity of occupation and capacity to save. Also, the maximum loan that can be sanctioned is 85% of the cost of the property, or the cost of construction, as applicable.

CIBIL Credit Score
Before approving the loan, every bank or financial institution checks for your credit score. Credit score is the score card of your financial life until now. With this, the bank reviews your financial credibility and the risk associated with their loan payment. A bad credit score will get you nothing, thus letting your dreams crashed. That's why it is important to know your credit score from the CIBIL website.

Extra Research
If you are buying a resale flat, ask other residents in the building where they took their home loans from. The point of this exercise is that if you approach the same housing finance institution as others who already live in the building, the finance institution may be quicker to give you the loan since they have already checked out the property.

Check Prepay option
If you chose to prepay your loan, housing finance institutions do allow prepayment but they often charge you for the pleasure, so the wise thing to do is opt for an institution that does not penalise you for this facility. When you do prepay, you will get an option on whether you would like to reduce the EMI or the tenure.

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