In the past few years, home loans have become more accessible to Indians. Today, you no longer need a collateral to get a bank loan and the home loan interest rates are quite affordable as well. However, despite all these benefits, taking a home loan in India is still not easy. There are several things that you need to keep in mind when you want to avail this financing option. Here are 11 things that will help you understand the scope of home loans in India and take the right decision when you’re ready to buy a house:
- Check your eligibility for home loan in India
The first step towards applying for a home loan is to check your eligibility for the same. This means that you need to assess your financial condition and see whether or not you can avail a home loan. You can check your eligibility for home loan by using a mortgage calculator or by visiting the bank’s website. There are several things that the lender will consider before approving your loan application. You need to be aware of these so that you can prepare yourself for the home loan approval process. Some of the most important factors that you need to know before applying for a home loan in India include your annual income, existing debts, the tenure of your employment, your credit score, and your existing assets.
- Loan Amount
Your loan amount has an impact on a number of aspects of the mortgage. For loans up to 30 lakhs, over 30 lakhs, up to 75 lakhs, and above 75 lakhs, the interest rates typically vary. It is advised to choose a loan amount that you can comfortably afford over a lengthy period of time because a house loan is a long-term commitment. You should only take out loans that 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.
- Decide the tenure of your home loan
Once you’ve decided the loan amount that you need, the next thing that you need to decide is the tenure of the loan. The tenure of the loan basically refers to the number of years that you need to repay the loan. There are several factors that you need to keep in mind while deciding the tenure of your home loan. The most important factor is your repayment capacity. The longer the duration of the loan, the higher the EMI that you need to pay every month. Another factor to keep in mind is the home price that you’re planning to buy. The shorter the tenure of the loan, the lower the down payment that you need to make. So, if you’re planning to buy a high-value property, you can consider a shorter tenure of the loan to minimize the down payment.
- The Interest Rate
When selecting whether or not to apply for a loan and which lender to choose, the interest rate of your home loan is a key factor. We are all aware that before choosing a lender, we should conduct rigorous research. In addition, you should be familiar with the various interest rates that banks and housing finance businesses charge.
- Floating Interest Rate : As it is dependent on the current lending rates, floating interest rates, also known as variable interest rates, could change during the course of the loan’s term. With the change in interest rates, your EMIs will also fluctuate. It is wise to choose a floating interest rate given the present trend of falling home loan interest rates.
- Fixed Interest Rate : As the name implies, an interest rate on a fixed amount that stays the same during the course of the loan, keeping your EMIs constant. When the interest rate is low and an increase in the future is anticipated, choosing a loan with a fixed interest rate will beneficial.
- Hybrid Interest Rate: A hybrid interest rate, also known as a combination interest rate, combines fixed and floating interest rates. A fixed interest rate is frequently offered by lenders for a certain time period before switching to a fixed rate. When you obtain a house loan at a lower interest rate that is expected to increase after a particular period of time, but you intend to pay off the loan before the floating rate begins, choosing this sort of interest rate could be a wise option.
- Down payment
Consider a scenario in which you apply for a Rs. 70 lakh home loan, and the bank grants it for Rs. 50 lakhs based on your eligibility. In this situation, you will be responsible for paying out of pocket Rs 20 lakh. A down payment is the amount you contribute on your own. In order to minimise the loan amount, you should put down as much money as you can without sacrificing your finances. You will pay less interest the smaller the loan amount. Many banks will lend you 100% of the value of the property, subject to qualification. However, you should put down at least 10% to 20% in order to avoid paying high interest and guarantee a comfortable repayment schedule.
- Check the EMI of your preferred property
The EMI of your preferred property is an important factor that you need to consider before taking a home loan. The EMI of a property depends on several factors such as the loan amount that you need, the tenure of the loan, and the interest rate that you’re planning to get. You need to check the EMI for all the properties that you want to buy and then decide where to buy. The higher the EMI, the lower the loan amount that you’re going to get. If you’re buying a high-value property, you need to check the EMI and make sure that you have enough cash to make the down payment.
- Identify the source of financing and estimated EMIs
There are several ways to finance a home loan in India. The most common way to finance a home loan is to take a home loan from a bank. However, you can also finance your home loan by taking a loan from your family or friends. Once you’ve decided the source of financing, you need to look for the best home loan rates in India. You can visit the bank’s website or use a home loan comparison website to compare the home loan rates in India. Identify the source of financing and the estimated EMIs to know the total cost of the home loan.
- Compare the interest rates and EMIs
The interest rates on home loans in India vary based on the tenure and the loan amount. You can get a low home loan interest rate by choosing the best home loan rates in India. If you want to get a low home loan interest rate, you need to compare the interest rates of various banks and find the best home loan rate. Apart from the interest rate, you need to compare the EMIs of various banks before choosing a home loan. A lower home loan EMI means that you can repay the loan amount sooner.
- Processing fees
Lenders charge a processing fee to process your loan application. The processing fee depends on the amount of the loan, as most banks and housing finance companies charge a processing fee as a fixed percentage of the loan amount. The processing fee for a home loan is generally between 0.5% and 1% of the loan amount. However, some lenders offer a flat processing fee regardless of the loan amount. Since home loan amounts are often high, even a small percentage difference can make a huge difference.
- Home loan Insurance
Home loan insurance, or loan protection term insurance, is a type of insurance plan that provides financial protection to your family in the event of your unfortunate death. In the unfortunate event, the insurance company will repay the remaining loan amount for which the insurance cover was purchased. This ensures that your family does not have to bear the financial burden of unpaid membership fees. Many banks and home finance companies require you to purchase a loan guarantee plan to avoid default in the unfortunate event.
- Know about the lenders’/banks’ conditions
Before taking a home loan in India, you need to read the lender’s conditions and provisions. The lender may have certain conditions and provisions that you need to adhere to. For example, the lender may ask you to pay a certain percentage of the loan amount as down payment. The lender may also ask you to take a home insurance. Make sure that you adhere to all the conditions and provisions of the lender before taking a home loan. If you’re an existing home loan borrower, you can also refinance your loan to get a better home loan rate.
Home loans are one of the most common ways to finance your home. However, before you apply for a home loan, you need to make sure that you understand the different types of home loans available in India. You also need to understand the factors that can affect your eligibility for a home loan. Make sure that you know the terms and conditions of the lender before taking a home loan in India.
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