Home Loans: What You Must Know

Wish to own a house but don’t have the monies? Ok, so you intend getting financed by a bank or a financial institution providing home loans. Not a bad idea indeed. But do you know all that is necessary before you finalise from whom you would borrow to fund that coveted dream of yours? If yes, our best wishes are with you. If no, read on to get a hang of what you need to know before you sign the dotted line and pick up funding to own your dream home.

The process of getting a housing loan starts with choosing a property that you are interested in. Only once you zero in on the property, will your hunt for the correct lender begin. There are various lenders in the market ranging from private and public sector banking companies to financial institutions that specialise particularly in funding homes. But to be sure of the best deal and a smooth process, one should choose the right lender. The various lenders and their services should be closely evaluated before deciding on the right one suited for your needs.

Here are a few pointers that should help you select the right lender to borrow from:

Invest time to research your options

Home loans are marketed pretty aggressively by most financial institutions. Borrowers are lured with attractive interest rates and schemes. However, you must take a take a well-considered decision when signing up for a home loan. It is absolutely necessary that one educates oneself about the terms and conditions of the loan agreement, the charges and penalties involved, etc. Do not hesitate to ask the sales person or the bank to explain or clarify even the slightest doubt that you have in mind.

Servicing your EMI

Calculate the total loan amount you desire first on the basis of your financials and income. Then calculate how much loan you can actually afford to take such that it can be serviced properly. You must ensure that you would be able to pay your EMIs on time as the penalties for delays in EMI payment are fairly high.

Be a good negotiator

Do not hesitate to negotiate interest rates with the lender. There may be claims that the interest rates are fixed, but lenders do accommodate upto a few basis points on many occasions. Many a time, financial institutions reserve their best of rates for loans that are to be disbursed quickly. So, approach them only when you have finalised your property deal and when you require disbursement shortly.

Consider the loan tenure

While deciding on the loan tenure, there are certain factors that need to be looked at. The first one is the amount of disposable income at your hand. It is from this disposable income that you would be repaying your loan. If you have a low net disposable income, long loan tenures may suit you fine. But be aware in such a case, though the EMI would reduce, you would be paying interest for a longer period of time. A loan with a short tenure, would bring with it payment of lesser interest, but of course a higher EMI.

Maintain a good credit history

One of the basic requirements in today’s scenario is that you maintain a good credit history. This can be maintained, by making timely repayment of debts such as credit card dues, car loans etc. Produce proof to show your track record of repayment and timely servicing of debt. This would make you more eligible for a loan. Also, opting for a loan with a longer tenure could get you a higher amount.

Look deeper for hidden charges

When opting for a home loan, you should be aware of other charges that come with it. Lenders are prone to charge processing fees, service and administrative charges, etc. These charges are a percentage of your loan amount that is actually sanctioned to you, and not on what you actually take home. So check the lenders schedule of charges properly.

Read the loan agreement carefully

Don’t be afraid of the bulky loan agreement. Ensure you read it carefully, though it may seem a bit difficult. Your lender may agree to a lot of points verbally, but whatever is mentioned in the agreement, finally holds good. Never sign a blank loan document, even if the marketing personnel tell you to do so. Check the details filled in your loan document to ensure that the terms are the same as what you agreed.[PAGE BREAK]

Type of interest rates

One of the most important factors to be considered while availing a loan for buying a house is to look at the interest rates that are going to be charged on it. There are two kinds of interest rates viz. floating rate and fixed rate. Let us take a look at the salient features of these two kinds of loans.

Fixed Rate: Fixed rate loans are the loans that have a fixed rate of interest. The rate of interest is unaffected with the changing market scenario. This loan is taken by people who either prefer to know the exact cost of the loan, and are happy to pay a fixed amount or when there is an expectation that interest rates will rise in the future. However, there is a clause attached with the fixed rate loans that could actually result in eventually your interest rates turning out to be a floating rate. The rate of interest could come up for review after a certain period of time in order to keep in accord with the market condition.

Floating Rate: The floating rate is a pattern where the rate of interest is not stable. The interest rate fluctuates with the overall interest rate scenario. The borrower can gain from this type of interest charge when there is a dip in the rate of interest, bringing down the cost of the loan. This could also take a turn for the worse in case of an increase in the rate that takes the cost higher.

Apart from the above two kinds there is also another kind of interest rate that is prevalent in the markets which can be said that it is a mix of both the fixed and the floating structure.

Hybrid Structure: This facility is for those who are caught in two minds over the fixed and fluctuating loans. These kind of loans bring both into one option. First there is the fixed rate pattern where the borrower need not worry about the overall interest rate scenario. He can make payments based on a fixed rate and be protected for some time. The second stage is where the floating rate kicks in. For people hoping for a decline in the later stage of repayment, this is the ideal form of repayment as they might just be able to cash in on a dip in the rate of interest.

After you have done your due diligence and after reaching the comfort level, go ahead with the loan and enjoy the comfort of your dream home. Still confused? Write to us and we will be more than happy to help sort your queries.