A home loan is a boon to almost all property buyers. It not only reduces the burden to finance the dream home, but also reduces tax liabilities to a certain extent. Here are 7 important tips one must consider before opting for a home loan, to reduce hassles in the process, as well as to save some more money.
1. Do your own research
Home loans are marketed pretty aggressively by most financial institutions, luring investors with attractive interest rates and schemes. It however pays to take decisions wisely before taking the plunge. Educate yourself about the terms and conditions of the loan agreement, penalties charges etc. Do not hesitate to ask the sales person or the bank to explain or clarify even the slightest information.
2. Servicing your EMI
Calculate the total loan amount you desire by yourself first on the basis of your financials and income. Remember, you know your money best. So calculate how much loan you could actually afford. Ensure you would be able to pay up your EMI’s on time. Penalties for delays in EMI payment are a heavy amount. If you are holding a temporary job, do make a realistic calculation of how much you would be able to service every month.
3. Negotiate the interest rate
Do negotiate your interest rate with the lender. Despite all claims of being fixed, lenders do accommodate up to a few basis points. Many a times, 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 you require disbursement shortly. Sometimes, the month end may prove advantageous for you. Most lenders have monthly targets to complete, so if you are around the end of the month, your negotiating could probably fetch you an attractive rate.
4. Deciding on the loan tenure
While deciding on the loan tenure, certain factors need to be considered. One such important factor is your disposable income at hand. It is from this disposable income that you would be repaying your loan. Factor in things like the nature of your job, promotions, job change etc… 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. Opt for shorter loan tenure only if you have adequate disposable income at hand. Many experts advocate not to extend your loan tenure beyond your retirement age.
5. Increasing your loan eligibility
One of the basic eligibility aspects lies in the borrower’s credit history. Ensure you maintain a constant credit history, by 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. The reason being, the EMI paid each month, per lakh of the loan, would be lower in such cases.
6. Charges you should know about
When opting for home loan, you should be aware of other charges that come with it. Lenders charge processing fees, service and administrative charges. These charges are a percentage of your loan amount that is actually sanctioned to you, and not on what you actually take home. When the EMI’s start rolling in, charges for swapping post-dated cheques, modifying monthly instalment or tenure etc would be billed to you. So check the lenders schedule of charges properly and if possible avoid making such changes.
7. Reading the loan agreement
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 it’s what is mentioned on the agreement that finally holds good. Never sign a blank loan document, even if the marketing personnel tells you to do so. Check the details filled in your loan document to ensure that the terms are the same as what you agreed.
Written by Ramya Ramachandran
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