Important Things You Should Consider Before Taking Home Loans

Important Things You Should Consider Before Taking Home Loans

Buying a house is one of the most important and biggest decisions that you or your family could ever make in the life. After a lot of planning and financial savings, a person comes to the decision of purchasing a house of his dreams. But there is so much to navigate through before settling down with that one perfect option. Suppose, if you are planning to take a home loan, it is essential to understand all the specifications related to it.

Speaking of home loans, while there are numerous banks that seem eager to lend, getting a loan amount sanctioned could be a tedious task at times. Also, just like every other financial work, it is important to understand how the process of availing a home loan from the bank works.

On that note, let’s take a look at the important things you need to keep in mind before taking home loan:

1. Factors affecting the eligibility criteria

A subtle way to find out whether you are eligible for taking home or not is by calculating the EMI. Banks usually limit the instalments at 40-50% of the borrower’s salary, i.e, basic salary of the borrower plus dearness allowance. Remember, any other kind of allowance or reimbursements will not be considered for this.

Additionally, if you already have any liabilities, let’s say another loan, your eligibility automatically goes down further.

Another thing which determines a person’s eligibility of taking home loan is the number of dependents. Higher number of dependents implies lower capacity of repayment.

2. What is your loan type?

There are two types of loans based on interest rate – Fixed and Floating. As the name is defining itself, fixed rate loan is where the loan amount doesn’t change even if the market fluctuates. On the other hand, floating loan varies according to the condition of market.

While you must be thinking that fixed loan could be a great option to consider, experts recommend the opposite. According to the financial experts, fixed nature of a loan itself is the biggest disadvantage if your loan is for a longer period of time. However, the floating loan could be beneficial for the borrower unless if the economy indicates a sharp rise in interest rates in future.

3. Associated charges

Always keep this thing in mind that the rate of interest is not the only cost you have to pay while taking home loan. There are several other charges associated with the loan amount which the borrower is accountable to pay such as processing fees, penalties on late payments, and foreclosure charges.

Notably, the foreclosure or pre-payment charges are only applicable on the fixed rate loans.

4. Negotiate the interest rate

Whether you opt for fixed rate home loan or floating one, always remember that you can negotiate on the interest rates. Though, the bank will have an upper hand, you can still haggle, especially, if you are an old customer associated with that bank from a long time.

5. Loan tenure

The loan tenure of a housing loan can be extended to as long as 20 years, which means you can pay the loan amount in 240 instalments. While the long-term loan is more conducive for monthly savings as it eases the burden of EMIs, loans for the shorter time is ideal for the overall savings on interest payment.

6. Check your credit score

Your credit score plays an important role when you go for taking a housing loan. A healthy score, preferably more than 750, can help the borrower to secure a loan at lower interest rates. It will be beneficial for you if you clear all your dues in advance and look for ways to build a healthy credit score in the months leading to availing a housing loan.

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