USEFUL TIPS FOR HOME LOANS
So if you are planning to avail a home loan, here are
Firstly, take your own time and evaluate your expenses
and do a market survey about the property buying process. Buying a house, which
is way beyond your range, could affect you financially; banks help in financing
your dream home via home loans.
Eligibility Banks determine your
eligibility based on your repayment capacity and discuss about the loan amount
up front. The eligibility for acquiring a home loan is augmented by clubbing
income of your father/spouse/mother/son, by clearing your outstanding debts, by
stretching your loan tenure, Salaried individuals can increase their eligibility
by showing their performance linked income or bonus earned.
Secondly, Do your
own analysis and check the impact of your repayment of home loan on your monthly
expenditure, as a thumb rule, it?s recommended to make sure the EMI of your home
loan do not exceed more than 40% of your gross monthly income.
Interest rates best suited An important
factor that goes into your EMI calculations is the interest rates, which may
vary from bank to bank, so do compare them. Also do a complete and detailed
analysis of the various options like the interest rates i.e. fixed and floating
rate of interest.
Thirdly, if two banks give you the same amount of loan but
at different interest rates do your math and work out what's best for you.
Fixed interest loans charge an interest,
which remains the same through out the tenure of the loan. This means that the
consumer is immune to market risk or the possible upward movement in the
Hence, fixed rate is a good option when the interest rates
are expected to move up in the future.
As for floating rate loan, a consumer is
exposed to market risk and his gain or loss depends on the interest rate
condition prevailing in the market. Floating rate is beneficial if the interest
rate falls in the future. A floating rate is considered non-transparent and is
also known as 'adjustable rate'.
Fourthly, if you decide to opt for a fixed
rate loan, you can still switch to a floating rate loan in the future and vice
versa as and when rates go in your favour and if you do decide to switch, you
should take into account the cost of doing so and the interest rate benefits of
For a given interest rate, loan with a daily or monthly reducing
balance is better than an annual reducing balance loan. Interest rates vary
depending on the tenure of the loan, the amount of the loan and your personal
Insurance cover (an added cost) Also, many
banks may insist on getting your home insured to safeguard their interest. There
are various kinds of insurance covers available for you. Apart from getting the
mandatory ones you should try to get insurance as per your circumstances. You
also have a choice of getting insured from another company without any objection
from your bank.
Other costs The interest rates and EMIs are
not the only cost factor. A 1% administration fee and a 1% processing fee on a
Rs.10 lac loan, would amount to Rs.20,000.
Processing fees, administration
fees, valuation fee, legal fee, is to be paid when you apply for a loan and
other fees paid at closing. Many of these fees are negotiable. You should ask
for zero processing fees and zero-penalty for pre-payment option. If this were
not available, then lowest cost would be better.
Make sure you work out as to
how much these other costs add up to. So even though the interest rate may be
lower, it usually adds up to being expensive. If the EMIs may come out a lot
more than what you can afford on a monthly basis; try to redo the math with
changes in the tenure and loan amount (if possible).
Document required Most importantly, all
deals and offers agreed upon are supported by relevant papers. Self employed and
salaried require different documents to support the deal.
So make sure you
always ask for a letter on the banks letterhead mentioning the likes of, exact
rate of interest, processing fees, pre-payment charges along with
Before signing the documents, make sure you recheck all
terms and conditions.
Do make sure you understand and agree with each of the
clauses in the documents. Do not sign any blank documents. Even if it takes you
a few hours to fill-up the form, please do so.
Do not leave anything for the
executive to fill-up. It?s always better to get a legal opinion from someone on
your loan papers.
Do not under any circumstance give any false information.
This may amount to fraud and could land you in trouble.
Penalties Once you have received the loan
do your best to pay it back as quickly as possible. But this early payment might
invite a pre-payment clause.
Banks make their money off the interest they
charge and the sooner you pay back a loan the less money you will have to pay in
interest. When it comes to Home loans, penalties are binding, like if you chose
to pay up your entire money before the tenure, a Pre-payment penalty is charged.
So you should know about such penalties beforehand to avoid future
misunderstanding between you and the bank.