Have you made up your mind to buy your own house? If yes, then it’s about time that you decide on a budget and make yourself financially fit for the home buying journey.
For this, make sure the home you choose matches your risk profile aptly. The decision to opt for the right home loan involves research, planning and consultation. You must consider factors like the size of the family, type of home loan, and purpose of buying the house while deciding on a home loan.
So, if you have considered these facts and are still finding it hard to narrow down the right home loan for yourself, this blog is for you. It will be your checklist and help you pick the right home from all the home loan products available!
Your Checklist To Choose The Right Home Loan!
Say you liked the property in Mumbai and want to buy it. But merely knowing the property prices in Mumbai is not enough for taking a step ahead, deciding a budget and applying for a loan.
Here are a few things you also need to think about before you choose the right home loan for yourself:
- Your risk profile at the moment
- Can you commit to a long-term repayment agreement?
- Do you have enough cash in hand for all your other investments?
- Where do you see yourself over the ten years of your life?
Once you have answers to all these questions, here is the checklist to choose the right home loan for yourself.
Choose The Right Lender
The first step to taking a home loan is choosing the right lender. Speak to as many lenders as possible to see who is offering you the best deal. Consider things like:
- Processing fee
- Any other costs you need to bear while taking the loan
- The maximum amount of pre-payments you can make annually without incurring any additional cost
Get the feedback of other home loan borrowers of the lenders about their experience with the lender.
Select The Type of Interest Rate
The interest rate on your home loan impacts you as it determines your monthly EMI. Mostly, there are predominantly two types of interest rates are:
- Fixed interest rate
- Floating interest rate
Many lenders even offer hybrid loans, a mix of fixed and floating interest rates.
A floating-rate loan is a better choice when interest rates are elevated. But when interest rates are low, choosing a floating-rate loan would mean you may have to pay more interest whenever rates go up.
You may have to choose between a costlier loan that remains constant for the rest of the term and a cheaper loan that could go up as the rates rise. Hence, opt for a fixed-rate home loan that locks in low rates. It is a better choice as it ensures constant EMIs even if the interest rates are increasing.
Opt For An Optimal Tenure of Loan
It is crucial to select an appropriate tenure for your loan while finding the most suitable lender. The longer loan tenure reduces the EMI you pay and is easier on your pocket, but the interest expense is higher. A shorter tenure means higher EMIs and can be unaffordable for you.
When you apply for a home loan, go for the longest available tenure, as a relatively longer tenure yields the highest loan amount. As the years pass by, your cash inflow will increase, and then you can decide to prepay your home loan partially or completely. Thus, the aggregate interest expense reduces.
Compare Various Home Loan Products
Make sure you compare various home loan products available in the market based on factors like:
- Bullet payments
Check the number of bullet payments banks allow in a year without a penalty. The lender that offers you the maximum number of bullet payments is worth considering. - Pre-payment charges
The Reserve Bank of India (RBI) does not permit banks or housing finance companies to levy any pre-payment charge on floating-rate home loans. However, some home loan schemes might attract these pre-payment charges. Hence, avoid getting into home loan schemes that do not let you prepay the loan. - Costs of a balance transfer
Most lenders may not talk about it but make sure you ask them clearly about the costs involved in moving out to another bank midway through the tenure of your loan. Discuss any penalties levied on an early exit upfront clearly.
Consider More Than Just Financial Aspects
Make sure you also consider the below aspects other than the financial aspects:
- Will your lender inform you about the rate change and guide you to make the most of the new terms?
- How accessible is the lender to you?
- How flexible is your lender to making changes in your loan schedule?
- What do the customer reviews of your lenders say?
- What are the service standards of your lender?
- How is their customer service and after-sales service?
- What are the timelines of loan disbursal?
You can find some lenders that do not keep the borrowers in the loop at times, and that is not a rabbit hole you would want to be in, right?
While these may seem like a handful of questions, they will ensure you are covered from every aspect, not just financially.
Few More Parameters Worth Adding To This Checklist
While the above checklist is pretty elaborate, here are a few more parameters to consider while choosing the right home loan for yourself:
- The reputation of your lender
- The terms and conditions of lending
- Insurance cover to guard your family against banking dues during the unfortunate turn of events
- The external benchmark set by your lender
Let’s Wrap Here!
Choose the home loan option by checking out the various advantages and disadvantages each lender is offering you. Make sure you settle for a reputed lender that answers all your queries. It will ensure you have peace of mind while entering into an agreement for a home loan and throughout your tenure.
