Buying a home is no easy task. There are a lot of factors to be considered while doing so. You might have spent a lot of time weighing the pros and cons of different houses based on the location, amenities, and cost. But have you been thinking of the right home loan to finance your dream home?
Home loans may make it easier to purchase your dream house. But, it is not something that you should take lightly. You can spend many years repaying your home loan. It is a long-term commitment that requires careful consideration and research.
These days, many types of home loans are available. How do you know which one is ideal for you? In this article, you will learn how to choose the home loan that best suits your needs.
How To Choose The Best Home Loan For You?
Let’s take a closer look at some factors that may influence your decision to choose a home loan:
You can start by checking the lender’s reputation in the market. It can always help to learn more about your lender. Are they reliable? Are they being transparent about all their charges? Are they mobile-first? How do they keep your documents safe? These are some questions that you need to find answers to before selecting a lender. You can look up the lender on the internet, or browse through their website.
There is a limit to the amount of money that you can borrow. Some lenders might be prudent and be willing to finance around 70-75% of the total required amount. Whereas, some lenders might be willing to finance up to 80%. This depends on your income level, repaying capacity, and the value of the property.
Carefully, consider the amount of loan that you want to take. It is wise to not go beyond 40% of your net household income.
Rate of Interest
This might be one of the most important factors to consider when taking a home loan. Different lenders will offer different rates of interest.
The rate of interest can be classified into two types-
- Fixed Interest Rate- Some loans may include a fixed rate of interest. With a fixed rate, your interest rate remains the same throughout the tenure of the loan. Even if your lender revises the interest rates in the future, your interest rate will remain fixed.
- Floating Interest Rate- Some schemes may offer a floating rate of interest. Here, the rate of interest may change according to guidelines given by the Reserve Bank of India. This means that throughout the tenure of your loan, your interest rate can get higher or lower.
Pre-payment of Home Loan
You should check if your lender allows prepayment of the loan. Consider the ease with which the lender allows for pre-payment.
There is another factor to consider here- pre-payment charges. If you choose a floating rate of interest, you will not be required to pay any charges on the pre-payment of your home loan. The Reserve Bank of India does not allow financial institutions to levy such charges on floating rates of interest. However, if you choose a fixed rate of interest for your home loan, you might be required to forego an amount in the name of pre-payment charges. Make sure to check for the terms and conditions of pre-payment while deciding on a home loan.
When you apply for a home loan, there are certain charges that you need to consider. One such charge is the processing charge. This is levied for processing the loan application and to cover the expenses incurred by the bank while assessing property value and checking other loan-related documents.
Tenure of loan
It is important to check how long the tenure of your home loan is. The longer the tenure, the lower the EMI will be. This reduces the financial burden to some extent. However, loans with a longer tenure also have a higher interest outgo. On the other hand, loans with a shorter tenure will have a higher EMI but a lower interest outgo. You should take your paying capacity into consideration while making this decision.
You can also opt for a home saver loan. This works like an overdraft account. In this, you can deposit your extra savings into the account linked with your home loan account. The bank will deduct money from this account while calculating your interest. Interest is only calculated on the balance amount. Due to this, you can save a fair amount of money on the overall interest.
The Bottom Line
Home loans are a long-term financial responsibility. Any decision related to them should be taken after careful consideration. It can not only affect your present financial stability, but it will also have an impact on your financial standing in the future.
We hope these details gave you a better understanding of the factors that should be considered before taking a home loan. If you feel unsure at any point in time, you can reach out to reliable sources like Piramal Finance and read further articles on home loans.