Tips For Home Loans
Credit score is one of the most important and essential factor which banks consider before providing any loan to its customers. So, any individual who desires to avail a home loan should maintain a good credit score as it is an essential requirement to apply for any kind of loan within the banking sector. So, it is important to have a CIBIL score of more than 750 to be able to avail a home loan and earn better interest rates on your home loan. Maintaining a good credit score is not tough and can be done by making timely payments for your credit cards and existing loans without fail.
- Interest rate
Every individual should check and consider home loan interest rate of several banks and financial institutions. Anyone who wants to avail home loan should compare different lenders for the lowest interest rates available. Before that one should be aware of the different types of interest rates available. There are two types of interest rates – floating and fixed. Under fixed home loan interest rate, the EMI’s don’t vary over the home loan tenure. But, under floating rate, the interest rate is calculated based on the MCLR and changes over time which proves to be beneficial as interest rates are expected to fall in future.
You should always prefer floating rate of interest over fixed interest rate as your monthly EMIs would be higher if you opt for fixed interest rates, even if fixed rate comes with an attractive offer. Fixed rate of interest comes with a fixed liability and also a foreclosure penalty(if applicable). The floating rate of interest varies from time to time and can help you save money on your interest, other expenses and monthly EMIs.
- Home Loan Tenure
Every individual who desires to avail a home loan should decide home loan tenure before availing a home loan. Your home loan EMIs directly depend on your home loan tenure. Banks tend to prefer home loan applicants with shorter repayment period. Short repayment period is also beneficial for you as it decreases the home loan interest burden on your EMIs. With shorter tenure your monthly installments will increase but eventually it will help you in decreasing your home loan cost.
- Processing Fees
Processing fees is the charge that any home loan borrower needs to pay to the lender once the home loan application is accepted. Generally different banks or financial institutions charge loan processing fee up to 1% of the home loan that they disburse. You need to search for the right bank that charges low processing fee or charge negligible processing fees.
- Equated Monthly Installments
Equated Monthly Installments is the payment that a borrower needs to make every month towards repayment of the home loan. The equated monthly installment amount depends on you. EMI amount also depend on the down payment you make at the time of buying your home. More the down payment you make lesser is the stress of outstanding amount which will convert into EMIs. It is always recommended to ensure that your EMI amount does not exceed 50% – 60% of your total income. You can Calculate EMI through Home Loan EMI Calculator
- Home Loan Documents
Before availing a home loan, you should always read the terms and conditions of your bank or financial institution carefully before signing the documents related to your home loan. You should be aware of the different charges, fees and penalties mentioned in your home loan document.
- Down Payment
Generally when you avail any home loan, you are required to pay 05% to 20% of the total home loan amount as down payment. The rest of the home loan amount is converted as your home loan EMI, which you will be required to pay monthly. If you have surplus cash available, you can increase the down payment as it would help you to save on the interest to be paid in future.
- Additional Charges
Apart from your home loan EMIs, banks and financial institution may charge additional fees at the time of application. Make sure that you discuss these charges with your bank or financial institution beforehand.
- Pre-payment penalty
According to the recent RBI guidelines, any bank or financial institution is not supposed to charge the prepayment penalty for individual borrowers ( not applicable for institutional borrowers or a business unit). With no penalty on prepayment, you can freely make any partial payment whenever you have surplus cash available after availing your home loan.
- Foreclosure Norms
Foreclosure of your home loan means making the repayment of the outstanding amount before your home loan tenure ends. The sooner you repay your home loan, the lesser interest you pay. Banks usually charge foreclosure penalty for repaying home loan before the tenure ends. With floating home loan interest rate, your bank or financial institution will not charge any foreclosure penalty for individual borrowers only.
Keeping the above mentioned points in mind before availing a home loan is essential to avail the right kind of home loan product for your need.