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These have been specially designed so that you do not miss out on such a chance to make your dreams come true without paying a penny. However, availing a home loan can seem like a complicated process. There are several factors related to home loans that you need to know before availing the loan. The most prominent are listed below:-
1. Factors that can affect the eligibility criteria: The best way to calculate your home loan eligibility is by calculating the EMI. Generally, banks limit the amount to 40 and 50% of the borrower’s income – which includes basic salary and dearness allowance. It also considers the credit history of a borrower. So if you have any existing loans or a bad credit score, the loan amount will further reduce or you may have to pay an increased rate of interest on the home loan. People with stable income, strong repayment capacity and good credit score find it relatively easier to get loans as compared to those with uncertain income and poor credit history. Also, being a co-applicant can help you get a home loan easily.
2. Understand your loan type: Banks offer two types of home loans with interest rates – fixed interest loan and floating interest loan. Fixed interest loan is a type of home loan where the interest rates remain constant and the borrower has to pay a fixed EMI throughout the loan tenure. On the contrary, in case of floating interest rate, it varies as per the market conditions due to which the EMI amount fluctuates frequently. This is the reason why fixed interest home loans have a higher interest rate of 1 to 2.5% as compared to floating interest loans.
3. Interest rate: Whichever home loan you choose, do not forget to negotiate the rate. Although banks will always have an edge, you will have to negotiate on this, especially if you have been a loyal customer of the bank and have a savings account with the same bank. Negotiating will be much easier if you have a clear credit history. Apart from this, if you apply for the loan at the end of the month then you can also benefit. Since banks have business goals, they can be more flexible at this point in time if they want the business.
4. The Fine Print: The home loan agreement is a legal document that contains all the details of the loan. If you think that not paying EMIs on time will only lead to troubles, then you are wrong! Many sections are hidden in the fine print. Thus it is advised to read the final documents of the loan agreement carefully before signing on the dotted line. Be aware of loan processing fees, penalty charges, hidden clauses, service charges and prepayment penalties, etc. Any carelessness in this context can lead to major problems in the future.
5. Longer loan term means costlier loan: As a general rule of thumb, the longer the loan term, the more interest you are likely to pay over a period of time. Many people can afford this hike but not everyone can. Hence it is wise to apply for a loan amount that you can easily repay in a shorter tenure. This way you may have to pay a higher EMI, but for a shorter tenure without incurring a higher interest rate.
There are a few things you should keep in mind while applying for a home loan. Note that if you get a loan from a bank, it does not mean that you will be stuck there until your loan is fully repaid. You always have the option of switching. You only need to pay the processing fee and pre-payment penalty (if charged by your current bank) in this switching process.
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