The Reserve Bank of India’s decision to keep the repo rate unchanged at 4% has increased the convenience of new as well existing home loan borrowers. This move by the apex bank is likely to keep the housing loan interest rates low, helping borrowers to easily repay their loans.
Housing loan rates are currently at the all-time lowest, but availing this financial product is still a journey in itself. Therefore, before beginning, it is necessary to consider some pointers that can aid prospective home buyers to get the best possible deal.
Planning to apply for a housing loan? Remember these pointers
Availing of a home loan is a significant financial commitment, and borrowers need to select the right product to enjoy a hassle-free borrowing experience. In this regard, they can keep the following pointers in mind.
Interest rates and type
The first point to consider before applying for a housing loan is the rate of interest applicable on it. Interest amount constitutes a lion share of any debt repayment; hence, any changes in it can make a significant difference.
Additionally, since housing credits are a long-term financial commitment, any minor shift can help to reduce the total cost of borrowing.
Along with the home loan interest rate, individuals should also take into account the types of rates available in the market. Typically, the financial institution charges either a fixed or a floating rate of interest. Even though both interest types have their benefits, the floating rate of interest can lower the total outstanding in the long run.
Following the selection of interest rate and its type, individuals should consider the EMIs of their housing loans. Since it is a monthly obligation, it is ideal to calculate the same in advance and then apply for a loan amount as per one’s repayment capacity.
Since experts suggest keeping the FOIR under 40%, borrowers can work accordingly to keep their monthly instalments within 40% of their income to maintain this ratio. It will help them to better their credit profile.
Prospective borrowers can use a home loan calculator for this purpose for quick yet accurate results.
Since the EMI amount depends on the down payment, it is vital to check this pointer before applying for a housing loan. Usually, individuals need to pay about 10% to 15% of their total home loan value as the down payment.
However, as per experts, individuals should try and make a substantial down payment, preferably above 20%. It will lower their total outstanding amount and the EMIs.
Considering the tenor is essential. Typically, a home loan in India comes with a tenor of up to 20 years, and lenders allow individuals to select one as per their convenience. Here is an example to simplify this discussion –
You have opted for a loan of Rs.20 lakh with a repayment tenor of 20 years at an interest rate of 7%. Your EMI here will be about Rs.15,000, but if you opt for a 15 years tenor, this figure will increase to Rs.18,000.
A point to remember here is that, even though reducing the tenor may increase your EMIs, it will help you to save on total interest payment and vice versa.
Like any other credit option, home loans come with a set of additional charges, like processing fees, late payment charges, foreclosure charges, etc. Computing these charges in advance can help individuals find their total cost of borrowing and plan accordingly.
Last but not least, it is vital to check the home loan eligibility criteria in advance. Since these requirements alter with every lender, borrowers need to review the one set by their preferred lender and work accordingly to avoid any rejection.
Apart from these pointers, borrowers can also check for pre-approved offers when they apply for a home loan. These offers expedite the loan application process and help borrowers to source the required funds quickly. Applicants can now check their pre-approved offers online by providing their essential contact details.
Home loans have paved the way for individuals to purchase a house without much hassle. Borrowers only need to consider the few aforementioned pointers to enjoy a better borrowing experience.