A Comprehensive Home Loan Guide – From Application To Foreclosure
Purchasing a home is a long-term financial investment for most individuals, even an once-in-a-lifetime venture for the majority. With the steadily rising income of the Indian population and the massive trend of urbanisation, the real estate sector is looking forward to a steady rise in the upcoming years.
First-time home buyers may find the entire process overwhelming, with property hunting and arranging funds, which together can be a complicated procedure.
Here’s a comprehensive home loan guide detailing the entire process from application to foreclosure.
Choose The Right Lender
Arguably the most crucial factor while obtaining a home loan is to choose the right financial institution. Numerous lenders extend home loans with comparable features. Research all of them thoroughly before arriving at a conclusion. NBFCs are a popular choice among home buyers as they offer the best home loan interest rates, repayment terms as well as additional benefits.
Every financial organisation puts forth some eligibility criteria failing which you may not be able to obtain a housing loan. A typical set of eligibility criteria includes:
- One should be a resident citizen of India.
- They should be under a certain age.
- Salaried individuals should have a minimum work experience of 3 years, whereas self-employed individuals must have a continuous business pedigree of 5 years.
Determine The Loan Amount After Calculating EMI
There are a lot of factors that come into play while determining the appropriate loan amount, not the least of which is your monthly income. The EMI amount along with other fixed obligations shouldn’t be more than 40-50% of your total monthly income. Ideally, it should be below 30%. You may calculate the EMI for different loan amounts and tenors using a home loan EMI calculator.
The value of your chosen property also plays a crucial role in determining the final loan amount. Most lenders fund up to 80-85% of the property value.
One common mistake that most people make is they choose the highest available tenor as it brings down the EMI amount. The flip side is that it increases the total amount you pay as interest for the loan amount at the end of the tenor. The higher your tenor, the higher the interest you pay.
Choose Between Fixed And Floating Interest Rates
Fixed home loan interest rates are advisable for individuals who opt for a shorter tenor of around 10 years. Floating interest rates are revised as per the MCLR from time to time. They may even be revised by the lender in response to market situations. Over a longer tenor, floating interest rates have a higher chance of accruing a lower amount of interest.
Check Prepayment And Foreclosure Charges
Although home loan tenors may extend up to 20 years, the average time taken to repay the loan amount fully is estimated to be 12 years. If you accumulate surplus cash in hand, you may want to go ahead with a part prepayment or a foreclosure altogether.
Most financial institutions charge between 1% and 3% of the loan amount as foreclosure charges on fixed rate home loans. Check this aspect before availing a home loan. Part prepaying the loan amount will reduce the total tenor or the EMIs or both. It will surely reduce the total cost of loan you were liable to pay over the pre-specified tenor.
Buying a home is one of the most important things one does in their lives. Understand the process thoroughly to get the most beneficial terms and home loan interest tax benefits. Opt for lenders who offer part prepayments and foreclosure minus any associated charges.