Owning a home is a significant milestone in a person’s life, representing a substantial financial and emotional investment. Since the purchase of a house needs huge financial support, most people go in for a home loan from banks or financial institutions. With the flexibility to choose a loan tenure and easy monthly installments, a home loan can be a boon for home buyers. However, there are several factors to consider when applying for a home loan, some of which are illustrated below:
1. Interest Rates:
The interest rate is a vital factor that impacts the total cost of a home loan. Borrowers must also consider the options of fixed and variable interest rates and choose the one that best fits their needs. With a fixed-rate loan, the installment amount remains constant throughout the loan tenure. However, if there is an increase in the interest rate, the tenure may be extended accordingly. On the other hand, a variable interest loan could see the installment amount fluctuate during the loan tenure.
2. Loan Tenure:
Currently, banks are providing home loans with a maximum tenure of 30 years. Although a longer tenure may result in lower monthly installments, it also translates into paying a higher interest amount over the loan period. Additionally, financial institutions typically ensure that the loan tenure concludes before the applicant reaches the age of 60. Therefore, if you are 40 years old and applying for a home loan, the maximum loan tenure you could receive would be 20 years.
3. Loan Amount:
When applying for a home loan, the loan amount you are eligible for is typically calculated as a multiple of your annual income. However, since a home loan is a long-term commitment, it’s important to choose a loan amount that you can comfortably repay rather than the maximum amount you are eligible for. This approach ensures that you can make regular and timely installment payments without any delays or defaults.
4. Downpayment:
The down payment is the amount the buyer needs to contribute towards the purchase of the home, typically around 10-15% of the total cost, but it can vary depending on the buyer’s eligibility. A larger down payment results in a smaller loan amount, and thus, lower installment payments.
5. Charges and Fees:
Home loans come with several fees and charges that borrowers should be aware of. These may include processing fees, typically ranging from 0.5% to 1% of the loan amount, as well as flat loan fees charged by some banks. Additionally, prepayment fees may be charged, though these are often waived if made from the borrower’s own funds. However, if the borrower transfers their balance to another bank, prepayment charges may be levied. Some banks do permit up to four-part payments per year without any additional fees.
Apart from the factors mentioned above, it’s important to ensure that all the necessary documents required for the approval of the home loan are available. These documents may include KYC documents, income documents, and property documents. Some lenders may also require that the home be purchased jointly by the applicant and their spouse. Additionally, to mitigate the risk of default in the event of an unforeseen circumstance, some lenders may require the applicant to purchase a term insurance plan.
To ensure a hassle-free home-buying process, it’s recommended that applicants approach a bank to apply for a home loan. The bank will review the necessary documents and sanction a certain loan amount, providing the applicant with a sanction letter that’s typically valid for three months. With the sanctioned amount and any available personal funds in mind, the applicant can then search for a suitable home that fits their budget.
In conclusion, obtaining a home loan is a major financial responsibility, and it’s essential to weigh all of the aforementioned factors carefully and select the appropriate type of loan. It’s recommended to conduct research on the interest rates, loan tenures, and fees charged by different lenders before taking a final decision.
Click here to Download PDF
Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement
