Owning the home of your choice is a major financial goal that many aspire to attain in life. It is one of the major investments, emotionally and financially. Hence, purchasing a home requires massive financial help. If you are short on funds or are not looking to redeem your investments, then a home loan can come across as good financial help. It is one of the common kinds of loans that you can generally borrow from a housing finance company or bank to meet the financial goal of having your own home. With easy monthly EMI repayments and an option to select the repayment tenure according to your needs or requirements, a home loan comes across as a simplified solution to make your dream of becoming a homeowner come true. Here in this blog, major key parameters to consider while availing a home loan are discussed to simplify your application as well as the repayment procedure.
Interest rate
Your home loan interest rate plays a major role in determining whether to get a loan and which lender you must select. All of us know we must conduct thorough research before zeroing in on a lender. Besides this, you must even be aware of the distinct interest rate types charged by banks as well as housing finance companies (HFCs). Here are the distinct types of interest rates provided on SBI plot loan or home loans, HDFC plot loan or home loans and distinct lenders.
Floating rate of interest –
The floating rate of interest even called a variable rate of interest, might change during loan repayment tenure as this is subject to current lending interest rates. Your EMIs tend to change with a change in the rate of interest. With the current trend of falling home loan rates, it is recommended to go for a floating rate.
Fixed-rate of interest –
As suggested by the name, in the fixed home loan rate. The interest rate stays the same across the loan repayment tenure and thus your loan EMI witnesses not many changes. It helps if you go for a fixed rate of interest loan when the interest rate is low, and an upward trend is usually expected in upcoming times.
Hybrid rate of interest –
A hybrid rate of interest or combination rate is a blend of fixed and floating rates of interest. Many lenders provide a fixed rate for a specific period, which then is switched to a fixed rate of interest. This kind of rate can be a wise choice when you get a home loan at a lower rate of interest, which is expected to rise after a specific time period, but you plan to make the repayment of the loan before the floating interest rate begins.
Loan proceeds –
Your loan proceeds affect several things in a home loan. The interest rate usually varies for loan proceeds of up to 30 lakhs, over 30 lakhs, up to 75 lakhs and over 75 lakhs. As a home loan is looked upon as a commitment for the long term, it is recommended to go for the loan proceeds that you will easily repay over a long time period. In place of going for loan proceeds that qualify for, you must avail just what you easily can afford to repay with zero delays or default as this can negatively impact your score as well as your future loan eligibility.
Loan repayment tenure –
Home loans are usually taken up for a higher repayment tenure of as high as 30 years based on your eligibility. Opting for a higher loan repayment tenure assists you to reduce your monthly repayments and ultimately enhances your overall interest outgo. However, selecting a lower loan repayment tenure can cause a burden of massive EMIs. Hence, it is recommended to select the correct loan repayment tenure to make your monthly loan repayment, smoothly and safely from making massive interest constituent payments. In the case your property or land is under construction, the loan option may be sanctioned or processed in stages depending on your instalment schedule. In such a scenario, you must pay just the interest constituent known as pre-EMI interest. However, if you want to begin making principal repayment, you must begin paying pre-EMIs.
Down payment –
Suppose you placed an application for a home loan equaling Rs 70 lakh and the bank approves this for Rs 50 depending on your eligibility. In such a scenario, you will require paying Rs 20 lakh from your own funds. This amount that you pay from your pocket is known as a down payment. You must make a down payment of as much as you can without burdening or stressing much your budget as doing so would assist you to reduce your loan proceeds. The lower the loan proceeds, the lower the interest constituent you would pay. Many lenders offer 100 per cent loan proceeds of the property value depending on your loan eligibility. However, for you to avoid paying a massive interest constituent and to pay a comfortable repayment amount, you must make at least a 10 per cent to 20 per cent down payment.
Processing charges –
The lender levies a processing charge to process your loan application. The amount of the processing charge is based on the loan proceeds as many banks as well as housing finance companies or HFCs levy processing charges as a fixed percentage of loan proceeds. The processing charges for a home loan usually range anywhere between 0.50 per cent and 1 per cent of loan proceeds. However, a few lenders provide flat processing charges regardless of the loan proceeds. As the home loan proceeds are generally high, even a little difference in percentage may come across as a substantial difference.
Pre-payment fees –
As purchasing a home is a major financial decision for most, many are emotionally sensitive regarding owning a home at zero debt. Hence, they prefer to make the repayment at the earliest to lower the debt burden. Pre-payment can either be part pre-payment where you make payment in lumpsum towards the principal constituent or foreclosure where you make the repayment of the whole loan proceeds before loan repayment tenure completion. By making the part prepayment, you tend to save on considerable interest constituent amounts and become debt free faster. Most housing finance companies, and banks do not levy pre-payment and foreclosure fees after a specific period or post a specific percentage of loan or debt is cleared. However, a few lenders levy a specific amount for making the pre-payment and come with limitations on prepayments amount and number of prepayments. Hence, before you take up a loan, you must get a thorough idea regarding the prepayment fees and select a lender that permits pre-payment with minimal or zero fees.
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