The Home Loan Game!
By EVENTE CLINIC
Buying a home in India is a dream of every NRI and with the current property price in the big cities, you need to take a big home loan to get the house of your dreams. Taking a home loan is easier said than done. Most of us have no idea of all the formalities that one needs to fulfill to get a home loan approval.
We might think we have carefully chosen the home loan but in reality, a lot of people make simple mistakes when it comes to their home loans. These simple mistakes can cost you a huge amount of money over your loan tenure.
So in this article, we will discuss some important points each individual should know and do before applying for a home loan.
“I would recommend having a stable solid income. If you are self-employed, have at least two year’s tax returns. Most banks want to see solvent borrowers with steady incomes. So it’s very important to keep your current job.” – Namrata Pandey, Managing Director, Evente Clinic
Things to Consider
Research – Every bank is offering home loan options, which one to chose? The answer to this is not a simple one. You need to consider various parameters in choosing your bank. There are three crucial factors that formulate a loan – Down payment, EMIs, and Repayment Tenure. Do detailed research on this or you may ask help from the experts.
Choose Suitable EMIs – The equated monthly installment amount depends on you. Banks offer varied EMI options to cater to and suit different needs of the borrowers. EMIs also depend heavily on the down payment you submit at the time of making a house purchase. The bigger the sum of down payment, the lesser the stress of the outstanding amount being converted into EMIs. It is also best to ensure that your chosen EMI amount does not exceed 45% of your total income.
Loan Type – There are two types of home loans based on the interest rate—fixed and floating. As the name suggests, a fixed rate loan is where the interest rate doesn’t change with market fluctuations. Usually, this rate is 1-2.5 percentage points higher than the floating rate home loan. Floating interest loan, on the other hand, varies according to the market conditions. A fixed interest rate may seem more attractive in a high-interest regime, experts advice otherwise for various reasons.
Read the fine print carefully – After all, it is a legal document and therefore often incomprehensible. You may think a ‘default’ is only if you do not pay the EMI. However, there are some banks who define default as when the borrower expires, gets a divorce (in case of joint-loans), or the borrower is/are involved in any civil litigation or criminal offence. Be careful about the add-on charges and penalties. It’s not just the interest that you pay. There are additional charges such as administrative and service charges or processing fees.
Relation between Time and EMI – An increase in the base rates by RBI means the banks will also increase their floating home loan rates. For the borrower, it means a higher EMI. Many people can’t afford such rise if they were already on edge and often request the bank to increase the loan tenure to bring down the monthly outgo. While it can be a temporary relief if you are in a desperate situation, in the long term you actually end up paying more.
Namrata Pandey, MD, Evente Clinic says, “I would recommend having a stable solid income. If you are self-employed, have at least two year’s tax returns. Most banks want to see solvent borrowers with steady incomes. So it’s very important to keep your current job.”
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