By the end of 2021, India’s portfolio of home loans stood at Rs 22.4 lakh crore. Many Indians apply for housing loans around their 30s or 40s to afford a home for their family. After getting one home loan, a person needs to keep paying EMI for as long as the next 30 years. Therefore, one should get proper advice before jumping on the bandwagon of securing a home loan. Here are some guidelines that can help a person stay careful while taking out a home loan.
Estimate EMI and Check for Eligibility
You should find out how much EMI you will have to bear every month. The EMI amount should not be more than 60-65% of your total annual tax payments. After you get an idea about the EMI, you should start checking your loan eligibility for different tenures. Don’t make the mistake of opting for the longest term.
Read More: What is Home Loan?
A short loan tenure will require you to pay a higher EMI every month. But if you are looking for a low home loan interest rate, a short tenure will be the best. Remember, the loan amount cannot be more than 75-80% of the market value of your home. Therefore, you should start making arrangements for the balance amount or margin money.
Keep Track of Your Property’s Approval Status
If you are taking housing loans for resale properties or builder projects, you should be mindful of the following:
The property you are buying needs to be registered in the seller’s name. You should get access to everything from the first conveyance of the property to the latest sale.
If the property is self-constructed, a plan map that has been approved needs to be available.
You won’t be able to secure a home loan in gram panchayat areas. Banks also don’t approve loans for buildings without approved plans.
Choose Between Floating Rate or Fixed Rate
You need to choose between the floating rate or fixed rate depending on the current market scenario. A floating rate loan might be beneficial if the rates are likely lower in the upcoming months. A significant advantage of floating rates is that you don’t need to bear prepayment charges.
Fixed rate home loans are beneficial for people whose monthly cash flows cannot afford additional expenses after paying EMIs and other expenses. But choosing fixed home loan rates will mean that you have to pay a higher interest rate. You will also need to bear the prepayment penalty charges. But the upside is that if the rates go higher in the upcoming months, you will still be able to pay as per the rate decided previously.
Some banks offer fixed rates for the initial months and change them to floating rates later. You should always find out about the applicable rate after the period of fixed rate ends. When fixed rates are converted to floating rates, the interest rate often becomes higher.
Learn About Prepayment Charges
You should always go to a lender who allows you to prepay your loans without extra charges. The prepayment penalty charges can vary from 1% to 3% of the total loan amount. Before taking out your home loan, you should learn about this aspect from the lender.
Since you will be paying the EMIs for your home loans for quite a long time, you should be mindful of the abovementioned factors. You should settle with the best interest rates and ensure that you can afford to repay the loan within time.