December 3, 2022

10 Tips to Consider Before Taking Home Loan in India

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Buying a dream home may be a once-in-a-lifetime decision for most of us and sometimes all our savings may not be enough to help us buy one. With northbound prices of property and interest rates on loans, it is important to make any decision regarding the buying of a home after thinking thoroughly. Home loans are readily available and one may have multiple lenders to choose from. What we often don’t realize is that while opting for a home loan, there are multiple factors that need to be taken into consideration. We give you some tips to consider before taking a home loan in India. 

Tips to Consider Before Taking Home Loan

  1. Do Market Research – Take your time and do thorough market research before making up your mind about which lender is offering the loan at the cheapest home loan interest rate. Did you know that some banks offer special concessions in loan interest rates to women borrowers? Loan agents may misguide you, so it is best to follow your instinct and trust your own judgment.
  2. Increase Down-payment amount – Minimum down payment amount for Home loans in our country is 20% while the rest maybe funded by the lending institutions. To keep EMI amounts smaller, it is always advisable to make as much down payment as possible while opting for a home loan. A Home Loan EMI Calculator helps you here. A home loan EMI calculator is a tool that helps you decide and understand the finance charges associated with the offered EMI, compare it with other banks offers, and choose the right tenor for the loan.
  3. Know Eligibility Criteria for a Home Loan – To qualify for a home loan one must meet the eligibility criteria set for it by the banks/institutions, such as salary, age, location, credit score, work experience, other financial burdens. One failing to meet the given criteria may have his/her home loan application rejected thus creating a negative impact on the borrower’s credit profile.
  4. Have a good CIBIL Score – The CIBIL Score is a 3-digit number ranging between 300-900 denoting one’s credit worthiness. It is important to have a score of 750 plus to get an attractive rate of interest on your Home loan. CIBIL data indicate that 80% of the home loan approvals given to customer who has a credit score of 750 plus. A low CIBIL score could get your Home loan application rejected or make you pay a higher interest rate. 
  5. Floating or Fixed Home Loan Interest Rates – There are two types of interest rates that banks or lending institutions offer for Home loans: floating and fixed interests. The floating interest rate goes up or down with the market. It moves in sync with a base rate. Whereas fixed interest remains fixed for the months as mentioned in the loan agreement. It is important to understand that in most cases floating rates work out cheaper than fixed rates in the long run but it is completely up to you to choose.
  6. Home Loan Tenor – Every home loan has a tenor and the borrower can decide on the suitable tenor as per his/her comfort. The home loan EMI directly depend on the home loan tenor. Banks prefer home loan applicants whose repayment period is short. A short repayment period or home loan tenor decreases the home loan interest burden. With a shorter tenor, the amount of your monthly installments will increase but eventually, it decreases your home loan cost.
  7. Know your Tax Benefits – Many people may not know about the tax implications and tax benefits that one may get for availing a Home Loan. It is important and necessary to know about this benefit. For instance, for the Principal amount, one can claim the maximum tax benefit of Rs 1, 50,000 under section 80C of the Income Tax Act, and the interest paid up to Rs 2, 00,000 can also be claimed as a tax deduction.
  8. Compare Processing Fees – Processing fees are a part of the Home loan process and charged by banks or lending institutions for processing your loan application although they do not guarantee approval or disbursal of the same. Many a time, home loan processing fees are non-refundable. Enquire in all the banks and compare the respective processing fees before you finalize.
  9. Discuss Pre-closure charges If Any – Some banks put a clause that you cannot pre-close your loan without paying an additional amount in the form of charges for the interest lost by them for pre-closing the loan. Recently RBI banned this but there are institutions that still follow this norm. Try and save up to foreclose your loan so that the same fund used somewhere else more judiciously.
  10. Read the documents – Read everything written in the loan agreement and other documents carefully before you sign on the dotted line. As a learned citizen, it is very important to be aware of the terms and conditions mentioned on the papers and what will be the consequences once it signed. This will make the journey smoother.

The Final Word

Buying a home is a big financial decision and one must not hastily rush into getting it based on any one factor. Analyze all the pros-cons properly. Talk to people who have already taken home loans and consult 2-3 banks or housing finance companies and then decide accordingly. Remember it is your home and financing it should be a smooth procedure and not a headache.

About Post Author

Author

Rajdeep is a well-known financial advisor with the ability to keep track and predict market trends with the utmost accuracy. He has been managing portfolios for over 10 years now, helping his clients achieve their dreams of security, financial freedom and total peace of mind.
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