5 key things to consider when obtaining home loans
Before you move out, you need to do some prep work and some groundwork to avoid the hassle in your home loan process.
Here are some factors you should consider:
Only part of the value of the asset is offered for loan by the financing institution. The owner must bear the rest on his own. Banks / institutions typically finance 75-90% of the cost of the property depending on the eligibility of the applicant, among other factors.
Associated costs: Besides the outgoing interest, the borrower has to pay other fees like processing fees, late penalties and foreclosure fees etc. which must be taken into account when applying for a mortgage. It is in the applicant’s interest to sort them out with the lender beforehand.
Type of interest rate: One of the most important choices to make when obtaining a home loan is to carefully choose between the two types of interest rate plans provided in the market as below:
Floating – Floating interest rates are subject to change over time, depending on changes in the RBI base rate and general market conditions. Variable rates are typically 1% to 2% lower than fixed rates, resulting in savings in the long run. This option is suitable in the event of an expected drop in the interest rate in the near future.
Fixed – Fixed rates, as the term suggests, do not change over time. This option is suitable when economic conditions indicate an increase in interest rates.
For a short-term loan (less than 7 years), it is advisable to opt for a fixed interest rate. If the tenure is longer than 15 years, it is advisable to take out a variable rate loan because you cannot predict the changes over such a long period. Ultimately, the applicant has to choose between floating and fixed interest rates depending on his convenience.
Adequate insurance: A lot of people don’t give the same importance to insurance when buying a property. It is considered an unnecessary addition to the home loan. By availing such life and / or health insurance, in the event of a medical emergency, the applicant does not have to worry about organizing the money for the medical emergencies. In the event of accidental death, the family will not at least worry about other expenses as there is a policy amount to take care of the rest in the absence of the claimant. It is therefore advisable to take out insurance while considering taking out a mortgage.
Finally, individuals should also check the required documents and read the loan agreement carefully. Taking out a mortgage is an important decision that can impact your financial health for years to come. Therefore, it is essential to know all the aspects and to benefit from a loan in total adequacy with the financial interests of the borrower.
The author, Ashish Jain, is Managing Director of Star HFL. Opinions expressed are personal
(Edited by : Anshul)
First publication: STI