Anyone familiar with Indian culture and conditioning knows that owning a house is a lifelong dream for many. Even though millennials have displayed a lower interest in homeownership in the last couple of years, there is still a considerable housing market in the country, and one of the several factors backing the trend is the easy availability of home loans.
Buying a home or taking a home loan is certainly not an easy task. It is a huge responsibility since it involves a large sum that you need to repay over the years. Naturally, this calls for a massive amount of planning, strategising, and research. A significant decision here is to choose the lender for borrowing your home loan. However, to make the right choice, you need to ask yourself multiple questions.
1) Which lender is offering the most reasonable interest rates?
One of the biggest factors that will make a tangible difference in your home loan repayment experience is the interest rate as EMI payments are directly related to the home loan interest fee. For a salaried employee, this means spending a percentage of their income on EMI, which in turn could have a contraction effect on their other expenses.
Such is the importance of interest rate as a parameter that some customers even opt for a ‘balance transfer’ - the process of transferring one’s home loan from one bank to another for lower interest rates and other benefits. However, transferring a home loan can be a tedious process and requires the applicant to fulfil the eligibility criteria.
2) Is the offer as lucrative as it seems?
While home loan advertisements can make the offers look lucrative, it is crucial to read the fine print. The contract may include anything ranging from a consultation or inspection fee to other guidelines. Therefore, look at the entire loan contract while deciding what works best for you.
3) What is the total cost of the loan?
The total cost of a home loan is not merely the interest rate. It also includes several other charges that are often overlooked such as processing fee, GST on the processing fee and consultation charges, among others. At the same time, it would be a fallacy to assume that a lower or zero processing fee is always the better choice. The processing fee is more of an administrative fee, and there can be reliable lenders that charge a significant amount. But what is truly important while considering the total cost of a loan is the time over which it is spread. A loan spread out over a longer duration would generally prove to be more expensive than one that is repaid sooner. So, if you have plans to prepay your loan after a certain number of years, it is always best to look into the prepayment policies and charges of a lender. Some lenders impose a penalty for loan prepayment.
4) Does the lender meet your requirements?
Look whether the lender is offering the amount you want. Most lenders use monthly salary as a basis to decide the loan eligibility of an individual. However, the maximum loan amount is determined based on the value of the property. As of October 2020, the RBI has relaxed the loan-to-value (LTV) rules to make home loans taken till March 2022 cheaper.
5) How accessible is the loan?
Credit scores, monthly salary and collaterals are specific parameters that help lenders decide whether applicants are eligible for loans or not. But for salaried professionals who do not have a good credit score, non-traditional lenders such as loan apps can also be an option.
6) How long will the process take?
Loan approval and processing can take a few weeks to even a month. The process requires inspection, documentation and other paperwork. Hence, understand the disbursement process to avoid any troubles later. Overall, extensive research and proper assessments are crucial while identifying a home loan lender that would best suit your needs. There is a lot at stake since any default on your loan repayment can potentially spoil your credit score. Therefore, correctly analyse the interest rates, read the fine print and the lender’s policies and guidelines. The process may look tedious, but going through these considerations is a small price for the reward of making your dream home a reality with a comfortable loan repayment journey.