With home loan interest rates hovering at less than 7%, this is considered the best time to purchase your dream home. If you consider the tax benefit, too, you will realise that a home loan interest is just around 5% now.
However, before getting carried away by the interest rate, you have to keep a few things in mind. A home loan is a long term financial commitment, and you need to select the right lender and choose the best loan option.
This article lists all the factors you need to consider when choosing a home loan. Read on to find out.
Rate Of Interest
Currently, home loans are available at an interest rate of around 6.65% in India. There is also a 0.5% reduction if the borrower is a woman. Hence, it is ideal to get a home loan such that the primary owner of the property is a woman.
Equated Monthly Installment (EMI)
EMIs have two components – the principal and the interest. EMIs are the fixed amount you pay your home loan lender as part of your loan repayment. The EMI is dependent on the tenure, interest rate, and loan amount. You will pay the interest and a component of the principal on a reducing balance basis. Please note that the EMI will also have other minor components such as insurance, GST, etc.
These days you can get up to 80% of the value of your home as a loan. In fact, there are lenders like Grihashakti. that disburse up to 90% of the cost of your home. The final amount will depend on a number of factors, including your monthly income and existing debts (if any), value of the property, etc.
Another important aspect to consider is your repayment capacity. Since home loans involve 15-20 years of financial commitment, you have to ensure that you are not overburdening yourself with EMIs. Before choosing the home loan, you have to consider inflation, future expenses, including children and their education and the increase you can expect in your income.
There is a charge you have to pay to process your home loan application by the lender. It can vary from 0.25 % to 1% of the loan amount. In some cases and as part of certain campaigns, the fee is waived off, or the borrower may be offered a discount.
Since finalising a property will take a long time, you can know your eligibility by applying for a pre-approved loan. Even before selecting your property, you can get a pre-approved loan. This helps you to choose a property within the limits of your budget. Another advantage is that you will be able to focus more on the properties that come within your budget, which can speed up your home buying.
Fixed And Floating Rates
The home loan interest rates in India have been witnessing a reduction with time. If you’re taking a fixed interest rate home loan, the interest rate will remain the same irrespective of market fluctuations. However, with a floating interest rate, you will end up paying more when the interest rate goes up.
Some people go for a floating rate of interest as it helps reduce the payout as and when the interest rate falls. Financial advisors often suggest customers opt for a fixed interest rate home loan. This helps to get a low interest rate for the next 15-20 years, and the EMIs will remain the same irrespective of the interest fluctuation.
While opting for your home loan tenure, it’s advisable to go for a longer tenure. This reduces the amount you pay as EMIs, making it easier to repay your loan. However, you must remember that the interest amount you end up paying for a long period can be high. A shorter tenure will demand high EMIs.
While lenders insist on taking insurance coverage for your home, it is better that you cover the contents of the house and the life of the borrower, too. The insurance coverage will help protect you from losses resulting from natural calamities, fire, and floods. An individual cover ensures that in the incident of an untoward event to the borrower, the family will not suffer. While lending institutions cover the insurance, you can also buy it independently.
Advantages of Grihashakti Home Loans
- Up to 20 years loan tenure
- Floating rate of interest linked to the RPLR starting from 7.99% per annum
- No foreclosure charges for home loans taken for non-business purposes
- Funding up to 90%* of the property cost
- Numerous repayment options
While there are many choices when it comes to home loans, a key factor that you have to keep in mind is the customer care of the institutions. By availing of a home loan, you are entering a long-term association with a home loan provider, and if their post-disbursal service is not up to the mark, it will take away your peace of mind.
Always select a lender who is responsive to customer requirements and ensure that they are flexible enough to change your loan tenure or prepayment willingness when you request it. Also, go through the home loan documents carefully and understand the terms thoroughly before accepting them.
An online search will reveal customer care quality, and you must do your research before finalising on a lender and signing on the dotted line.