Are you dreaming of being a first-time homeowner?
A bank commissioned home loan is one of the many ways through which this dream is made possible. But, it’s also not the easiest one to access as it involves loads of paperwork and many rounds of personal wealth inspections. When an individual decides to take a home loan, he or she commits to pay EMI’s of as much as up to 60-65% of their monthly income for a period that can be as long as 30 years, which in itself sounds like a nightmarish situation to be in. Hence, it is essential that one accesses the right kind of assistance before taking up a loan.
In this post, we have listed some information and tips from years of experience at Clickhomez to ensure you make the right decisions before taking up a loan.
Tip 1: Strike the right balance between the loan amount, loan tenure and EMI
One of the most common mistakes that people make is to opt for very long loan repayment tenure. It is very important that you understand that loan amount and the interest amount are interconnected and it is best to understand how much it costs before taking any step. For example, for a loan amount of Rs. 40 lakhs at 9.50% interest for 15 years, the EMI would be Rs. 41769 and the total interest you end up paying to the bank in 15 years come up to Rs. 3518418.
Some points to remember:
- Gauge a comfortable EMI payment you can make every month. Also, ensure that it does not exceed 60-65% of your net post-tax pay.
- Calculate your loan eligibility for various loan tenures based on your EMI and your age.
- Always make sure that the loan amount does not exceed 75-80% of the cost or market value of the home you are planning to buy.
Tip 2: Check approval status with the bank from which the loan is being taken
Check out if the bank has approved the project.
Banks don’t always approve all sections, all towers, all blocks and all floors at the same time. So it is important to check the approvals for specific flats in which you are interested.
Check for the payment plan scheme under which the project has been approved. There are basically 3 essential types of classifications which include time linked plans (TLP), construction linked plans (CLP) and subvention schemes (80:20, 10:80:10 and many more). Most banks fund projects only under CLP.
All payments to the builder must be made by cheque from your own account only.
Tip 3: Check between fixed rates and floating rates
In the current real estate market scenario, it is advisable that you opt for floating rates over fixed rates. We recommend this mainly because there is a high chance of the market slowing down in the next few months and floating rates come with nil prepayment charges, unlike fixed rates. It is advisable to opt for fixed rate loans when you feel that your monthly income cannot take the burden of floating rate. Many banks offer the fixed rate in the initial stages (approximately a period of 1 to 10 years) and then convert to a floating rate. Always check the applicable rates after the fixed rate period ends.
Tip 4: Understand loan structure, flexibility and liquidity options
While loans are given for a tenure of 30 years for repayment, rarely do people extend the loan period that long. Everyone wants to pay off the loan at the earliest and not be hanging by a thread with the bank. On an average, people pay off their loans in 8 years, by using any surplus income in the full or partial prepayment of the loan. It is necessary that you opt for a bank that allows you to make prepayments without any extra charge. As per RBI policies, banks aren’t allowed to penalise for prepayments in the case of a floating rate. However, they can penalise loan applicants in the case of a fixed rate. It is necessary to check these facts as the bank can charge anything from 1% to 3% of the loan amount. Another option would be to opt for a smart loan or interest saver loan scheme. Opting for such a scheme basically gives you the privilege of paying less interest as you park your money in the bank from which the loan was taken. So, as long as your surplus income stays parked in that bank account, you pay less interest on your home loan.
Tip 5: Choose the right bank
The bank that you choose shouldn’t just be based on its interest rates but should include other factors like the ones listed below that are equally important.
- Read up about the bank, for instance customer ratings, reviews by customers who have previously availed loans etc. This will allow you to avoid the mistakes they made and give you a better understanding of the working of the bank.
- Check past base rate trends of the bank. This will give you a fair idea of the changes in the rates.
- Compare offers, schemes, and policies to choose the best loan option for you and not just the cheapest ones.
At Clickhomez, we ensure that you get home loans at unbeatable rates and benefits that will make your home buying process and experience as easy as possible. No matter what the requirement, we will find an appropriate plan for you. We also ensure that the process remains as transparent as possible so that you are involved in every step of the process. We respect and admire individuals who take the pain to accumulate hard-earned wealth to purchase their ideal dream home. For that reason, we want to ensure that the home loan process remains a comfortable option for our home buyers.