Home loan tips

Contemplating on buying a home on loan? Here are some quick tips before you finalize.

It is certainly tempting to opt for a longer tenure on a home loan as it reduces the EMI amount. However, in a long-term loan, the interest outgo is too high. Let us see how.

Lenders easily offer home loans for 25 – 30 years. According to financial experts, taking a loan is negative compounding. The longer the tenure, the higher is the compound interest that the bank earns from you.

Considering a 10-year loan at 10 per cent, the interest paid is 59 per cent of the borrowed amount. This shoots up to 131 per cent if the tenure is 20 years. For illustration, if you take an Rs 50-lakh loan for 25 years at 10 per cent, you will end up paying Rs 86.3 lakh (or 172 per cent of the loan amount) in interest alone.

Take another case where a young person with lesser income will not be able to borrow adequately if the tenure is short, say 10 years. He will have to necessarily increase the tenure to ensure that the EMI fits his pocket. For such borrowers, the best option is to increase the EMI amount every year aligned with an increase in the income.

Increasing the EMI amount brings down the tenure radically. A bare minimum of 1 per cent hike in the EMI every year can trim off three years from a 20-year repayment term. Supposing that the borrower’s income rises 8 – 10 per cent every year, increasing the EMI in the same proportion should not be very difficult. A 5 per cent increase in the EMI every year will shrink the tenure by more than eight years. A further enhancement of 10 per cent every year would end the loan in just nine years and three months. A little more tightening of   the belt by a 20 per cent increase in EMI every year, will guarantee a debt free life in just seven years!

Housing loans

Taking the home loan can be the biggest financial decision of life, so clear understanding of terms and conditions and as well as comparison of various home loan offers is very essential because it help to choose the best offer among different loan providers. Some factors such as; rate of interest, processing fee, faster process and few other factors one should consider before deciding on a financial institution or a bank to avail the loan from. It is recommended to do comparative analysis on every factor before selecting a particular lender or financial institution or bank. Some factors are below mentioned;

Loan amount:
All the banks or lender have different eligibility criteria for assigning the loan it can be in terms of your income or percentage funding to value of the property. In simple words if you are planning to take 40 to 50 per cent of the property value and your monthly income is far more than the required EMI, so don’t worry you can get the loan easily. But in case if you need 60 to 80 per cent of the total property cost and your income is not so more, so banks can check with your financial status. In general banks can lend up to 80 per cent of the property cost.
Compare Interest rates:
Before taking the interest rate it is recommended to compare the interest rates and processing fee of different banks or financial institutions. As an intelligent person, one should choose the bank or lender which is offering the lowest rate of interest with the track record of offering lower interest rates and processing fee in last 10-15 years.
Property listing:
As a prospective buyer, an individual should draw up a list of banks, which is approved or shortlisted by property developer. Chances of getting the loan from those banks which approve the property are more than the banks that doesn’t approved the property. Getting this list is not big task because an individual can find this list on the website of builder.
Processing fee & other charges:
This is one time fee, but still the matter of concern, before finalizing the decision it is recommended to compare the loan processing and other legal fees while comparing the interest rates. The banks, who give lowest rates, can be considered as the ideal bank for loan.
Procedure and approval time:
In India, most of the banks take 3 to 8 days for the loan approval and other formalities, customers should ask the bank about their procedure and approval time and after that you should proceed with bank according to your comfort. The banks who ask you to come to branch to complete the process should be avoided because as professional it s not good thought to take 3 to 4 days holiday for loan procedure.
Flexibility of EMI and payment dates:
Some banks have fixed dates for the payment of FMI and as customer if you are comfortable with that date, so you can go ahead. Make sure your bank gives you flexibility for choosing the right EMI date.
Real the legal documents and final agreement:
Always, real the legal documents and final agreement fully, do not make your decision in quick time, take time and decide the right thing. Be sure that there are no more hidden charges or clauses.
Before going with any particular bank compare the bank and lenders rate and other conditions on above mentioned points and at the end you will be end with right deal. It is recommended to consult with at-lest four to five banks before closing the deal. Buying a home or closing the home deal may not be big deal, but the whole process is a very big deal.