Most of us plan our lives around milestones, such as buying a house. When you finally own a home, it is as much of a practical purchase as a personal achievement. For some, it can be a symbol of financial independence, and for some, it may be a foundation for their family’s future.
While the cost of buying a house has skyrocketed in the last few years, financial instruments such as home loans have come to the rescue of potential homeowners. Today, there are several options available to finance the purchase of your house, especially if you are buying a home for the first time.
Planning your finances with the right home loan can make it a cost-effective affair for you. Let’s look at some critical things to consider before opting for a home loan:
1. Eligibility for Home Loan
First and foremost, you need to consider if you are eligible for a home loan. Lenders assess your qualification for a home loan by looking at your income and determining the capacity for repayment.
Other crucial things that can be considered are your age, dependents, financial standing, spouse’s income source, nature of the occupation, etc.
2. Loan Duration
Your EMI for a home loan depends on the amount of loan, rate of interest, and duration of the home loan. In case the loan amount is higher and you opt for small EMIs, then the loan tenure is also longer. However, if the home loan amount is low, you can choose to pay higher EMIs to shorten your loan tenure.
You can use the home loan calculator to assess your financial capabilities and arrive at a suitable loan duration, amount, and EMIs, depending on your profile. Make sure to carefully understand the implications of the loan duration to avoid any financial crunches in the future.
3. Interest Rate
One of the most vital aspects you must consider when taking a home loan is the interest rates at which they are provided. Depending on the bank or the financial institution, the rate of interest for a home loan may vary. You can use the home loan calculator on a particular bank’s website to derive the loan specifics based on the interest rate.
As the borrower, it is understandable that you are looking for the lowest home loan interest rates possible. But, in order to compare the rates appropriately, you must be aware of the two types of home loan interest rates:
- Floating interest rate – interest rate changes over time, as it is calculated on the basis of MCLR.
- Fixed interest rate – the EMI stays the same throughout the home loan duration
Even though fixed interest rates may come with attractive offers, you must consider a home loan with a floating rate of interest since the monthly EMI may be comparatively lower. Going for the floating interest rate option may also enable you to save money on expenses, EMIs, and interest.
4. Equated Monthly Instalments
The equated monthly installments for a home loan is the payment you make to repay the loan amount. The amount of EMI depends on you, your home loan specifics, and the down payment for the loan. The greater the down payment, the lesser is the remaining amount that needs to be paid as EMIs. You can calculate the EMI using the home loan calculator to map your financial obligations for the future.
5. Down Payment
The down payment for a home loan is the amount you pay when you avail of a home loan. It is usually 10% to 15% of the entire loan amount. The remaining home loan amount needs to be paid as the monthly EMI. In case you can increase the down payment for the home loan, it can lower your EMIs and help you save on the interest payable.
6. Credit Score
Your credit score is calculated by Credit Rating agencies, depending on your record of paying credit card bills and other debt repayments. A higher credit score improves your chances of getting a home loan quickly.
7. Processing Fees & Additional Charges
The processing fees of a home loan are paid by the customer to the lender when the home loan is disbursed. You may also need to pay additional charges at the time of applying for the home loan.
8. Tax Benefit
You are also eligible to avail of tax benefits on the home loan under India’s income tax rules. Make sure you are aware of them when taking the home loan.