Investing in Real Estate and owning your home is one of the most substantial decisions of your life. Thanks to affordable home loans, it has become possible for many people across the country to materialize their dream of owning their own house.
It is important to make the right choice and go through a transparent process to apply for a home loan. You must do your homework and choose your lender wisely to structure your home loan well.
Key Things to Note About Structuring Your House Loans Prudently
Wait for Approval
It is important to apply for a home loan, submit the appropriate documents as asked by the lender, and wait for the lender’s approval.
There can be a stringent verification process, after which your home loan approval will reach you. This is when you must start thinking about the appropriate home loan structure.
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Have A Discussion With The Lender
After you get your required home loan approval, you can have three options to negotiate your terms with the lender:
- You can visit the branch and speak to the relevant authority
- You can ask for a legal representative to be appointed who can clear your doubts and help you structure your loan to your maximum benefit
- You can follow the online process with the lender and opt for a hassle-free home service process
Before you sign the dotted line, you have the option of discussing the structure, terms, and conditions with a few lenders before you make your final choice.
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Check Repayment Capacity
Before starting the home loan process, ensure your repayment capacity and credit rating are in shape. The lender evaluates your cash inflow, monthly disposable income/surplus, and current liabilities to determine your monthly repayment options.
The term and the interest rate also determine the amount borrowed.
Request A Maximum LTV (Loan To Value Of The Property)
Requesting a minimum LTV will help you reduce your initial margin and save you the necessary money.
- For a home loan up to 30 lakhs, you can ask for 90% of the loan amount
- For a home loan up to 75 lakhs, you can ask for 80% of the loan amount
- For a home loan for more than 75 lakhs, you can ask for 75% of the loan amount
This will help you save money by maximizing the LTV you can use for other financial purposes.
Ask For The Maximum Duration To Keep Monthly Expenses Low
Choose your home loan term carefully not to make it a hindrance to achieving your other financial goals. Your age plays an important role in deciding this factor.
If you have other responsibilities and financial priorities, go for a longer tenure.
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Fixed or Variable Rates of Interest
You can choose a floating interest rate to pay less when the interest rates are low and more interest when interest rates rise. Fixed interest rate loans are a little higher.
Today, a loan with a fixed interest rate that maintains current low rates could be advantageous. It’s a good idea to choose a low-interest rate for the next decade or two to ensure consistent EMI even with rising interest rates.
Check Out The External Benchmark
Banks not cutting interest rates on house loans despite the interest rate cut was an issue many borrowers brought up. RBI acknowledged this and recently ordered external benchmarking of loans, eliminating opacity in loan pricing to ensure that the gains from falling interest rates are properly given to borrowers.
It is a good idea to rely on a lender that has chosen the repo rate as an external benchmark because it is fixed.
EMI Payments
Use a home loan EMI calculator and structure your EMI amount based on your loan amount, loan tenure, and interest rate. You can use it to compare mortgage types and different lenders easily.
Other Factors to be Structured
- Processing fee: The lender charges these fees for processing the loan, which may vary and can range from 0.25% to 1% of the loan amount.
- Prepayment charges: As per RBI instructions, lenders should not impose prepayment penalties on floating-rate house loans, but in the case of fixed-rate mortgages, they may impose prepayment penalties.
Conclusion
When applying for a home loan, it is imperative to understand the structure of the loan structure, making it easier and more profitable for you to finance your home purchase. It is a long-term commitment that spans 15 to 20 years, and structuring the loan can cost you less and give you much-wanted peace of mind.
