Buying a home is a milestone for most people, but it’s also one of the most expensive investments they will make in their lifetime. As the investment is expensive, some might not be able to pay the full amount at once. Due to the same, the best way to get your dream house is to buy take a home loan. Getting the best home loan deal is a difficult task. It is s commitment of 15-30 years and hence you cannot go wrong with the same. With so many lenders in the market, it is difficult to choose one. To simplify this for you, here’s a guide on how to choose the right type of home loan for your needs.
A Brief Description of Home Loan
A home loan is a type of loan used to finance the purchase of a home. The borrower gets an amount from the lender for a tenure which is paid back in EMIs with a fixed or variable rate of interest. The property serves as collateral for the loan, and failure to repay the loan can result in the property being repossessed by the lender.
Things to know before choosing the Right Home Loan
When it comes to selecting a home loan, there are several things you need to know before making a decision. Here are some key factors to consider.
1. Interest Rates
It is one of the most important factors to consider when selecting a home loan is the interest rate. A lower interest rate means you will pay less money over your repayment tenure. Many lenders offer interest rates starting from 8.50% per annum. You can choose from fixed or variable interest rates, depending on your needs.
2. Eligibility Criteria
Different lenders have different eligibility criteria for their home loans. This can include the applicant’s age, monthly income, work experience and CIBIL score. Usually, a CIBIL score of 611+ or above is required to avail a home loan. You need to make sure you meet the eligibility criteria before you apply for a home loan. Otherwise, your application may be rejected, which can impact your credit score.
3. Repayment Tenure
A longer tenure means lower monthly payments but more interest whereas a shorter tenure means higher monthly payments but less interest paid. Keeping your future finances in mind, you can opt for a longer or shorter tenure.
4. Processing Fees
Apart from interest rates, you’ll also have to pay various fees and charges when taking out a home loan. These include application fees, establishment fees, and ongoing fees. Some lenders may also charge a prepayment fee when you plan to repay your loan amount before the tenure ends. Compare this as well with other lenders and choose the one that best suits you.
5. Repayment Options
You should also consider the repayment options available to you. Some home loans allow you to make additional payments to pay off your loan faster. Others may offer a redraw facility, which allows you to withdraw any extra money you’ve paid into the loan. Make sure you understand the repayment options available and choose a loan that suits your needs. Not only this but also check how much down payment you will have to make. Many lenders offer to fund up to 90% of the property cost which will decrease the down payment you will need to make.
6. Home Loan Balance Transfer
When you transfer your existing home loan from one lender to another, it refers to a home loan balance transfer. Borrowers resort to this to get better interest rates, lower fees or favourable loan terms. When you opt for a home loan balance transfer, you might need to pay certain charges like prepayment penalties or exit fees. While choosing the lender, you should also look at their home loan balance transfer policy as well.
7. Documents Required
While applying for a home loan, there are certain documents for home loan that are required. These include
• Home Loan application
• Age proof
• Residence proof
• Education qualifications
• Income proof
• Property documents like the title, and the approved plan
Selecting a home loan is an important decision that requires careful consideration of the interest rates, loan terms, fees and charges, eligibility criteria, and repayment options. Make sure you do your research and understand all the details of the loan before signing up. This will ensure you choose a home loan that fits your needs and helps you achieve your homeownership goals.