Are you buying a home? A home loan is the best way to purchase a house without spending all your savings and when you do not have enough money to make the complete payment. Banks have made the process of applying for a home loan pretty simple. Plus, the repayment plans are very flexible.
Here’s a look at 5 factors you need to keep in mind when applying for a home loan.
1. Down Payment
Down payment is the amount you pay in advance. The bank pays part of the home’s value, and you have to pay the remaining amount. Banks can pay up to 90% of the value of your house, which means you only need the remaining 10%.
The down payment requirements can vary depending on your:
- Credit score
- Property’s cost
You can also volunteer to pay a higher down payment to reduce the interest rates on the home loan.
2. Interest Rate
Banks charge interest on loans, which is repaid with monthly instalments. The interest rates on home loans can be:
- Fixed: The interest rate remains fixed for the term of the loan
- Floating: The rate fluctuates as the market conditions change
A fixed-rate home loan is a good option if you want the amount payable to remain the same throughout the term of the loan. The floating interest, on the other hand, is for those who want to save money on the loan in the long run. It is typically 1-2% lower than the fixed interest rate. Compare the home loan interest rates of different banks online before making a choice.
Tenure is the term of the loan. A long tenure means you get plenty of time to repay your home loan. It also eases your instalment burden, as you have to pay smaller instalments every month. The tenure may be as high as 30 years, which gives you enough time to repay at your convenience.
4. Additional Charges
In addition to the interest, there could be some other charges on a home purchase. Check out these additional charges in advance to get a clear idea of how much money you need when applying for a loan.
These expenses may include:
- Processing fees: It’s paid after your home loan request is approved. The processing fee is mostly 1% of the total loan amount.
- Late Payment penalties: There is no penalty on early payments, but delayed payments can cost you a fee. So, check the late payment penalty conditions with the bank.
- Foreclosure: This is an amount paid if you pay off the loan before the term ends. This penalty is typically not applicable in floating interest rate home loans.
5. Tax Benefits
Tax rebates or benefits are available on home loans, especially for first-time homebuyers. Your taxable income can be reduced by up to Rs.1.5 lakhs on the interest you pay. These benefits are only for those who purchase a property priced at Rs.45 lakh or below.
A home purchase is a long-term decision. Consider the above factors before comparing home loans and choose one with the best interest rate and flexible down payment requirements.