Taking A Loan On Residential Property? Here Are Some Important Things To Consider

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Buying a home is a once-in-a-lifetime event for most people. And keeping a strong check on finances is one of the most important aspects of the journey. If you are short on cash, taking a home loan on residential property offers the financial assistance you’re after. It can be borrowed from a bank/housing finance company. Home loans are popular as they come with easy repayment options and tenure choices. They are also great for keeping your current hold on other assets. Thereby helping you tackle the financial obstacles in your homebuying journey rather smoothly. 

Before applying for a home loan on residential property, here are the important things you must consider.

 

Research

research

With thorough research, you can save big bucks on your loan. So, don’t skip it under any circumstances. On the internet, you will come across a vast sea of options on home loans. Make sure you explore every little detail. Especially, check the down payment, EMIs and repayment tenure. These three factors will help you narrow your search down from multitudes and close down on the most lucrative deal. Research is the key to getting the most attractive interest rates, so again we recommend: Don’t skip it.

 

Interest rates

interest rates

Comparing both the amount and type of interest rates is equally important while applying for a home loan. Availing of the lowest interest rate is vital, so is careful choice of the type of interest rate, namely:

  1. Floating 
  2. Fixed

Floating interest rates change according to RBI, and the market dictates over time. If you are expecting RBI’s base rate to decline in the future, go with floating rates for long-term savings. Usually, floating rates are 1-2% lower than fixed rates.

In the current situation, where interest rates are expected to rise, a home loan with fixed rates is suitable. 

 

Payment tenure

payment tenure

Generally speaking, home loans are availed for a tenure of up to 30 years. Longer loan tenures come with lower monthly repayments but have higher interest spending. On the flip side, smaller loan tenures have higher monthly repayments but lower interest spending. Use a home loan EMI calculator, and ensure that the EMIs don’t take more than 30 per cent of your monthly disposable income. Choose a payment tenure accordingly.

 

Down payment

down payment

Lending institutions don’t cover the whole property value in loans. You have to pay the remaining amount from your pocket. This is known as a down payment. Many banks provide a 100% loan amount based on your eligibility. Ideally, you should plan for a 10% to 20% down payment to avoid huge interest rates and ensure a smooth repayment.

 

Your credit score

credit score

A CIBIL score is a numerical summary of your credit history. If you have a CIBIL score of 750 or more, the bank will reserve the best interest rates on the home loan for you. A CIBIL score of less than 750 is an indicator that you have to pay a marginally higher interest rate. Make sure you know your CIBIL score before applying for a home loan. They provide one free report a year to their customers.

 

Additional charges

additional charges

Apart from the inclusion of interest rates in your EMIs, you should check for associated charges prior to taking a home loan. Lending institutions levy additional processing or service charges upon borrowers. Make sure you have clarity on their nature as to whether they are one-time charges or monthly. In case these charges will be included in your EMIs, it is better to have prior knowledge of them. Accordingly, you can plan your finances for the repayment tenure.

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