5 factors to consider while opting for home loan

buying a home loan is one of the biggest decisions of your life. though many people purchase home loans, they are unaware of the processes, especially the approval part. if this is the first time you are availing of a home loan, consider these five essential factors before you do so.

the interest rate

anyone who buys a home loan must check for the interest rate levied by the lender. it is also imperative to compare different lenders’ interest rates to see those that fit your budget.

you have two different home loan interest rates: fixed and floating.

the emis do not vary over the loan's term in fixed home loan interest rates, whereas lenders estimate floating home loan interest rates depending on the mclr. therefore, they change over the loan tenure.

however, floating home loan interest rates can sometimes be beneficial as they decrease over the loan term.

the tenure

tenure is another crucial factor to consider when opting for a home loan as the emis depend on it. some lenders, such as banks, may persuade you to go for loans with shorter tenures.

shorter home loan tenures are not necessarily bad as they help reduce the burden of paying emis every month. though your installments increase to a certain extent, the home loan's total cost will be lower.

down payment

you must pay a down payment of anywhere between 10% and 15% of the total amount disbursed when you avail of a home loan, while you can pay the rest as emis. if you feel that you have enough money with you, increase the down payment not to pay hefty emis every month.

you can also use a home loan calculator to determine how much down payment you would be making.

prepayment penalty

the recent rbi guidelines on home loans don't allow banks to charge a prepayment penalty. what this means is that you are now free to make partial repayments while incurring no additional costs.

emi and processing fee

every home loan you take out requires you to pay a fee to the lender to process your application. the cost for processing home loans varies depending on the bank or financial institution and can go up to 1% of the loan amount disbursed.

to get a lower processing fee, you must do your research and choose the right bank.

the same is the case with the emis. here, you can use a home loan emi calculator to know how much you would pay each month.

final thoughts

so, know these five essentials before you avail of a home loan. if you are not sure about home loans, use a home loan eligibility calculatorhome loan eligibility calculator to determine whether you have enough to pay your installments. always be sure to pay your emis on time and don't default, as it can bring you a bad credit rating. remember that a bad credit score or rating means you won't be able to avail yourself of loans in the future.