8 Important Tips To Consider Before Taking A Home Loan

A home loan is a significant financial commitment and impacts the borrower’s financial condition for years. Therefore, before individuals apply for a home loan, they must factor in a few pointers and settle for the best option that aligns with their financial interests.

Here are the 8 crucial points one must consider while opting for home loans.

1. Type of interest rate

It is essential to understand the difference between floating and fixed interest rates. While fixed rates remain the same throughout the repayment tenor, floating rates, as it implies, are subject to change as per the Reserve Bank of India’s circular and market conditions.

2. Repayment tenor

Though longer repayment tenor reduces the EMIs, it soars up the total amount one needs to repay. Alternatively, a shorter tenor increases the monthly repayments but the overall cost of borrowing reduces.

3. LTV ratio

LTV or loan to value ratio is the maximum loan amount borrowers can opt for against their collaterals. However, the LTV ratio depends on the mortgaged property and also whether it is residential, self-occupied, rented, commercial or vacant.

4. Down payment

As per the RBI’s guidelines, lending institutions are subject to providing 80-90% of the total loan amount. The borrower must pay the rest as down payment. 

5. Repayment capacity

Individuals must apply for loan amounts according to their financial capabilities to repay the loan comfortably on time. 

6. Associated charges

Apart from interests, lending institutions charge additional charges such as foreclosure fee, late payment penalties and processing fees. 

7. Eligibility criteria and documentation

Homebuyers must qualify for the eligibility criteria set by the lenders for home loan applications. These parameters are indicative and vary from lender to lender. In addition, lenders determine applicants’ creditworthiness based on their credit score. Therefore, to settle for the low home loan interest rate, it is crucial to maintain a credit score above 750.

8. Tax benefits on home loan 

The IT Act provides some tax deductions on home loan interest and principal amounts for homebuyers.

Therefore, before looking for how to apply for home loan, prospective applicants should factor in these aspects mentioned above before applying to plan their financial activities accordingly.

Read Also: Eligibility Check is Required Before Applying For a Home Loan