Home Loan: Important Things to Know Before Taking a Home Loan

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Home Loan: Important Things to Know Before Taking a Home Loan

What is a Home Loan?

An amount borrowed from Banks or certain lending institutions at a certain rate of interest, repayable in Equated Monthly Payments or EMIs is termed as Home Loans.

The property, for which the home loan has been obtained is mortgaged as a security to the lending institution sanctioning the Home Loan. The property remains mortgaged as a security till the home loan is fully repaid by the borrower. The lending institution will hold the title or the deed for the property, till the amount of the home loan is fully paid coupled with an interest.

home loan

The Home loan, apart from buying a new home, includes loans for repairs or renovation of the property, construction of the property, purchase of land, etc. Home extension loans, Joint Home Loans, Home loan balance transfers, Top-up home loans, etc. also fall in the category of ‘Home Loans.

As far as the interest on the home loan is concerned, it can be fixed or floating, or partially fixed or partially floating, depending upon the convenience and the need of the borrower.

The Income Tax Act 1961 allows a tax deduction regarding home loan interest, which can be claimed by first-time homeowners only.

Cardinal Factors to Understand Before Applying for a Home Loan

Fulfilling the desire for a dream home is a once-in-a-lifetime decision. This is the reason why you must go for the best home loan offer in the market. It is imperative on the part of the applicant to know the basic components of a home loan before finding out the best one. Let’s discuss in brief the most fundamental things one should consider before availing home loan.

  • Credit Score
credit score range

Credit Score is one of the most crucial factors which Banks consider before sanctioning any loan to applicants. Any individual desirous of obtaining a home loan should maintain a good credit score as it is the primary requirement to apply for any kind of loan within the banking sector. With a good credit score, an applicant can easily manage to find loans at better rates of interest. Maintaining Credit score is not complicated. You can always avail service of ‘Credit Bazaar’ in the matters of credit score improvement.

  • Tenure of Home Loan:

Every individual willing to avail home loan must know the home loan tenure before applying for home loans as EMIs are directly dependent upon the home loan tenure. Banks normally prefer home loans with shorter repayment. The shorter the repayment period, the lesser the burden on EMIs. With shorter tenure, there will be an increase in your monthly installments. But at the end of the day, it will help you in reducing the cost of a home loan.

  • Rate of Interest:
rate interest

An applicant must know and consider the rate of interest charged on a home loan by several banks in the market before finding the appropriate one. A proper comparison should be made of different types of interest rates available. There are mainly two types of interest rates available in the market.

  • Fixed interest
  • Floating interest

When the rate of interest on home loans is Fixed, the EMIs don’t vary over a home loan tenure and stay constant. But under the floating rate, the rate of interest is calculated based on MCLR and changes over time, which is beneficial, if interest rates are going to experience a decrease in the future.

Normally it is advised, to choose the floating interest rate over the fixed interest rate as your monthly EMIs would be higher if you go for fixed interest rates. Further, a fixed interest rate has a fixed liability and foreclosure penalty attached to it, in case of non-payment. The floating rate of interest, however, changes from time to time and saves money on interest, monthly EMIs, and other expenses, etc.

  • Equated Monthly Installments(EMIs):
Equated Monthly Installments(EMIs)

Every month the borrower makes a payment towards repayment of home loan and is knowns as ‘Equated Monthly Installments ‘ or the ‘EMIs’. The more the down payment, the lesser the burden on the equated monthly payment you have to make. Down payment is the initial payment the borrower makes when the loan is sanctioned. If you happen to have surplus cash available with you, you can choose to increase the down payment amount. It will help you save interest payable in the future.

  • Processing Charges:

Once the application for the home loan is accepted by the lending bank, the borrower is liable to pay any fees, charges, etc. as per the rules. The borrower must find out processing fees charged by the different lenders, compare and then choose the one that proves to be beneficial. Normally, a borrower always wants to avail home loan from such a lending institution that charges low or negligible processing fees.

  • Documents of Home Loan:
How to apply for a home loan during COVID-19

‘Read the terms and conditions properly’ is the mantra. The applicant must always read the terms and conditions of the bank thoroughly before signing the documents relating to the home loan. One must be aware of the penalties and fee structure mentioned in the document.

  • Extra Charges:

Apart from applicable home loan EMIs, banks, and Financial Institutions are at the discretion to charge any additional fees at the time of application. It is always prudent to discuss those charges beforehand to avoid problems later.

  • Penalty Before Payment:
Penalty Before Payment

The recent RBI Guidelines suggest that any bank or financial institution is not supposed to charge the pre-payment penalty. With no penalty on prepayment, you are free to divert surplus cash available at making partial payment after availing home loan.

  • Foreclosure Norms:

Foreclosure of the home loan means making the repayment of all the outstanding dues before the end of the home loan tenure. The earlier you repay your home loan, the lesser interest you have to pay. Usually, the foreclosure penalty comes into the picture when the borrower pays the home loan before the expiry of the home loan tenure. When it comes to floating home loan interest, the borrower will not be charged any foreclosure penalty by financial institutions or banks.

Pros and Cons of Home Loans

Pros and Cons of Home Loans

It is crucial to know the advantages and disadvantages of availing the home loans, for a willing borrower to make an informed decision. Based on an analysis of pros and cons, one can decide whether they can afford to borrow a house loan or not. One can’t take a proper decision unless both sides of the coin are known. Even if borrowers find home loans fascinating, now they are aware of the other side and it can help them prepare to find solutions to tackle problems if any. Taking a sensible decision regarding a home loan makes you feel secure and prepares you for a fulfilling, hassle-free life.

Pros of Home Loans:

  • Easy Repayment:

It is very difficult to pay the home loan in one go. A borrower has to pay off debts in the form of monthly installments. EMIs or Equated Monthly Installments can be easily paid as it is lower than one’s monthly income. The home loan amount is divided over a few years after taking into consideration the age of the borrower and years left for retirement.

  • Reduction in Overall Interest Costs:
Reduction in Overall Interest Costs

Under the facility of ‘Home Loan’, borrowers can deposit excess income, if any, in their home loan account, linked to the home loan. The average balance of the linked account is deducted from the outstanding loan amount at the time of calculating the component of interest. Further, additional funds parked in the account act like a prepayment against the outstanding principal, which in turn, reduce the overall interest cost of the home loan.

  • Sense of Achievement:

To be able to have a home is no less than an achievement in today’s world. The satisfaction of having your safe place can’t be described in a few words. But we all know how that feels. Buying a home indeed gives a sense of achievement. It is the reward for years of tireless efforts. Buying a home of your own is one of the biggest financial decisions you will have to make in your life, not only because of market value but emotional value, as well. This can be easily accomplished with the help of some financial assistance from these lenders.

  • Low Rates of Interest:
Reduction of your interest rate:

Low home loan interest rates attract potential buyers. Also, it is easy to get these loans as they are approved by mortgaging the property with the lender as a security or collateral.

  • Flexibility in Tenure:

Considering the difficulties of borrowers, many banks provide flexible tenures to make sure that a borrower can repay the home loan without any burdens. 

  • Tax Benefits (On Principal Amount):
tax benefit on home loan

Section 80C and Section 80CCE of the Income Tax Act, 1961, provide a tax benefit on the principal repayment on your home loan

  • Tax benefits (On Interest):

Whether the borrower is eligible for a tax benefit on interest paid or not depends upon the fact that the property in question, for which the home loan is applied for, is self-occupied, let-out property, or under construction.

  • No Prepayment Penalty:

According to the RBI Guidelines, prepayment/Foreclosure charges are not applicable on prepayment of floating rate home loans. Lenders may apply prepayment/foreclosure charges on fixed-rate loans.

Cons of Home Loans:

  • Commitment for a Longer Duration:
Commitment for a Longer Duration

The repayment span of a house loan is very long. People spend a significant portion of their monthly income on the repayment of a home loan. During all these years, a borrower may find it very difficult to take any other loans. Applying for a home loan is possible when you are ready for a long-term commitment.

  • Opportunity Lost:

Getting a house loan doesn’t help you in earning profit. If the same amount is invested in any other financial instrument, there is a chance to earn a high rate of return.

  • The Rate of Interest:
Rate of Interest

Although the rate of interest on a house loan is lower as compared to other loans, at the end of the day, the borrower is paying more than borrowed. If at all the owner of the property, decides to sell the same, he/she will have to incur the loss in the transaction as the right selling price will be a combination of the principal amount plus the interest paid, which turns out to be too high. It is surely one of the prominent disadvantages of opting to choose a Home loan’.

 How Can We Help You Get a Home Loan?

How can we help you in availing Home Loans?

With the Credit Bazaar at constant at your beck and call, it is very easy to find a home loan suitable for you, among all the best options available in the market. Credit Bazaar puts its clients at the center and finds the most appropriate option after taking into consideration the requirement and convenience of our clients. All you have to do is to log in ‘Creditbazaar.in’ to provide the information required and we will find the best home loan offers for you.

With Credit Bazaar, ready to assist you and provide all the guidance, knowledge, information regarding the home loan process now you don’t have to take efforts to search all the options to find out the relevant and applicable home loan offer. Credit Bazaar is here to save your time and efforts. We are blessed with a team of professionals. We understand the market scenario and market pulse.

We are proud of our experts who are undoubtedly reliable and have helped many businesses and individuals reach their goals. Apart from a quick Home Loans approval assistance, our clients acknowledge our efforts and vouch for our reliability and expertise in the matters of Personal Loans, Credit Cards, Business Loans, Corporate Health Plans, Bazaar Improvement plans, Loan against property, Mutual funds, etc. We know what suits your financial needs. With Credit Bazaar, you may also check your credit scores for free. All you have to do is log on to Creditbazaar.in and you are sorted.

Association with the Credit Bazaar relieves you from any anxiety as you no longer have to worry about messing up financially due to wrong decisions.

In these turbulent times, one can’t survive if the aspect of long-term financial goals is ignored. Sensible, wise, and timely financial decisions shape your future.

If you take it one day at a time, you can slowly but surely achieve all your desires like having a beautiful home, children’s education, their marriage, and much more. Customer satisfaction is our motto and the happiness of our customers is dependent upon prompt financial decisions and financial planning.

As discussed above, one can plan their financial decisions and manage their finances efficiently by selecting the appropriate Home Loan’.

Lack of timely attention to financial decisions results in a tremendous mess that can’t be solved if goes beyond repair. Hurry up! Approach ‘Credit Bazaar’ before it’s too late.

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