Purchasing a house or any property is a significant financial commitment and for a long period. Even though arranging funds for this purpose is not an issue anymore, with housing loans offered by various financial institutions, but they also bring a significant debt on your shoulders.
Therefore, unravelling essential pointers, starting from what is home loan and how it works, features, benefits and procedure etc., will allow borrowers to make an informed decision. Read on to find out the necessary steps to avail of this credit.
An effective guide on home loan
Here are some notable points that one should learn about a home loan before moving ahead to apply for one –
- Secured credit option
A home loan is a secured advance which states that it requires borrowers to pledge an asset to obtain substantial funds. The sanctioned amount depends on the mortgaged asset’s market value. Usually, financial institutions extend up to 90% of credit based on the property’s market value, and the remaining amount is paid as a down payment by the borrower.
Although the property is mortgaged to the lender, debtors retain the ownership of that property. Once the entire amount is repaid, the mortgaged property is released to the borrower.
- Interest rates
Usually, the interest rates imposed on a home loan vary across lenders. It is primarily of two types- floating and fixed. The floating interest rates are associated with the movement in the market and fluctuate in accordance with that. In case of a fixed structure, the charged interest rate remains the same throughout the loan tenor.
Nevertheless, it is always suggested to choose a lender offering an attractive interest rate as it will eventually decide the loan’s affordability. A higher interest rate will increase the total outstanding, and vice versa.
However, in the current scenario, with policy rates maintaining a status quo, housing loan interest rates have become affordable. Intending homebuyers can take advantage of this opportunity.
- Loan tenor
Besides knowing what is a home loan, being aware of this factor is crucial when availing of this credit. It refers to the period during which a borrower would repay his/her entire loan. One must choose the tenor carefully as it will further decide the EMIs and the overall interest that one needs to pay.
Opting for a longer tenor will ensure reduced EMIs but increase the interest component of a credit. However, if one wishes to repay his/her loan early and can afford to pay higher EMIs, choosing a shorter tenor would be ideal.
In such a scenario, one can take the help of a home loan EMI calculator where borrowers can determine the exact EMI beforehand and alter its determinants until obtaining the desired results. Using this calculator will allow borrowers to curate a repayment structure and manage their finances effectively.
- Eligibility parameters and documentation
Every lending institution sets specific eligibility parameters that borrowers need to fulfil to avail their desired amount. These home loan eligibility criteria include factors like age, income, CIBIL score etc. All these parameters are strictly checked by the lenders for both salaried and self-employed before sanctioning a loan amount.
Among all these factors, since CIBIL score is one of the essential determinants for assessing a borrower’s credibility and reliability, one must know how to check CIBIL score and try to improve it as per requirement. Besides, borrowers need to produce certain documentation such as KYC, income proof, address proof etc., to ensure a hassle-free repayment.
Moreover, individuals availing of loans from reputed financial institutions can also benefit from a home loan balance transfer facility for better interest rates. Nevertheless, one must seek lenders who do not impose charges on prepayment and foreclosure.
For eligible borrowers, pre-approved offers acts as an additional benefit. These offers are available on a wide range of financing options such as home loan, loan against property etc. These exclusive offers significantly reduce the hassle of documentation and save time. Therefore, one can check their pre-approved offer by mentioning their essential credentials.
To sum it up, knowing only about what is a home loan will not serve the purpose. Understanding a few aspects of this credit facility is crucial to obtaining an affordable loan and easing the repayment.