10 important tips before taking a home loan
Are you planning to buy your dream home? Buying a home may not be always possible with ready cash. Home loans provide us an opportunity to own a home without having ready cash.
However, we have seen many individuals who does not look at the features of home loan and later blame the banks or financial institutions about features which they do not know and “hidden” terms and conditions. It is better to understand the factors which may influence the decision of taking the home loan from a bank or financial institution.
10 important tips before taking a home loan
1) Prefer home loans with low interest: All of us will accept the fact, is looking for home loans which come with low interest rates. During festival seasons, several banks in India offer home loans at discounted interest rates which are an opportunity for us to grab it.
2) Fixed or floating rate: Your monthly EMI's would be higher if you go for fixed interest rates as they would be offering at very high interest rates. They would be preferred when interest rates are very very high. Hence currently, there is no second thought except for going for floating interest rate.
3) Interest rates trend: Look for interest rates trend when you have decided to take the home loan. If the interest rates have drastically increased in the short period, you need to revisit your decision. Because such large abnormal market conditions can increase your future EMI and you may have to struggle to make the EMI monthly payments.
4) Processing fee: Generally banks or financial institutions charge processing fees up to 1% of the home loan disbursed. Look for the bank which charges low processing charges or which does not charge any processing charges. You can check such waivers being offered in the banks where your salary is credited or business income is deposited.
5) Increase your down payment: Generally any one going for home loan need to pay 10% to 15% as down payment and banks or financial institution offers 85% to 90% as home loan. Increasing the down payment saves the interest to be paid in the future.
6) Pre-payment penalty: Any partial payments made after taking the home loan, banks were charging pre-payment penalty charges. However with recent guidelines from RBI, a bank or financial institution is not supposed to charge the pre-payment penalty. This needs to be validated before confirming a home loan with a bank or financial institution.
7) Look for terms and conditions before you sign the home loan document: We should read the terms and conditions of the bank or financial institution before signing the document. Major ones include force majeure clause and reset clause on fixed rates.
8) Prefer for pre-payment: Whenever you find some surplus amount, try making the pre-payment for the home loan. Your debt burden would get reduced drastically with this additional step of discipline.
9) Home loan transfer charges: If you are planning to transfer the home loan from one bank to another bank or financial institution, you need to compare the transfer charges among the banks or financial institution before taking the decision.
10) Top-up home loan: In case you are going for Top-up loans on your home loan, check the additional charges you need to process the loan. There can be hidden charges which they would charge once the loan is disbursed.
Conclusion: Home loans offer good opportunity to buy home without ready cash. Understand its feature before applying for this to benefit to maximum extent and save money.
Readers, have you purchased your dream home with home loan? What are your experiences? Please give your comments
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Suresh
Money saving ideas
While writing this article, I have taken inputs from couple of my friends who struggled while taking their first home loan. Thanks to them.
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Hi Suresh,
I am planning to get hosing loan in ICICI but then i read some fradulent cases against them where the tenure and emi was increased, is this problem solved and is it safe to take up the loan. Please reply.
Poorni, The issue is individuals would not understand the process completely. Every bank (incl ICICI) would provide floating rate housing loans. Means if the interest rates are increasing, you need to pay higher EMI or higher tenure. This is known factor. But the issue comes is when RBI changes Repo rate, it may not always reflect in EMI amount / tenure. This is where loan payers are worried and blame the banks. You should consider this before going for any loan, whether ICICI or any other bank it is immaterial
Very very good article, thanks for your valuable inputs. Pls reply to my questions below
1. Is it LIC is not controlled by RBI.
2. In LIC after one year the floating rate raises to 10.95%, is it will be stable or keep on increases.
Hi Chandru, LICHFL falls under NBFC and they are controlled by RBI. Floating rate would fluctuates based on the RBI Repo rate. Sometimes with small change in RBI Repo, these banks or financial instutions do not modify your EMI
Hi Suresh,
I'm going for a home loan with SBI for an under-construction apt. The builder told me that they have got a tie-up with SBI for ADF in which abt 80-90% of the total loan amount would be disbursed initially itself to the builder. The builder is trying to sell this to me saying this would be beneficial both for them & me. According to this scheme, the builder would be paying abt 50% of the pre-EMI amount while I would pay the other 50%. My questions –
1. I was planning on beginning my EMI payment straightaway (as opposed to pre-EMI). Can this ADF scheme be clubbed with normal EMI payment as opposed to pre-EMI?
2. Assuming I go in for the ADF scheme, how can I calculate in exact numbers how this would be beneficial for me?
I tried googling abt ADF, but there dont appear to be too many articles on this, as this seems to be a new scheme that is picking pace now. Any advice/suggestions on this would be much appreciated.
Thanks!
Karthik, ADF is Advance disbursment facility which is favoring builder. They can get money without completing any milestones. Generally I heard CLD is preferable (Construction linked disbursal) as builder would get payment on completion of milestones only. This way purchaser is protected from excess payment being done to builder.
Thanks Suresh.
Which is the best bank for home lone ……we are planning to take home lone .is corporation bank is best for lone because is doesn’t take any processing fee ??? What is interested rate for corporation bank help me ???????
Indra, Refer this article. Most of the information would not have changed as this article is just 3 months old. https://myinvestmentideas.com/2013/03/5-best-home-loan-interest-rates-in-india/
Hi Suresh,
We currently have a home loan of 17 lakhs. Should we make pre-payment of loan or invest the amout we have?. Many of them advised us not to pre-pay the loan but to invest the amount. Also pre-payment of loan would cut down our tax benefits. So what should we do, please can you advise
Shreya. It depends on when you are intending to pay. If you are doing pre-payment in initial years of taking home loan, yes it matter, but if you are doing in last few years of your loan tenure, you already paid majority of interest and what you are paying is ony principal and small interest. Means if you have Rs 17L of home loan, majority is principal and small portion is interest. You would not get benefitted out of this. Keep that as is. You can gain by tax deduction through home loan interest and principal repayment + your savings, you can invest in mutual funds which can earn you 10% to 15% per annum in long run
Thanks Suresh for reply.
I have taken loan in 2009 so please can you tell if this is the right time to clear off the loan or I need to wait some more years so that I end up paying most of the principal. Then I will use the amount for investment as once the amount is used,it will difficult to accumlate such lumpsum amt again. I dont have the entire amount but can manage to pay 6 lacs or more so that there is relief. Will this reduce my interest?
Please can you advise
Shreya, Paying off housing loan in few additioal installments would always be better so that you can finish off it faster. I agree that you may end up in paying more principal amount. But I feel you do not have choice.