A home loan can help bridge the gap between your dream home and your present financial status. But the entire process of getting a home loan is complicated and involves a ton of paperwork that can be tedious for a layman.
Apart from all the technicalities, there are a number of other facts that, if known beforehand, can help you avoid future inconveniences with the lender. Here, we have listed a few facts that sum up almost everything you need to know about a home loan.
What is a Home Loan?
A home loan is a form of financial aid provided by a bank or financial institution that helps purchase your dream home. The property itself acts as a collateral for the loan until the entire loan, along with the interest, is paid back.
Will you be Eligible for a Home Loan?
Home loans are not easily approved.
You need to prove to the lending institution that you can repay the amount with minimal difficulties. The amount that will be offered to you for a home loan is calculated using different factors, which include your total income, age, and existing liabilities.
Your home loan eligibility can also be increased if your spouse has a regular source of income and is named as a co-applicant. Ideally, the EMIs for your loan should be about 40% of your monthly income.
Calculation of Home Loan Costs
Ahome loan calculator is available on almost every lender’s website, which lets you have a rough estimate of the loan amount you can borrow. Apart from the loan amount, a borrower also needs to pay an interest amount at a fixed or floating rate, depending on the lender.
The interest rates vary across different institutions, and each institution has their own promotional discounts and offers which are available for specific time periods.
Apart from interest rates, there are processing and application fees charged by the bank. Often, this fee is non-refundable, which means that even if, for some reason, the lending organisation feels that you are not eligible for the loan, this fee will not be returned.
Before a loan is approved, bankers send in their own experts to appraise the properties, which they do in accordance to a set of parameters. This means that there can be a difference in the valuation of properties, which can result in a huge contrast between what the bank is willing to lend and what you need. To avoid such situations, you can get the property valued by an evaluator.
The Subtle Interest
Borrowers often don’t realise that thanks to interest rates, their house costs them a lot more than what they initially thought they would.
The longer the tenure of the loan, the more overall interest you will have to pay. The amount of interest decreases only when the loan nears completion, as a large chunk of the instalments are used to pay off a portion of the principal instead of interest.
Fixed Rates can be Revised
When choosing a loan with a fixed interest rate, go through the documents carefully, as almost all of these loans come with a revision clause. This provision differs for each organisation and is exercised after a fixed period of time or after a sharp rise in interest rates.
So, before you approach a lender for a loan, keep these factors in mind, and you can be sure of striking a great deal with the bank.