Tag: home loan interest rate

6 Important Things You Should Know Before Taking a Home Loan

Home loans have become inseparable parts of home deals today. For an individual the decision to buy a dream home depends on their eligibility to get a loan. Probably this is why people begin to plan for home loans much in advance.

To understand how home loans work, you should first understand that these are basic loans which all the popular banks offer for long run. Home loan is nothing but a monetary assistance offered by a bank or financial institutions to make a purchase of residential property. The purchased home usually stands as security until you pay back the entire loan amount with interest. Thus loans are secured loans and banks are always keen to offer home loans.

The basic requirement to get a home loan may differ from lender to lender. Usually to get a loan, you should have a fixed, dependable source of income. You may be employed and self-employed, it doesn’t hurt your stakes. You need to have a good financial history and banking transactions for at least 6 months. The age should be between 21 and 60 years of age for employed or between 21 and 65 years, for self-employed.

Let’s outline 6 important things you should know before taking a home loan.

How much you want to borrow?
First things first you must clearly know how much you want to draw from the bank. These days you can avail home loan up to 90% value of the property, however decision to borrow the amount should not be dependent on bank’s will only. The banks assess the loan amount by calculating your net income, i.e after deducting your current credit outstanding and day to day expenses from your income. Based on the net income they would calculate how much you could spare as loan EMI. As a rule of thumb, banks generally limit the loan installments at around 40 to 50% of the borrower’s salary.

Type of loan
There are two types of these loans based on the interest rate. One is fixed rate of interest and the other is floating rate of interest. When A person is taking fixed rate loan,it  usually charges a fixed rate across the whole tenure. Interest is constant for the full period of the loan. On the other hand, the interest on the floating rate changes with the market rates. For example, when the market rates rise, the interest rate on the these loan goes up and when the market rates fall the interest rate on the home loan goes down. The fixed rate home loans are generally higher than current floating rates.

Tenure of loan
Major lenders offers maximum 30 year tenure for home loans. EMI is lower when the tenure is longer. Being fat loans, people with limited resources opt for 25 to 30 year loan. However, it is advisable to take a loan for the shortest tenure if you can afford. Suppose, in a 10-year loan tenure, the interest paid is 57% of the borrowed amount. This can go up to 128% if the tenure is 20 years. So, always keep the tenure as short as possible.

Tax benefits
You can avail tax benefits with this loans and you should clearly know about the benefits in advance. You and the co applier both can get income tax deduction up to 2 lakhs for home interest. The property however need to be self-occupied to avail the benefits.

Loan defaulter
All those who have not repaid their loans will find their names enlisted in Loan Defaulter List. The default can happen when you do not pay EMI. So, the borrower must be careful about the add-on charges and penalties. It is not just the interest that you pay, there can be additional charges such as administrative and service charges or processing fees. Once blacklisted as a loan defaulter, it would take many years to restore the credit score.

Prepayment penalty
Before you sign the deal ask the lender if there is any prepayment charges. By prepaying the loan you close the account earlier than anticipated and reduce the cost of loan. Many banks charge a penalty on prepayment of home loan, so if you intent to prepay, look for the loan that allows you to prepay without a charge.
Following these six points you could be rest assured of finding a good home loan deal.

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4 Things to Avoid When Picking a Home Loan

A house loan is unlike any other loan you would take in your life. Not only it’s exceptionally big amount-wise, it also has a term duration as long as 20-30 years, which is a lot. In other words, it’s a big responsibility and you must be careful with the decisions you make for it.

You may have read a lot about all the do’s of the home loans like finding a low home loan interest rate, finding the right financer, etc. but the don’ts are equally important to be aware of.

On that note, the following are the top 4 things to avoid when picking a home loan:

  1. Spending Your Life’s Savings

There are certain events in your life where you have to take bold decisions. However, there is a thin line between being “bold” and being “foolish”.

For instance, after searching for a perfect house for weeks you finally found one that makes the cut. However, it’s way above your original budget. So, to fill in the cash-gap you decide to break open your biggest piggy-bank- your life’s entire savings.

Big. Mistake.

Your life’s savings are meant for emergencies, and they might be the only thing to save you from a rainy day. So, it can be a terrible idea to splurge all your savings on a house. Ironically, you may also end up on a loan defaulter list because if you became cash-strapped down the road, you won’t be able to pay the EMIs and you won’t have any savings to use either.

  1. Not Factoring in the Additional Costs

A lot of people forget about the costs that are added to the cost of the property itself. For instance, the cost of the furniture, lighting fixtures, etc. along can easily hit a six-figure. Then there are maintenance costs which include payments to the security guards, sweepers, gardeners, etc. and membership costs (if you bought a house in a society/locality) for gym, clubs, etc.

Your bank will also impose a few charges of its own such as processing fee, transfer fee, etc.

  1. Settling for the Interest Rate Offered

It would be unwise to accept the first offer made to you by your bank for a loan. You have all the right to negotiate the terms and the home loan interest rate itself.

If you have a top-notch credit history and a decent credit score, then you are a good candidate for a home loan. If you are an old customer of the bank and have always paid your credit card bills on time, maintained good relations with the staff, etc. then it’s even easier to get a better interest rate. All you have to do is let them know upfront that you have a spotless credit profile and you have been a loyal customer to the bank, which is why you should be given a better interest rate.

  1. Applying Without Good Credit

Applying for a home loan when your credit report isn’t quite ready yet, can do harm on multiple levels. For starters, a poor credit score will instantly increase your chances of loan rejection. However, if you have applied at several banks, then it will damage your score even further, thus reducing your odds even more.

It’s important that your work on your credit report first before sending out the loan applications. If there are some serious remarks on your credit report such as a mention on a loan defaulter list, settled accounts, etc. then you must get them removed by talking to your bank or the credit rating bureau. Similarly, if there are any discrepancies in loan repayments, current debt, personal details, etc. then you should get them corrected as well.

Only with a good credit report, you can easily obtain a loan at an affordable interest rate.

So, these were some of the most common yet the most important things that you must avoid when applying for a home loan. In doing so, you are sure to save yourself from a lot of trouble and stress.

Is Buying a House Good or Bad for Credit Score?

Having your own house is often a dream come true. However, do you know that it can affect your credit score too?

When you buy a house with a loan, then the way you manage the loan repayment and other types of credit during the tenure affects your credit report.

Home Loan Process and Credit Score

One of the biggest mistakes you can make when applying for a home loan is overlooking the importance of CIBIL score check.

There are two main reasons why you should always check your CIBIL score before applying for a loan:

  1. Credit Health

When you apply for a home loan, the banks send an inquiry for your credit report to assess your credit profile. However, this affects your score itself.

If you have applied for a loan at multiple banks at the same time, which many people do to increase their odds of loan approval, then it can have an adverse effect on your report. This is because this behavior is commonly dubbed as “credit hungry”. In other words, it suggests a sense of desperation and may lead to credit score damage.

By performing a CIBIL score check, however, you can see whether your report is in a good state or not. If it isn’t, you can work on it first and then apply for a loan. This way, you don’t have to apply for multiple loans. Since there will be fewer credit report enquires now, there won’t be any credit score damage.

  1. Better Interest Rate

Generally, a home loan has a long tenure which can be as much as 20 years. Thus, you would want to get the lowest home loan interest rate possible. Again, this is where checking your credit score can help.

If your score is low, then you can work on it so that when you do apply for a loan, you can negotiate with the lender for a better interest rate.

Credit Score During Home Loan Repayments

The way you repay your loan can also affect your CIBIL score. In that regard, the following are some of the things you should keep in mind:

Repayment Pattern

One of the most important things that you should be careful about during the loan tenure is the repayment schedule. It’s super important that you pay all your EMIs on time. This is because punctuality matters a lot when it comes to credit score calculation.

If you miss an EMI, then your bank informs their credit bureau about the same. They, in turn, mention this in your credit report under the tag DPD which stands for “Days Past Due”. So, if you pay an EMI 11 days past the due date, then in the accounts section of your credit report there shall be a remark like “DND: 11”.

Remarks like DND can have a big impact not just on your credit report but your score as well. Thus, make it a point to repay all the EMIs on time at all costs.

Credit Report Details

If you want to maintain your credit score, then be sure to conduct a CIBIL score check every once in a while. This is because as you will repay your loan, it’s possible that an error takes place in your report which affects the score.

For instance, your bank may accidentally inform the credit bureau that you missed a payment, or you may become a victim of identity fraud, etc. Thus, by checking your report every few months you can avoid these issues easily.

Improved Variety

While you have to be careful with a home loan, it can also improve your score easily and open more doors for a better home loan interest rate in the future. This is because when you take a home loan, it improves the credit variation in your credit report, assuming that it’s currently based on just a credit card repayment history or a personal loan repayment history, etc.  In fact, the more is the variety, the better is the score.

The bottom line is that home loan can be good or bad for you depending on how you manage it. If you are punctual with your EMIs and don’t accumulate a high debt, then it’s good for you. However, if you delay the payments frequently or simply default at one point, then it can have serious repercussions on your score.