How to choose the right Home Loan for me?
So you have decided that it’s time for you to move out of that rented an apartment and buy your own house. But before you start spinning your dreams, it is important to decide what is the kind of home loan that is right for you. With so many variations of home loan products it is easy to get confused. You have to ensure that you choose a home loan that matches your risk profile perfectly. Here are some tips that can help you make the right choice.
Before you set out choosing a home loan product you have to ask yourself some pertinent questions like these:
- What is my risk profile at the moment?
- Am I in a position to get into a long term repayment commitment?
- Do I have enough cash in hand for other investments?
- Where do I see myself over the next ten years?
Once you are clear about these answers in your head, you can go about scouting for the right loan product. The following factors should be considered then.
- Choosing the right lender: This is the first and most important step in taking a home loan. Talk to as many lenders as possible and see who is offering you the best deal. Apart from the interest rates, you should also consider things such as processing fee and other major costs you will have to bear while taking the loan and the maximum amount of pre-payments you can make in a year without any additional cost. It’s also advisable to check with other home loan borrowers of the lenders you are considering and get their feedback about their experience with the lender in question.
- Understand the interest rate component: The rate of interest on your home loan is what impacts you the most as it will determine your monthly outgo as EMI. The two most popular types of interest rates are the fixed interest rate and the floating interest rate. Apart from these two categories, there are lenders who offer hybrid loans that are a mix of fixed and floating interest rates.
- Convenience: With minor variations in internal standards, most banks and housing finance companies adhere to standard procedures for credit appraisal before they decide you are loan worthy. Make sure you compare notes after you have spoken about timelines for disbursal of loan if all the requirements are met from your end. Consider factors such as the service standards of the bank, the after sales services, branch near your residence, the customer support that they provide etc.
- Bullet Payment: When you are comparing home loan products, check with the banks the number of bullet payments they allow in a year without a penalty. A bullet payment is a lump sum payment that you can make on your loan to close it faster. The bank that offers the maximum number of such payments is worth considering. Most banks allow them, but have a cap on the number of such payments that you can make in a year.
- Pre-closure: RBI has instructed all banks to abolish pre-closure charges on home loans bearing a floating interest rate. However, some variation of home loan schemes may still attract such charges. Make sure you are not getting into any such schemes that do not have the facility to pre-close the loan.
- The costs of a balance transfer: Most lenders will try to avert this question because they do not want to lose out on a prospective customer in you. Nevertheless, you should clearly ask about the costs involved in case you want to move out midway during the tenure of your loan to another bank. Things such as penalty levied on an early exit should be discussed clearly up front.
While choosing the right home loan option, it is very important to understand the exact structure of the home loan that a lender is offering. Use a comparison chart to check out the various advantages and disadvantages you are being offered by each lender based on the above mentioned tips and you will have an answer to which is the best home loan option for you.