Let’s face it. All of us dream of owning our own home someday, but doing so without a home loan is literally impossible with real estate prices rising every day. If you are planning to take a home loan, you must indeed make a prudent decision and be prepared to service it for a lion share of your working years. It is the greatest asset you will build and the monthly payout for the same will be substantial.
Here are some tips that you can consider at every stage of your loan in order to save some money on your home loan:
Things to do before applying for the loan:
- Perfect your CIBIL score: Your CIBIL score plays a very important part in deciding your loan eligibility. Most banks will not even consider your loan application if you have a CIBIL score of less than 750 (out of 900). At least six to eight months before you apply for the home loan, purchase your CIBIL report and see whether your score is satisfactory. If it is not, work towards improving it by paying all your loan EMIs and credit card bills on time. Also make sure that your credit card utilization is under 30% of your credit limit.
- Conduct thorough research: Before taking a loan, you should be comparing notes about the various options you have among lenders. Some banks and housing finance companies may have some attractive offers around the time you intend to take a loan, which may put you at an advantage. Things to look out for apart from interest rates on an offer are the various other charges on the loan product and how much of it is negotiable. Also, be mindful of the service standards of the bank. It’s a good idea to check with friends and family members about their experiences if they have recently taken loans.
- Maximize your loan eligibility: When you are planning to take a home loan, make sure you check out the best option and see if you can jointly take a home loan with your spouse. Not only does it decrease your EMI burden, you become eligible for a higher amount of loan and can save money by claiming double benefits on tax exemptions.
During the process
- Negotiation is the keyword: A bank has several charges that it will want to levy on you, but do remember that none of them are hard and fast. If you have a good CIBIL score you are at a vantage position to negotiate hard and waive off as many charges as possible. A lot of these administrative charges add up to your overall costs of taking a loan, so make sure you check out all the charges carefully.
- Read between the lines: When you take a loan, you are most likely to interact with a loan officer who will be your point of contact till the disbursal of your loan. Don’t depend on his word for everything and make sure you have gone through all the loan documents and its terms and conditions thoroughly so that you receive no rude shocks later.
After taking the loan
Your responsibilities have only begun, and you are now going to make repayments for a good 10-20 years to your bank. Here are the things to be done after you have taken the loan.
- Make regular payments: Make sure you never default on a payment, since even a single default will cost you dearly not only in financial terms, but will also lower your CIBIL score.
- Make prepayments as and when possible: With RBI having removed the penalties on foreclosure and prepayments you can choose to make prepayments over and above your EMI, whenever you are in a financial position to do so. It makes sense to make as many pre-payments during the initial part of your tenure, because this is when you are servicing the interest component of your loan.
- Take advantage of the tax benefits: There are several tax benefits available under Section 24 and Section 80 C of the Income tax Act that will help you garner savings on the interest and principal amount repaid.
- Keep your loan tenure undisturbed: When you increase the tenure of your loan, you end up paying more interest. If it’s possible, try and re-adjust your EMI to pay a higher amount every month, so that you can clear off your loan earlier than the tenure stipulated by your bank and save a sizable amount on your interest payments.
- Paperwork is important: Until your loan has been fully repaid, make sure all your paperwork is in order; you have details of the all the repayment records. Once your loan account is closed, make sure you get a letter from your bank saying that your loan has been repaid in full and you are in possession of the original property documents.