Home Loan is a sum of money borrowed from a bank (nationalized or private) or a housing finance company to purchase a house. The younger generation is keen on making the biggest financial investment at a very young age and the biggest felicitator is the home loan advantage offered to a home buyer. Home loans make it easier for an individual to buy real estate early on in life for investment purposes or as an end user.
Home loans are seen as a big liability due to the big amount and the long repayment tenure, however these loans offer many benefits that provide relief to the individual. Firstly, they help one is securing a home, which is everyone’s end goal in life. Second, home loans mitigate the risk of investing in property, if banks for home loans already approve a real estate project; it means it is a trustworthy project. Repayment of home loan through EMI’s is a long process of over a decade and during this tenure the market rate fluctuates impacts the rate of interest. During this oscillation the rate of interest decreases and provides an opportunity to the individual to repay the loan. Home loan is available for every individual in exchange for some proofs and documents for the validation. An individual can avail home loan along with other loans like car loan, personal loan etc.
The major factors that should be considered before finalizing the loan provider:
- Rate of Interest
Rate of Interest is the most important factor that affects the home loan therefore it is suggestive that an individual should go for a lower rate of interest.
A lower rate of interest reduces Equated Monthly Installment which is easier to repay and also increase the chances of availing higher loan amount. Banks and financial institutions have set different rate of interest for men and women. The banks or financial institutions evaluate the salary or the source of income and based on that decide the rate of interest, and the amount of loan.
- Type of Interest
The banks or financial institutions offer to types of rate of interest- floating and fixed. It is advisable to consider the type of rate of interest that a bank is offering before deciding. Most banks offer a floating rate of interest and not the fixed rate.
In the fixed rate of interest, the loan repayment amount is fixed and same percentage is charged throughout the loan tenure, irrespective of the fluctuations in the market rates. It remains fixed as contracted at the start of the loan process.Floating rate of interest as the name suggests fluctuates with the change in the market rates. As the market rates go down, the rate of interest also goes down providing an opportunity to the individual to repay the loan. Usually, the rate of interest is reset every 6 months depending upon the oscillations in market rates.
Tenure is another factor that affects the home loan and repayment conditions. Most of the banks offer home loan for tenure of 20 years but in some cases it also goes up to 25 years. A longer tenure means lower EMI and a higher loan amount.
- Down Payment
Every bank asks for a certain percentage of total cost as the down payment. It is demanded to ensure that the loan seeker has some stake in the property. In most cases the down payment is up to 20%, the bank or the financial institution as the home loan provides remaining 80%.
- Processing Fee/Administration Fee
Every bank charges a non-refundable processing fee to process the home loan application which is usually up to 0.5%, irrespective of approval or rejection of the home loan. Administration fee is charged of approx. 0.5 % during the disbursement of the home loan at the time of giving out home loan cheque. It is suggestive to choose a bank that charges lower fee.