A home loan is a long-term financial responsibility, and even a small mistake made during the process can significantly increase the total cost of the loan over time. In a hurry to buy a dream home or due to incomplete information, people often make such mistakes, the consequences of which they have to pay in the form of heavy EMIs and additional expenses throughout their life.
Let us understand in simple language what precautions you should take while buying a house on EMI.
Do you also choose a bank just by looking at the interest rate?
Most of the people, while taking home loan, choose the bank only by looking at the lowest interest rate, but this is not the right way. Suppose, a bank’s interest rate is 0.25 percent low, but if its processing fee is Rs 25,000 to Rs 40,000 more, then all the benefits of low interest are lost. Therefore, always compare the ‘total expense’ which includes interest, processing fees, legal charges and insurance premium.
How right is it to choose the longest tenure to keep the EMI low?
The longer the loan repayment tenure, the lower will be your monthly EMI, but the higher will be the total interest burden. For example, if the loan tenure of Rs 45 lakh at 8.5% interest is changed to 20 years instead of 15, the EMI will reduce by around Rs 5,200, but you will have to pay around Rs 14 lakh extra in total interest. Use the home loan EMI calculator and try to choose a tenure that will not burn a hole in your pocket and also save interest.
Have you checked your loan eligibility before searching for a home?
Many buyers finalize the property first and apply for the loan after finalizing the price. If the loan sanctioned by the bank is less than expected, the financial pressure on the buyer increases or the deal may even get cancelled. So, before you start looking for a home, check how much loan you can get based on your income through the housing loan eligibility calculator.
Once the bank passes the property, is it 100% safe?
Banks check the property only to reduce their risk (ownership and quality of construction). Many buyers believe that once the bank has given the loan, the property is completely safe, which is wrong. Problems like legal disputes, ownership history or unauthorized construction may arise later. Get an independent legal check of the property title and check the RERA registration of the under-construction project.
Apart from down payment, what hidden expenses are important to prepare for?
The down payment isn’t the only big expense when buying a home. Four to eight percent of the property price goes towards stamp duty and registration, which has to be paid in cash. If you are buying a house for Rs 70 lakh, then the stamp duty alone can be Rs 3.5 to 5.5 lakh. Apart from this, make an additional budget of Rs 4 to 7 lakh for processing fees, GST, legal verification and interior expenses.
What to choose between fixed and floating rates and why is loan review necessary?
Before signing the loan agreement, it is important to understand the difference between fixed and floating rates. In fixed rate EMI remains the same throughout, whereas in floating rate it changes as per the market. Apart from this, do not leave it unattended even after taking the loan. Request the bank to reduce the interest rate if your credit score improves after two years and make part-prepayment if you get a bonus or additional funds.
What should be the strategy to buy a house on loan?
Home loan mistakes prove to be costly as their impact lasts for 15-20 years. It is important to pay attention to the interest rate as well as the total cost, choose the right tenure, check the legality of the property and properly budget all the expenses. Taking these precautions before taking a loan and reviewing your loan at least once a year can save you from huge financial losses in the future.