Housing Loan

Housing Loans

With the present day market conditions, it is imperative to understand finance and hence Home Loans become an integral part of home buying. Before you step out to even look for a new home it is important that you should know the various implications of taking or not taking a Home Loan. Besides Home Loans there are commercial loans available but we will emphasize on the factors which are more concerned and related to the Home Loan segment.

With a wide experience in assisting clients we at www.mumbaipropertyexchange.com would like to advice you in various respects of taking a Home Loan.

Budgeting


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The most important part of the Home Loan is 2 Understand very clearly and after doing your home work well.

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What is the Down Payment you can make from your own contribution (without stressing or over stretching yourself)?

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What is the monthly EMI you can pay towards a home loan again after calculating your monthly budgets and planning for some contingencies etc.

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Pre-qualification of a home loan will enable you to understand more.

General


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Home loans are provided based on the market value, mainly estimation given by banks or the registration value of the property. Availing various types of house loans to suit your individual needs at the lowest rates & easy financing can now fulfill the need for a house of your own.

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Home loan is not a one-time decision; do review the market periodically before availing them. Today there are unlimited numbers of banks in the country wanting to give out Home loans. Given this scenario, it may seem easy getting yourself a loan. But is it really??

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Buyers tend to make mistakes while entering into deals, which may not be beneficial for them, so better compare all the variables before signing a loan agreement by different banks. However the loan agreement should be finalized only after reading the terms and conditions carefully.

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You can apply for a Home loan even before you select your property. The loan amount would be sanctioned or approved for you, based on your repayment capability.

Unique Features of Housing Loan:


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Purpose: For purchase of house from builder / resale and construction / extension of existing house.

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Loan amount: You can avail for Home loans ranging from Rs.2 lac to Rs.200 lac depending on your eligibility, income and repayment capacity.

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Security: Home loan is a secured loan wherein collateral are required and generally the property you are buying becomes a collateral.

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Loan tenor: The maximum loan tenure is 20 years.

Tips


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Take your own time and evaluate your expenses and do a market survey about the property buying process. Buying a house, which is way beyond your range, could affect you financially; banks help in financing your dream home via home loans.

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Eligibility Banks determine your eligibility based on your repayment capacity and discuss about the loan amount up front. The eligibility for acquiring a home loan is augmented by clubbing income of your father/spouse/mother/son, by clearing your outstanding debts, by stretching your loan tenure, Salaried individuals can increase their eligibility by showing their performance linked income or bonus earned.

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Do your own analysis and check the impact of your repayment of home loan on your monthly expenditure, as a thumb rule, it's recommended to make sure the EMI of your home loan do not exceed more than 40% of your gross monthly income.

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Interest rates best suited an important factor that goes into your EMI calculations is the interest rates, which may vary from bank to bank, so do compare them. Also do a complete and detailed analysis of the various options like the interest rates i.e. fixed and floating rate of interest.

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If, 2 banks give you the same amount of loan but at different interest rates do your math and work out what's best for you.

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Fixed interest loans charge an interest, which remains the same through out the tenure of the loan. This means that the consumer is immune to market risk or the possible upward movement in the interest rates. Hence, fixed rate is a good option when the interest rates are expected to move up in the future.

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As for floating rate loan, a consumer is exposed to market risk and his gain or loss depends on the interest rate condition prevailing in the market. Floating rate is beneficial if the interest rate falls in the future. A floating rate is considered non-transparent and is also known as "adjustable rate".

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If you decide to opt for a fixed rate loan, you can still switch to a floating rate loan in the future and vice versa as and when rates go in your favour and if you do decide to switch, you should take into account the cost of doing so and the interest rate benefits of switching.

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For a given interest rate, loan with a daily or monthly reducing balance is better than an annual reducing balance loan. Interest rates vary depending on the tenure of the loan, the amount of the loan and your personal profile.

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Insurance cover (an added cost) Also, many banks may insist on getting your home insured to safeguard their interest. There are various kinds of insurance covers available for you. Apart from getting the mandatory ones you should try to get insurance as per your circumstances. You also have a choice of getting insured from another company without any objection from your bank.

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A lot of Banks offer something like Smart Home etc. this is also a very interesting type of loan wherein your capital is also kept in the Smart Home account and you pay interest only on the amount which is the balance.

Other Costs


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The interest rates and EMI’s are not the only cost factor. A 1% administration fee and a 1% processing fee on a Rs.10 lac loan, would amount to Rs.20,000/-.

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Processing fees, administration fees, valuation fee, legal fee, is to be paid when you apply for a loan and other fees paid at closing. Many of these fees are negotiable. You should ask for zero processing fees and zero-penalty for pre-payment option. If this were not available, then lowest cost would be better.

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Make sure you work out as to how much these other costs add up to. So even though the interest rate may be lower, it usually adds up to being expensive. If the EMI’s may come out a lot more than what you can afford on a monthly basis; try to redo the math with changes in the tenure and loan amount (if possible).

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So make sure you always ask for a letter on the banks letterhead mentioning the likes of, exact rate of interest, processing fees, pre-payment charges along with interest-schedule.

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Before signing the documents, make sure you recheck all terms and conditions.

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Do make sure you understand and agree with each of the clauses in the documents. Do not sign any blank documents. Even if it takes you a few hours to fill-up the form, please do so.

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Do not leave anything for the executive to fill-up. It’s always better to get a legal opinion from someone on your loan papers.

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Penalties once you have received the loan do your best to pay it back as quickly as possible. But this early payment might invite a pre-payment clause.

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Banks make their money off the interest they charge and the sooner you pay back a loan the less money you will have to pay in interest. When it comes to Home loans, penalties are binding, like if you chose to pay up your entire money before the tenure, a Pre-payment penalty is charged. So you should know about such penalties beforehand to avoid future misunderstanding between you and the bank.

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For further information on Home Loans - Please email us on indu@mumbaipropertyexchange.com and we shall understand your needs, analyze, study and recommend you the best possible options. We do not charge you for this service provided the property is bought through our assistance.