With house loan interest rates as low as they are and developers providing fantastic discounts, now could be the greatest moment to buy your dream home. Given that real estate prices have remained flat in recent years, this could be an ideal time for renters to purchase a property. However, there are a few things to consider before taking out a home loan. The amount of loan you are eligible for is determined by several criteria, including your present wage and income. You should also acquire a handle on other details, such as the price of the home you’re considering purchasing.
While financial benefit is the most important factor to consider when applying for a house loan, there are a few other factors to consider as well. Let’s first look at the two kinds of interest rates that banks provide on home loans.
Home Loan Interest Rates Are Calculated in Two Ways
Flat Rate: The flat rate method of interest computation is used to calculate interest on the total loan amount initially borrowed over the entire loan duration.
Balance Reduction Method: As you pay off your monthly EMIs, portions of the loan amount and interest component are paid down. In this method, interest is calculated on the declining loan amount rather than the total amount borrowed.
It’s important to clear it to form your bank at the beginning as to which interest rate is being charged on your home loan.
Factors to Consider When Comparing Offers from Top Companies on Your Home Loan
- Eligibility Criteria: Calculating your EMI is a simple way to determine your loan eligibility. In most cases, banks cap the monthly payments at 40-50 per cent of the borrower’s wage, i.e. basic plus allowance. Allowances and reimbursements are not taken into account. Also, if you have any outstanding liabilities, such as a loan, your eligibility is reduced even more. Some financial institutions are concerned about the number of dependents you have. The greater the number of dependents, the lesser the repayment capacity.
- Examine the interest rate and the terms of the loan: The lower home loan interest rate, the lesser the monthly instalment you will be required to pay. Examine the interest rates for various tenors and then choose the one that is best for you. Keep in mind that interest rates might be either fixed or fluctuating. Choose the option that best fits your needs. Make a list of all the lenders you might be eligible for and then evaluate their offers; you can start by looking for the ones with the lowest interest rates.
- Get an idea of the cost of a transaction: Some banks may levy fees for foreclosure. To see if there is a fee, check with your present lender. Check the processing fees for the new loan as well. Typically, it is one per cent of the outstanding loan balance.
- Negotiate your interest rate: Though the bank will always have the upper hand, you can bargain if you are an established customer with a lengthy connection with the bank. If you have a good track record of making on-time payments on your credit report, it can be used to negotiate the loan amount and interest rate. Every bank wants to do business with you, and having a strong credit score provides you leverage.
- Other terms and conditions: Some terms and conditions may not be expressly stated in the advertisement that you saw before approaching the lender for a loan. It’s also possible that you weren’t informed about them by the lender’s representative. As a result, you must read all loan-related paperwork thoroughly from beginning to end to avoid any misinterpretation or deception.
Existing house loan borrowers can use home loan balance transfers instead of prepayments to save money. Transferring the outstanding balance from your current house loan lender to a new lender with a lower rate of interest would ensure that your existing investments are not used to prepay home loans while reaping interest savings. As a result, it’s a good idea to weigh the benefits of a house loan balance transfer against the benefits of home loan prepayments before making a decision. This will protect your previous investments as well as the liquidity of your assets.
Thus, you must keep in mind all the other factors while choosing the best home loan interest rate for your new home.