We list the 5 essential components that impact your decision to take a home loan.
Buying a house without a home loan is next to impossible today, given skyrocketing real estate prices. There are several home loan products that make it possible to fund your house purchase. But do you know the most important components of the home loan?
* The principal. The principal is the loan amount you get from the housing finance company. It is granted up to 80% of the house’s price in case of big ticket loans, or up to 90% of the house’s value in case of smaller value loans. You should assess your need before applying – it is always better to borrow less money so that you can repay it faster.
* The interest rate. The home loan rate determines how expensive or affordable the loan eventually becomes. The lowest loan rate being offered anywhere in the country is 8.5%, while the maximum is about 10%. Look for a lower interest rate so that your EMI burden is reduced. You can apply for a floating rate of interest if the tenure is longer, and so that you can capitalise on rate reductions at a later date. Do use a house loan EMI calculator to find out how much the interest rate affects your monthly spends.
* The EMI. The EMI is the monthly repayment sum auto-debited from your bank account. It is a mix of both the principal and interest. However, only the interest is deducted in the initial years of the loan. You can surmount this problem by starting the process of pre-payment once the loan cycle begins – even as little as Rs 20,000 repaid per month is sufficient. Use a home loan EMI calculator to find out your potential EMI payment – you can adjust it later when the loan rates are cut.
* The evaluation and processing time. This is an important consideration, especially if the home purchase is a time bound project for you. Shorter but thorough evaluation is important for NRI buyers, or those who have transferable jobs and not much time at their disposal. The longer the delay, the more time it takes for you to complete the purchase. In the meantime, the seller might be tempted to deal with another interested buyer that can furnish the money upfront, so you may end up losing the deal. Leading housing finance companies realise the importance of saving time in the house purchase process. So you can expect quick pre-approval of the loan request, shorter evaluation and verification times, and also quick disbursal on the desired date.
* The processing fees. The housing finance company charges from 0.5% to 2% (of total loan value) processing and evaluation fees per customer. This is a big sum of money, so do try and negotiate on it with the lender. You can save some money by applying for the home loan online – lower operational costs online translate into the lender passing on the savings to you. Apart from processing fees, you must also pay a pre-EMI cheque, so do get the loan disbursed as close to the date of the first EMI as possible.