Buying a new home is one of the most expensive purchases you’ll ever make. When you’re house hunting, it’s tempting to get caught up in the excitement of finding your perfect home.
Buying a new home can be a very exciting and fulfilling experience. With so many houses out there, it can be tough to determine which one you really want.
With so many expenses and fees that go along with buying a house, it can be helpful to have a few tips on how to save money and increase your buying power.
But before you start packing your boxes, you should do your research and ask yourself these 7 questions.
1. Should I get a home loan?
It is always wise to get a home loan because it gives you the freedom to pay monthly instalments rather than having a large chunk of your salary go towards making EMIs. However, getting a home loan has its own set of pros and cons.
While applying for a home loan, you should be clear about all the criteria you wish to meet and the one you wish to skip. Once you are set on the loan, the process needs to be complete and effective in all possible ways.
In order to avoid faltering, follow these points while applying for a home loan.
#1: Don’t succumb to the pressures of falling in love. In their quest to secure a home loan, many home loan applicants fall prey to their emotional state and take undue advantage of the situation.
2. How much should I pay in interest?
Understandably, it’s tempting to pay for something you want at the lowest possible price possible. However, make sure you read the fine print first. Banks charge interest not just on the actual loan amount but also on the amount you borrow from other lenders.
Therefore, if you are planning to take out a personal loan from your bank, ensure you fill up a small form for comparison of interest rates before you sign a loan agreement.
If you are planning to get a loan from a different bank, check out their online portal, as they will also disclose the interest rate, and some may even have comparison charts for you to see.
If you pay less interest but then get a higher loan amount, you will be paying even more interest because there is no cap on the loan amount.
3. What are the different home loans?
Before taking on a home loan, it is important to understand the different types of home loans that are available today in India. The first one is the conventional home loan, which is an unsecured loan. It is primarily meant for self-employed and salaried people.
The second type is the home loan provided by the government, which is called a housing loan. Unlike the conventional home loan, it is secured. To be able to apply for the home loan sanctioned by the government, one has to fill in the online application form and upload the relevant documents.
The interest rate on this home loan is generally lower than that of a conventional home loan, which is currently around 8.3%. A secured home loan can have a maximum tenure of 30 years and there is no income tax on the interest earned.
4. What are the advantages of a fixed rate home loan?
Loan term – The shorter the loan term, the lower the interest rate. Loan processing fees – FOMO is the worst, your banker or broker will be placing this fee and by default, making you pay more. Interest rates – Mortgage rates are very much linked to the interest rates in the market.
If you can see the interest rates are going up, it may help you choose between the options for your home loan. Make the most of your home loan tenure Once you have paid the initial lump sum, the most attractive thing about a home loan is that you have to pay off your loan within the stated time period.
However, the most important aspect about your home loan is that you need to pay the full amount of the loan in the defined time frame and not a single rupee less.
5. What are the disadvantages of a fixed rate home loan?
- You could end up paying more interest if you miss any of the interest payments If you miss a payment, which you do if the interest rate on the loan changes, then your loan will default and you’ll be charged a penalty.
- You don’t have room for your stuff. The loan usually comes with a clause that the bank is entitled to take some of your possessions.
- You don’t have an option to sell your property if you want to move. The banks are not required to sell your property to you.
- You can’t take on another loan If your loan is for more than one property, you can’t secure another loan for the next property as it will interfere with your existing loan.
- The Loan Rates are not that high The loan rates are not that great and you should prepare for lower monthly payments.
6. What are the advantages of a variable rate home loan?
Since rates are ever-fluctuating, it becomes harder for the borrowers to plan their finances and budget according to the interest rates that the lenders are offering. At present, the 30-year fixed rate home loan rate stands at 7.08%.
However, when you buy a home in today’s times, you are probably not going to see it for more than 7 years. That’s why it is important for you to consider a home loan which offers you benefits like: Interest rates are flexible The interest rates are flexible to a great extent.
If the interest rates are fluctuating, you can avail various types of loans which offer you good or better interest rates than the variable rate home loans.
7. What are the disadvantages of a variable rate home loan?
You cannot lock in the rate and stay away from variable rate loans. The basic structure of a variable rate home loan is that your rate is determined by the interest rate index.
You pay a fixed fee for setting up your loan and you could pay for other costs as well. You will be in for the most expensive interest rate if you opt for a variable rate home loan. It is best to pay for a fixed rate home loan if your intention is to get a fixed rate loan.
Here are some of the things that can happen when you are defaulting on your loan. You will have to pay a default amount which might be higher than what you owe. You will lose your home in case you default.
Investing in a property can be a great investment. But, it isn’t easy to find a property in a good location with a good home loan. Keep these things in mind before applying for a home loan and you’ll be on your way to owning a home! Do you have any important tips for buying a home?