Availing a home loan in this day and age is as easy as running into a founder of a start-up in Bangalore. However, like most start-ups, many home loans cause financial hardship because the borrower hasn’t done his/her homework before availing one, or because he/she hasn’t managed finances after availing the loan. The last thing you want is to damage your standard of living by spending a large part of your income on the housing loan. Mentioned below are a few rules to follow during a mortgage.
Research – In spite of the technological advancements in banking, not many people do their research before applying for a housing loan. There are several websites that provide an in-depth and honest comparison of home loans in the market in terms of interest rates, fees, prepayment, etc. Spending a little time on research before applying for a loan will give you a clear picture of a particular loan product when compared to another.
Use additional income wisely – More often than not, the additional income you receive is more beneficial if utilized towards prepaying your loan. This will help clear off the loan faster, and in some cases lower the interest payable as well. However, if you have forgotten about your spouse’s birthday, for example, it may be wiser to purchase an expensive gift that goes well with your house with the additional income.
Know your credit score – Credit bureaus keep track of all your activities with regard to credit in terms of credit utility, prepayment history, etc. These details are then equated into a number between 300 and 900, and is usually a primary determinant of loan approval. Applying for a loan with a low credit score not only can be a waste of time and money, but a rejection of a loan application can deplete your credit score further, diminishing your chances of loan approval substantially as well. Therefore, it is of paramount importance to know your credit score before applying for a housing loan.
Understand the preclosure and prepayment fees – If you plan on preclosing or prepaying your loan, understand the charges for the same. You do not want to have an extra burden of expenditure while prepaying your loan. Research will also help you determine the loans that have preclosure and prepayment charges, and the loans that do not levy charges.
Understand the expenses – Simplicity is often overlooked when it comes to finance. Understand your financial situation and apply for a loan amount accordingly. A rule of thumb to follow is to make sure that your total EMI payable for all your loans put together should not exceed more that 50% of your monthly income. This will make sure you have an adequate amount of money to maintain your lifestyle, while it also acts as security in case of an emergency.
Keep the loan tenure short – Not only will the burden of your loan get wiped out quicker, but the rates of interest will reduce if you keep your loan tenure short. Although this would mean higher EMIs, a borrower would benefit greatly in the long run with short tenures.
Make timely payments – Making timely payments towards your loan will not only ensure that your home loan clears out as scheduled, but will also increase your credit worthiness as well. With customer satisfaction at the top of their priorities, numerous banks, in essence, are our friends when it comes to borrowing money in many ways. However, if you have not been making timely payments, you may have to face repercussions are quite different to the ones from not paying back your actual friend on time.
Avail insurance – Although most banks prompt you to avail insurance while disbursing a loan, a few banks do not. You need to ensure that you take insurance as this would minimize the risk in the event of an adverse unforeseen incident forbidding you from making payments. In this case, your family members will be burdened to make these payments. Opting for an insurance will eliminate this risk.
Read into the documents – Reading the fine print of the insurance documents is necessary as this will help you understand the finer details and the hidden charges of the housing loan, if any. Usually while applying for a loan, you do not get the entire loan amount. Money will be deducted towards processing fee, stamp duty, etc. and the difference will be credited to your account. Reading the fine print will help you understand exactly how much money you will have to spend and precisely what amount will be credited to your account.
Invest your own money – While availing a housing loan, the borrower has to pay, out of his/her own pocket, a portion of the value of the property he/she wishes to purchase. Try to pay as much as you can by yourself, as this would substantially reduce the burden on your home loan in terms of tenure and interest payable.
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Rohit Kumar Joined: December 6th, 2018 Articles Posted: 1
