The market for home loans in India expanded by 32% between 2017 and 2021. While more people are taking home loans, quite some planning and analysis are required to make such an expensive commitment. Taking out a home loan should be as calculated as finding the most beautiful home for your family. This article will discuss some common mistakes that should be avoided while applying for a home loan.
1. Making the Wrong Choice Between Fixed and Floating Rates
While taking a home loan in India, you can either settle for a fixed interest rate or a floating rate. A fixed interest rate remains unaltered over the years, while a floating interest rate will depend on RBI. So, if the RBI changes its interest rates, you will have to follow it.
A fixed interest rate is beneficial for people who have opted for a short tenure to repay their loans. Fixed home loan interest rates are suitable for a term of five to seven years. But if you are going to take two decades to repay the loan, always go for floating interest rates. If the interest rates go low in the upcoming years, you will benefit from it.
If you are going for floating interest rates, find a lender who will reveal the base rate to you. Knowing the base rate will make the process more transparent. A significant benefit of floating interest rates is that you don’t need to bear penalty charges for prepayment.
2. Making Errors in Calculating Down Payment
Several people end up buying a property under construction, thinking that they can proportionately pay the down payment. They assume that the bank will disburse the rest of the payment. But lenders will insist you make the entire down payment before they start disbursing the property.
3. Overestimation of Repayment Ability
People often forget to include their monthly expenses while calculating their repayment capacity for a home loan. The lender will be more concerned about your liabilities than your assets while granting you a home loan.
If you have high monthly expenses and choose a high EMI amount for your loan, you will be in a deep financial crisis. Try to settle for an EMI amount that’s not 30-40% above your income. Do not rely upon the future, such as bonuses or increments, while estimating your repayment capacity for the home loan.
4. Settling for a Home Loan Without Bargaining
If you want to end up with the best interest rates for your home loan, you should bargain enough. Make a list of lending institutions from where you can take out your home loan. After that, use your negotiation skills to adjust the terms and conditions of your home loan.
Your repayment profile and income will be considered while deciding your loan amount. Before taking it, you should verify various factors of the home loan, such as processing fees, valuation fees, legal fees, and other charges.
5. Not Getting Your Home Loan Insured
No one wants to pass the burden of a home loan to their inheritors. Therefore, you should buy life insurance while taking out a home loan. Life insurance policies will help the family member in the event of the sudden death of the borrower. You should also buy a critical illness policy to protect you against the home loan if your income is interrupted due to a major illness.
Wrapping up
If you remember all the above-mentioned points, the burden of taking out a home loan will be a lot less. Enjoy your life in your new home instead of worrying about repaying the home loan.
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