Risks that can be reduced while taking a home loan
A Home loan is an amount of money, which an individual borrows from a bank at a financing cost. Home loans act as a key enabler for those who need to buy a home but yet have some issues. The individual purchasing the home loan payback to the bank in the form of EMI every month. Easy Monthly Instalments (EMI) is to be paid in a time interval that can shift from 10-30 years.
There are varieties of home loan alternatives one can choose from.
- Home Purchase Loan
- Construction Home Loan
- Land Purchase
- Home Improvement Loan
- Home Repair Loan
- Home Extension Loan
These home loans can be used to buy commercial and individual properties relying upon nature.
Factors to look upon when applying for home loans
Essential Factor – This is the measure of cash you will get from the bank or monetary foundation.
Time Period – How long you will be repaying the loan. This depends on the income and monthly expenditure. You can choose a period that suits you best.
Interest – The bank charges an interest in exchange for its money borrowing services. The pace of interest is subject to the measure of the principal and the span for which you will reimburse the credit.
EMI Amount – You will be repaying the monthly instalments, until the end of the loan period. Each EMI is a blend of principal + interest. With each EMI, you will pay back more of the principal and gradually your costs of interest will reduce.
Risks involved and Measures to reduce them
- Change in credit score during the loan tenure will allow the lender to revise your loan fee
Home loan borrowers often misinterprets that credit scores are fixed from the time of getting the loan, however, after you take the loan, it might change and this might create a problem for you.
Keep a tap on credit score as this will help you to pay back all your existing and revolving dues on time. Make sure your loan fee doesn’t get changed by the lender as this will lead to additional home loan EMI burden. You can also ask your lender to link the rates on floating rate loans to an external benchmark like repo rate, many banks link their credit risk premium to the credit score of the loan borrower.
- Not all loans accompany zero prepayment charges
Fixed-rate loans charge borrowers between 0.5% and 2% of the loan amount for home loan prepayments. However, floating-rate loans don’t apply this guideline.
When applying for a home loan, make sure about the fixed and floating-rate home loans and do a thorough evaluation of them.
- Buying a home loan insurance product is not mandatory while purchasing a home loan
Your bank may request that you buy a home loan protection item packaged with the home loan in the further process of purchasing the home loan. However, purchasing such a protection item may be expensive and usually unnecessary.
You should discuss this with the bank at the very first and keep your decision firm while buying a home loan. You can still have time in the future to buy in case you need it, but buying an expensive package at the beginning might not be a great choice for you.
- In order to claim tax benefits as a co-borrower, you have to be co-owner of the property
Ownership of the property is significant for you to get tax benefits against your purchase of home loan.
You should be aware that in order to avail benefits as a co-borrower, you must be an owner or co-owner of the property. Make sure you sign the papers accordingly and become a co-owner of the property.
- Low-premium offers by banks are dependant upon several conditions
There are important factors other than interest rates, which need to be considered while buying a home loan.
Look for any tie-ups between the lender and the builder associated charges which can be reduced. You should get a whole idea on the lender’s requirements and loan services. Also make sure you can easily change your lender in the future. Check all the crucial things before signing the papers like age, income, gender, occupation, loan tenure, credit score and so on.