Home loan or financial loan is the money lend from the financial institution or from any bank for purchasing a home.The home loan portfolio in India is expected to maintain a steady CAGR of 22% between 2021 and 2026. Much of this growth can be attributed to the rising property prices and limited disposable income combined with the need to purchase a residential property.
Big-ticket housing loans worth Rs.75 lakh or more are a rarity in India.
Such substantial advances occupy just around 12% of the entire housing loan segment.
Nevertheless, one cannot deny that home loans are essential today for average individuals when looking to acquire residential properties of their choice. Acquiring such a housing credit without a proper financial plan in place, however, also comes with its set of risks, and can subject borrowers to immense repayment strain. Therefore, an ideal approach is to consider various factors before applying for such advances.
1. Consider the eligibility criteria for home loans
The first course of action should be to consider whether one is eligible to avail a housing loan. Specifically, a potential applicant can check whether he/she qualifies for the credit amount required.
For instance, if one is planning to buy a home worth Rs.50 lakh by opting for a loan of Rs.35 lakh, the individual needs to ensure that he/she is eligible to opt for this amount. Otherwise, the borrower would need to arrange for a high down payment amount or look for a different property altogether.
Housing loan eligibility relies on a few factors, such as –
Age between 23 and 62 years for salaried individuals.
Self-employed applicants must be aged between 25 and 70 years.
Monthly income should be sufficient (Generally higher than Rs.25,000).
Another factor that can affect one’s home loan eligibility is the amount of existing debt an individual currently services alongside his/her credit score.
2. Balance between down payment and loan amount
Until recently, the Reserve Bank of India laid stringent rules regarding housing loan LTV. Acronym for loan to value ratio, it refers to the percentage of a property’s price that the lender can finance at a maximum as a home loan. Therefore, for LTV of 80%, a borrower would need to pay 20% of a property’s value as down payment, while his/her lender would bear the remaining expenses.
Down payment acquires a significant portion of a property’s price and helps borrowers limit the loan principal, thereby reducing the resulting EMIs. An applicant can utilise an EMI calculator to assess how a higher down payment can aid him/her check the monthly liabilities in the long term.
The RBI recently relaxed the established LTV norms on home loans.
Lenders today can rationalise risk-weights before deciding maximum LTV for a housing loan taken on or before March 2022.
Thus, a potential borrower should keep the down payment aspect in mind before applying for housing credit and balance it with the loan amount sought.
3. Compare home loan rates
Housing loan interest rates tend to differ among various lending institutions. Thus, a borrower must compare the available home loan offers before settling on the best option. Since such advances are long-term liabilities, borrowers can also take advantage of refinancing facilities like a balance transfer.
One of the benefits of housing loan balance transfer is that borrowers can lower their interest burden significantly. For example, switching an existing housing loan to a different lender offering interest rates reduced by 50 bps can limit a borrower’s EMIs and interest liability considerably.
Consider the loan principal outstanding as Rs.50 lakh and remaining tenure as 120 months. The rate of interest charged by the borrower’s current lender is 8.20%. However, after refinancing, he/she would need to bear interest at just 7.70%.
Further, the current EMI payable is Rs.61,193 for this housing loan. However, after a balance transfer, EMI payable, in this case, would be Rs.59,874. In total, the borrower would end up saving more than Rs.1.58 lakh as interest payment over the tenure by opting for such refinancing.
Moreover, before availing a housing loan, borrowers should also figure out all they need to know about home top-up loans on the balance transfer facility. Such credit is offered over and above the housing loan proceeds to enable borrowers to curtail additional expenses.
4. Additional benefits and charges associated with housing loans
Availing a home loan requires the borrower to pay certain charges, such as processing fees and more. Additionally, individuals who plan to foreclose or part-prepay such loans also need to service a particular amount as service charges. A borrower should also take these charges into account when assessing the loan’s feasibility before applying.
Reputed HFCs also provide pre-approved offers to simplify the loan application process and help save timer\. These offers are available on several financial products, including loans against property, housing loans, and more. One can check the pre-approved offer by submitting a few essential details, including his/her full name and contact information.
Regardless of whether one chooses to apply for a home loan online or opts for the offline process, keeping the factors mentioned above in mind can help considerably. These tips should enable borrowers to make the best possible decision while ensuring easy management of repayments.