How to Choose the Best Home Loan

How to Choose the Best Home Loan

January 31, 2022 By: sonimoney0 comments

You want to make the best decision possible when it comes to a home loan. Here are some things to think about when selecting a home loan that fits your needs and current situation.

• Whether you’re buying your first home, an investment property, or upgrading or downsizing your current home, the home loan you choose will have a significant impact on the next few years of your life.
• Home loans are as diverse as the people who seek them, so there is no such thing as a one-size-fits-all home loan. What you consider to be a good home loan may differ from what others consider to be a good home loan, and it may even change depending on your life stage.

In general, a good home loan includes the following features:

• Competitive interest rates help you pay off your loan faster.
• Fees, charges, and startup costs are all low.
• Features that are personally relevant and useful to you

Purchasing a home can be a wonderful experience. It’s natural to want to finance your home with a home loan. However, to have the best experience, it is recommended that you find the best home loan available. 

There are a few other factors to consider in addition to the interest rate offered, the capital required, the processing fee, and other charges to choose the best home loan.

Step 1 Define your requirements and understand the type of housing loans

What is the purpose of a home loan? First, define your needs, and then choose a home loan. If you want to buy a piece of land, go with the land purchase loan. Land purchase loans are available up to 80%–85% of the market value of the property being considered.

If you want to buy a house, you should apply for a home purchase loan. Banks also provide home construction loans to people who want to build a new home.

There are also home extension loans and home improvement loans available to help you expand your property or renovate it. If you are an NRI looking to buy a home in India, you should look into NRI home loans. Select the product that best meets your needs.

  1.Basic home loans

No frills loans with few features and a low-interest rate. Many now offer to redraw facilities but there can be restrictions and fees, so a basic loan may not suit if you want to make extra repayments and access them later.

  2.Standard home loans

Offer more flexibility than basic loans. You can redraw any extra money you’ve paid in, for example, and have the option to switch to a fixed rate, or split the loan into a fixed and variable portion. They also often offer a 100% offset account. But you can often find a loan with a cheaper interest rate and similar features.

  3.Home loan package

Standard loan with an interest rate discount of up to 1.2% depending on your loan amount, cheaper than many basic loans. The package normally includes a free transaction account and no annual fee credit card.

Step 2 Check if you are eligible and decide the loan amount and tenure for a home loan

To get that home loan, you must meet certain criteria. When it comes to granting or receiving a home loan, an applicant’s age, income, employment stability, credit score, employer brand identity, and financial history all play a role in getting a home loan.

If you qualify for a home loan, you must choose a loan tenure and a loan amount. Many home loan applicants opt for a longer-term to lower their EMIs without considering the loan’s cost. This is, in fact, a blunder.

If you take a home loan for Rs 50 lakhs with a ten percent interest rate and a 20-year term, your monthly EMI will be Rs 48251. For 20 years, the total interest you will pay will be Rs 65,80,260. If you take out a loan for 25 years at the same interest rate, your EMI will be Rs 45,453.

However, the interest expense is Rs 86,30,511. A longer loan term entails a higher interest expense. As a result, double-check the loan amount and term. Before taking out a home loan.

Step 3: Check your Credit Score to be eligible for a home loan

Those with excellent credit scores are offered the best home loan rates. Because your financial history suggests that you are responsible, a good credit score assures the lender that you are a good borrower. So, what should you do to ensure that you have a good credit score and, as a result, great deal options?

To begin, obtain a copy of your credit report so that you are aware of your credit profile as it pertains to potential lenders. If you are aware of this, you can take steps to improve your credit score. You can pay to find your credit score on a variety of websites.

Your CIBIL Score should ideally be greater than 750 to receive a favorable interest rate on your home loan. According to CIBIL data, home loan approvals are given to those with a credit score of 750 or higher. Your Home loan application may be rejected if your CIBIL score is low, or if it is accepted, it may be offered with a high-interest rate.

Step 4: choose between a fixed rate home loan and a floating rate home loan

In the case of a fixed rate home loan, the interest rate is fixed; however, in the case of an offloading rate home loan, the interest rate changes. If you anticipate a drop in interest rates, go with a floating rate home loan.

If you anticipate a significant increase in interest rates, a fixed-rate home loan is the best option. If you can’t decide, choose a combination of these two options. Your interest rates are partially fixed and partially floating in this case. Because of the flexibility they provide, floating rate home loans are more popular than fixed-rate home loans.

Step 5: Select the bank for the best home loan

When choosing a bank for a home loan, use caution. In the market, there is fierce competition. To entice customers, many banks offer lower-interest home loans. Look around for home loans and choose the one that appears to be the most promising. Examine the processing fees, which vary by bank. Processing charges can range from 0.25 percent to 2 percent.

Other things being equal, choose the bank with the lowest processing fees. Documentation is another important aspect to consider. Remember to factor in the turnaround time, which is the amount of time it takes to get a home loan approved. Banks typically require 5-7 business days. If all of the documents are in order. Examine the bank’s or NBFC’s(SoniMoney) customer service reputation.

Watch the fees

One of the costs to consider is interest rates. It’s also a good idea to look into the standard fees. Fees and set-up costs can have a significant impact on the amount you pay for your mortgage.

Don’t be afraid to negotiate with your bank for a better deal. Interest rate discounts and fee waivers are frequently available, especially if you’re looking to borrow a large sum of money.

Pay attention to the comparison rate, which includes fees and makes comparing loans easier.

Some common fees include:

• Application fees: Lenders may charge an application fee and an establishment fee upfront. Request that the lender waives these fees, or at the very least, negotiate a discount.
• Valuation fees and lender’s legal fees: A valuation of the property may also be charged by the lender. If you’re concerned that you won’t be able to meet a lender’s income requirements, ask them to double-check before proceeding with the valuation, as you may be obligated to pay for the valuation even if your loan isn’t approved.
• Lender’s mortgage insurance If you don’t have a 20% deposit, you may be subject to (LMI), which can cost you thousands of dollars. It is the lender who is insured, not you (in case you default on the loan). It doesn’t even absolve you of the debt; the insurer has the right to pursue you. Try to put down as much money as possible; even a small difference in the deposit can affect the cost of LMI.
• Monthly or annual fees: high ongoing fees can have an impact on how quickly you can pay back the loan.
• Break costs: Exit fees on fixed-rate loans can be high, especially if the variable rate is lower than the fixed rate you’re paying. If you want to get out of the mortgage, you may have to pay back all of the ‘lost’ interest the bank would have received if you had paid the higher rate until the fixed term ended. This is referred to as the ‘break cost.’

Features to look for

• Extra repayments: Some loans, especially those with a fixed interest rate, may have a limit on how much you can pay without incurring a break fee.
• Redraw facility: Many loans allow you to repay the money if you make extra payments. This can provide significant tax benefits as well as useful security because you can put your savings into your mortgage. Some redraw facilities are much easier to use than others; find out if you’ll need to apply in writing, how long it might take for approval, and how much it will cost.
• Repayment holidays: If you’ve recently had a baby, some mortgages allow you to take a repayment holiday for a short period, such as six months. Check the terms because you may be able to use this feature only if you’ve made extra repayments, or you may have to make higher repayments after the repayment holiday to compensate.
• Interest-only: For investors, paying only interest can be a useful feature. It usually lasts for five years, but some loans can last up to ten years. It’s risky, though, because you’d want to repay the loan as soon as possible to save money on interest and avoid owing more than the property is worth in the event of a market downturn. More information on negative gearing can be found here.
• Mortgage offset accounts: You put money in an account and get interested in the form of a reduction in your loan’s interest payments. Offset accounts, like redraw facilities, don’t add to your taxable income because they don’t pay you any money. As a result, they provide tax benefits.