The decision to buy your own house is as scary as it is exciting and requires a huge financial commitment. And, in case you do not have that kind of money at hand, that commitment can and will last for many years to come.
If you belong to the latter category, i.e. are thinking of opting for a home loan, it is better to understand that ground rules first; so that you can enjoy the perks of living in your own home without feeling financially drained.
Here are a few tips to keep in mind before you opt for a home loan:
- Understand the different types of loans
Interest rates serve as one of the important aspects in making the final call for opting out a particular loan scheme. These rates decide how much money the consumer, i.e. you will have to actually pay to the lender over the years. Having said that and keeping in mind that each and every person does not stand on the equal financial ground, the banks have introduced three kinds of interest rates to their loan schemes.
- Fixed Rate Loan
In this type of loan, the rate of interest is fixed at the very beginning. The rate of interest is not affected by any outside influences or changing business or loan models of the bank, and is applicable throughout the agreed loan tenure.
- Floating or Adjustable Rate Loan
In floating rate loan, the rate of interest is directly proportional to the lending bank’s benchmark rate. If the bank changes its loan policy, thereby affecting its benchmark rate, the rate of interest that you have to pay also changes accordingly.
- Combination Rate Loan
As the name suggests, this type of loan is the combination of fixed rate and floating loan types. Here you have to pay some part of the loan at a fixed interest rate and the rest at an adjustable interest rate. The percentage of each type is decided at the start of the tenure.
While most people opt for fixed rate type of loans as they are by far the best bet and stay unaffected by the inflating interest rates at any time, they also cut you off from the possibility of leveraging lower interest rates if your lending bank comes up with a better scheme during your tenure. So, take into account all the possibilities- your financial responsibility, the highest amount you can afford to pay without disrupting your other needs etc.- before you put the final stamp and shake hands on a certain loan type.
- Get your home loan pre-approved
As we all know, life has a way of dismissing our plans in the most unexpected ways. So, the best thing to do is to be prepared and negate any possibilities that might hamper with your plans. In this case, all you have to do is get a pre-approved home loan. This way the hesitant question of your eligibility for a home loan will not come in the way of your dream home. Moreover, in case there is any issue, wouldn’t it be better to find a loophole beforehand? Getting pre-approved home loan is only like a stamp of surety. So, not only the home sellers will be more willing to deal with you, the real estate brokers will also be able to get you better and more lucrative deals.
- Protect your family with insurance cover
While no one likes to think about the possible mishaps, it is best to stay prepared for the worst. Therefore, when you apply for a home loan, make sure to research and buy a suitable insurance cover as well. Doing so will protect your family from the extra financial burden in case anything happens to you. If you do have a home loan insurance cover, any outstanding amount will be repaid by your insurance company in such cases and your family will not be liable to pay any outstanding EMIs for the loan.
- Read the fine print
Many a time, the borrowers end up paying much more than they had actually anticipated. The only way to avoid the same happening to you is to read the fine print and make sure that there are no hidden costs or charges whatsoever. In addition to that, make sure that you crosscheck and actually understand the scheme being offered to you. For instance, if you opt for a floating scheme after considering the possibility of a probable downward interest scheme in the future, make sure that your agreement actually allows you to leverage that opportunity.
Lastly, tally everything your insurance agent tells you, and if you do not understand anything or any part seems ambiguous to you, do not hesitate to ask questions.