Even though, home loans have made it much easier to fund property purchases, they are a high-value financial responsibility and require prudent planning. There are several elements that can greatly impact your loan, both monetarily and otherwise. For instance, even a minuscule difference in the housing loan interest rates can have serious consequences. It can increase or decrease the interest component making your home loan more expensive or even cheaper. Which is why, individuals who wish to take up home loans must be aware of the factors that can influence the loan cost to avail of better home loan deals.
Types of Home Loan Interest Rates
There are mainly two types of home loan interest rates charged by most lenders:
Fixed Interest Rate
In this system, the interest rate remains constant throughout the home loan tenor without any changes at any given time. However, depending on the loan offer extended, you may be permitted to switch to a floating interest rate after completing a certain period of the home loan tenor.
As the interest rate is fixed, borrowers know the actual payable interest on their home loan upfront and can arrange for the loan repayments beforehand. Further, the loan remains unaffected by frequent rate fluctuations and doesn’t cut into your budget even when there is a hike in the lending rates. On the other hand, if the standard lending rates fall, you cannot derive any benefits as the interest rate is fixed right from the start.
Floating Interest Rate
The interest rates on your home loan are subject to the prevailing lending rates. Thus, if the rates fall, it helps you save on the interest charges thereby bringing down the home loan cost. But if the standard rate shoots up, the interest rate spikes as well making your home loan costlier. Sometimes, floating interest rate home loans may turn out to be cheaper as compared to fixed interest rate home loans.
Tips to Avail Attractive Home Loan Terms
Along with the interest rate offered, the desired principal amount, processing fee and other associated charges; there are a few other factors that one should consider to secure the best home loan deals. These are as follows:
1. Check Your CIBIL/Credit Score
Credit risk assessment of borrowers is one of the most important aspects of the home loan verification process. Lenders check your creditworthiness by analysing the credit score. Therefore, it is recommended to have a high credit score of 750 or above, which will enable you to obtain the lowest home loan interest rates with favourable terms.
But in case your credit score is deemed unsatisfactory, you can still enhance it by improving your credit dealings. This will include repaying credit card bills on time, closing existing debts and so on. Ideally, borrowers should continue showing responsible financial habits to maintain a spotless credit record even when servicing the home loan.
2. Save up for a Bigger Down Payment
The range of the expected down payment on a home loan may differ depending on your bank or financial institution. Usually, it is between 10% to 20% of the market value of a property. If your income permits, factor in a sizeable sum of money over and above the minimum down payment sum to bring down your credit liability.
3. Organise Your Financial Documents
Home loan applicants need to submit a list of documentation as requested by the lender. It is essential to organise the paperwork and keep them handy so that you can expedite the process of gaining home loan approval. See to it that you have all the mandatory documents such as identity proof, address proof, bank statements, payslips, income tax returns, Form 16 and others. Check and confirm the documents required for a home loan as this list could vary with lenders.
4. Compare Home Loan Offerings
Before you choose the ideal home loan, examine the home loan offers of different lenders in the market. Some lenders may extend the lowest home loan interest rates along with several other add-ons. So compare these rates; and then pick the home loan that is aligned with your priorities and monetary situation.
5. Use a Home Loan EMI Calculator
Borrowers should be able to plan the home loan repayments for the entire course of the home loan tenor, while setting aside funds for their monthly expenditures and other commitments. A home loan EMI calculator is user-friendly and provides an overview of the entire loan schedule. You can get better clarity about your exact EMI pay-outs, which is a crucial indicator when assessing loan feasibility. One can even customise their home loan as per preference using an online calculator.
6. Choose the Right Interest Rate
The interest rate offered for a home loan plays a critical role in determining the cost of credit. Discuss with the lender about all the available options concerning the interest rate – be it a fixed interest rate or floating interest rate – so that you understand their financial implications and can estimate your repayments accordingly.
7. Pre-Qualify For Your Home Loan
A pre-qualified home loan lets you speed up the loan application and verification process. In order to pre-qualify; one needs to submit their financial information such as income, savings and investments along with the property documents as necessary.
8. Pro-Active Communication with Lender
Having a good business relationship with your lender can fetch you competitive home loan terms. Just as it is important for you to check loan-related queries with the lender, it is equally essential for you to quickly respond to lender requests should they solicit it. This will enable them to keep your home loan application active and process it much faster.
Prospective home loan borrowers should possess all the relevant information pertaining to the loan, such as eligibility criteria for a home loan and requisite documentation among various other requirements. One must also plan the loan repayment schedule well in advance to gauge their financial health in taking up a home loan. This will ensure that you receive your home loan sanction letter in a hassle-free manner, facilitating quicker home loan disbursement of your desired loan principal amount.