A Home Loan is an amount you borrow to purchase a house. This House Loan has many notable matters you must get clarity on beforehand. Often, a lack of information leads borrowers to make an unreasonable financial commitment that they can’t hold to later. We have listed out the major questions that you need to ask the lender when looking for a Home Loan:
- Calculation of Loan Eligibility
Ask the lender how their loan eligibility is calculated. Banks usually do not include medical and leave allowances in your net income while determining your loan eligibility. This is why it is better to understand how your net income is calculated, as it may differ. Banks usually provide a House Loan up to 60X the borrower’s net monthly income. Thus, this calculation is essential.
- Interest Rate
A Home Loan’s interest rate is the part of the loan that borrowers repay along with the borrowed amount. It can be fixed or floating. A fixed interest rate means the interest payment will remain the same throughout the loan’s tenure. And a floating rate changes as per the prevailing market rate.
Some loans have a mix of fixed and floating interest in which the rate remains for a few years and remains floating for the rest of the tenure. You should ask about rates and also compare these rates with other banks to get the lowest one.
The annual percentage rate, also known as APR, is a part of the Housing Loan interest rate. APR is calculated by considering the interest rate, loan tenure, and other fees the lender charges. By comparing the APR of various banks, you can compare the total cost of the Home Loan. A higher APR might get you a lower monthly installment but may cost more when estimating the overall repayment (principal+interest).
On the other hand, a lower APR may require a higher monthly installment but save you money in the long run. While APR gives the loan’s total cost, the interest rate is still more important as it will decide your monthly payments.
- Balance Transfers and Prepayment Charges
Balance transfer of a Home Loan means switching from the current lender to a new one because of better interest rates, repayment options, or tenure. According to the RBI directions, banks can’t charge a fee for a balance transfer in the case of a floating-rate Home Loan. However, in the case of a fixed-rate loan, banks can charge a fee of 1%-3% as prepayment. Thus, you should ask about balance transfers and prepayment fees and confirm the same with the bank to avoid a problem later.
- Any Additional Financial Products to be Bought
Some banks want the borrower to purchase a financial product like an insurance policy, etc., in addition to the Home Loan. They may not mention it till the loan finalization is in its end stages. Clarifying it initially can save you from being forced to buy the product and an extra financial burden.
- Various Types of Fees
A Home Loan involves various types of fees like application fees, processing fees, etc. Therefore, when looking for a loan, ask the lender to tell you about all the applicable fees in the beginning. With this clarification, you can know how much fees you have to pay upfront and during the loan term.
A Home Loan doesn’t just depend on the Housing Loan interest. The tenure can determine the amount of EMIs and how high or low they will be. Home Loan tenures range from 1 to 30 years. You should ask the lender which tenure will suit your age, income, and financial standing. Banks also give access to Home Loan EMI Calculators, using which borrowers can find the possible EMI they will have to pay for the inserted tenure.
- CIBIL Score
The CIBIL score shows an individual’s creditworthiness. With a score ranging from 300 to 900, a higher score shows better creditworthiness, and a lower score denotes the opposite. You should ask the lender for their minimum CIBIL score criteria to get the lowest interest rate.
A House Loan entails various things that you should clarify before finalizing anything. This clarification will allow you to have a relatively comfortable loan tenure.