Applying for a Home Loan should be a carefully planned decision since it not only entails borrowing a substantial sum, but also has a long repayment tenor. Here’s a guide to ensure you choose wisely.
Today, every lender is competitively adjusting Home Loan interest rates. Hence, if you are a borrower, there has never been a better time to seek a Home Loan. And just in case you already have a Home Loan, but your lender is charging uncharacteristically high interest rates, it would be prudent consider a Home Loan balance transfer and shift to a lender offering lower rates.
Checklist for securing an appropriate Home Loan
Here are a few things you should consider when opting for a Home Loan:
Evaluate whether a Home Loan suits your purpose: Do you require the loan specifically for your new home or is there any other reason behind it? Applying for a Home Loan is only sensible if you require it for residential purposes. If you are considering it to make an investment, the demonetization and reduction in Home Loan interest rates will not benefit you since experts say there may be a correction in the real estate market soon.
See if your interest rates are based on MCLR: MCLR is the marginal cost of funds based lending rates. Lenders that use this have lower Home Loan interest rates. Such systems also offer the borrower a notification of when the interest rates are reset. However, it is imperative to keep in mind even borrowers under the MCLR-system will see a low rate only for a certain time since a majority of Home Loans have an interest reset date of six months to 1 year. This means that only those who availed loans between April 1, 2016, and June 1, 2016, will benefit from the recent rate reduction.
Analyse your income and affordability: Since your interest rates payments are made directly from your monthly income, before you apply for a Home Loan, it is important to analyse how much interest you can afford and plan accordingly.
Carefully organize and submit all documents: The eligibility documents for a Home Loan include an address proof, identity proof, employment proof, salary slips and bank statements. Keep this ready for a quick and fast application process.
Retain knowledge of tax benefits: The government provides tax deduction to new Home Loan borrowers under section 24, 80C and 80EE. These sections provide a deduction of up to Rs.2 lakh under section 24 for interest paid on self-occupied property, Rs.15 lakh under section 80C for Home Loan principal repayments and up to Rs.50,000 on Home Loan interest under Section 80EE for first time borrowers under certain conditions.
Checklist for choosing a Home Loan balance transfer
If you’ve already secured a Home Loan but are unhappy with your current lender or your Home Loan provisions, consider switching to a different company. The checklist is largely similar to when you apply for a Home Loan, with the following additions:
Is it essential for you to change institutions? Make a thorough list of the problems you are facing with the lender and ask yourself: Is a Home Loan balance transfer is the only way to sort out these problems? The various problems you might face could include high interest rates, bad customer service, prepayment charges, etc. If you are facing such problems with your lender, see if there is another mode of tackling these problems. For example if your lender is charging high interest rates, try to initiate a dialogue and see if your lender arrives at a mutually beneficial solution.
Consider the tenor: Avoid indulging in any sort of changeover or Home Loan balance transfer if you are reaching the end of the tenor. A transfer is as good as applying for a new loan and has a tedious application procedure. All this hassle is not worth it if you have already made numerous successful EMI payments towards your current loan and have only a little bit of the tenor remaining.
Retain all the relevant documents: In addition to the documents required when applying for a Home Loan, get approvals from both previous and new lenders by submitting no objection certificates and letters of consent.