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Owning a dream house is one of the most special aspirations in life. But in the journey of fulfilling this goal, one must cross the first and most crucial milestone- getting a home loan. Whether you are a first-time buyer or a seasoned property owner, approaching the home loan application process with confidence requires a thorough understanding of key considerations. So, to help you get closer to your dream of owning a home, we have outlined key points one must remember before applying for a home loan.

Thorough Research

When seeking a home loan, one might come across a myriad of financial advice from friends, family, and loan agents. While it's good to hear multiple opinions, it’s also advisable to do your own research and get the best loan terms available in the market.

One of the primary considerations for any home loan applicant is the rate of interest. Home loan interest rates can vary based on market conditions, economic factors, and the lending institution's policies. House loan applicants need to stay on top of this and explore both private and public banks to get the best possible home loan rates.

One must also be aware of the distinction between fixed and floating interest rates. Fixed rates remain constant throughout the loan tenure, providing a predictable repayment schedule. On the other hand, floating rates are linked to the market and fluctuate in tandem with the base rate as per market conditions. While fixed rates offer stability, floating rates may prove advantageous if market rates decrease.

Check your Credit Score

While availing yourself of a home loan, it’s important to maintain a good credit score. CIBIL data indicates that 80% of home loan approvals are given to people with a credit score of 750 plus. High scores ensure low-interest rates as well. You can check your credit score every month online for free. Low scores can sometimes amount to high-interest rates and even the rejection of loan applications. A good score can be ensured by maintaining a good credit history with timely repayment of debts.

Another important aspect is the loan-to-value ratio (LTV), which is the percentage of the property value that the lender accepts to finance. A lower the LTV means a smaller loan amount relative to the property value, which can potentially lead to more favorable interest rates.

Be Smart with Money

The old adage - A penny saved is a penny earned- holds special significance when it comes to repaying a home loan. It is important to be mentally prepared to be frugal and efficient, as the ultimate goal is to empower oneself to accumulate enough savings to eventually foreclose the loan before the tenure is complete. That way you save on interest as well.

Understand EMI Structure  

Equated Monthly Installment (EMI) is a critical component of any home loan. It represents the monthly amount you must repay to the lender, covering both principal and interest. Calculating your EMI is simplified through online tools like EMI calculators, allowing you to plan your budget effectively. You can calculate it here on Prestige’s very own home loan EMI calculator.

When using an EMI calculator, one needs to input variables such as the loan amount, interest rate, and tenure. The calculator then provides an estimate of your monthly installment. This tool is invaluable for prospective homebuyers as it aids in assessing affordability and planning finances accordingly.

Repayment Schedule & Tenure

Once you have finalized the bank based on the interest rates and other services, it’s important to ask for a repayment schedule and carefully evaluate the loan tenure.

While a longer tenure may result in lower EMIs, it often translates to higher interest payments over the loan term. Conversely, opting for a shorter tenure reduces interest outgo but increases the monthly burden. Hence, it's crucial to strike the correct balance between affordability and interest outflow.

Additionally, carefully understand your repayment options. For instance, some loans offer the flexibility of prepayments without penalties. This allows borrowers to reduce the principal amount ahead of the schedule, thus lowering the EMI. Such options help make substantial savings in the long run.

Accurate and authentic information is key to making well-informed financial decisions. Conducting thorough research and comparing loan offerings from various financial institutions is indispensable. Beyond interest rates, consider factors such as processing fees, hidden charges, and customer service reputation. Engaging with multiple lenders enables you to choose a home loan that aligns with your financial goals and helps you seamlessly glide through the journey of attaining your dream home.

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