Home loan tips

A lot of people are borrowing today to create various assets. Home loan is a very important component of the overall financial security of a person and his family, and due to this reason a lot of calculation needs to be done before a decision is made regarding the purchase. The financial implication of this decision will continue for a long period of time and hence it is not just the present financial condition but also the developing future financial condition that will have to be considered.

It is always better to evaluate several home loan lenders and their various offerings before choosing a particular bank or institution. One of the main areas that people look at while comparing the different offerings by home loan lenders is the cost. This will be the interest rate charged along with the processing cost for the loan. Though the cost involved is important, a decision should not be made on this factor alone. There are also several other points that need to be taken into consideration before finalizing the lender.

A new option in the field of home loans is a concept known as ’set off’ loans. Few banks in India are currently offering this option. Simply put, the concept works like this – you have a loan account as well as a linked current account with the bank. Any deposits that you make in this linked account are set off against your loan amount. You can also withdraw from this account at will. The monthly interest is calculated on the remainder amount. The balance portion of your EMI goes towards payment of your principal amount. This results in your principal amount getting paid off at a faster rate. These set off loans generally come at a higher rate of interest than normal home loans. Let us consider an example:

To avail of a home loan, you need to pay some amount of the purchase price of your home upfront in cash called as down payment. It is generally in the range of 5% to 25% of the total loan amount.

Below are a few ways that can help you collect or generate the down payment for your home loan.

* If you don’t have the money for down payment, try taking out a personal loan for the whole or part of the down payment amount. But you should be careful in planning for the same because generally personal loans are costly and would use up your monthly resources if you are planning to repay it from your monthly expenditure. Hence, see to it that you have an alternative resource to pay it off or consider it only if you think paying this loan would not be too much of a hassle for you.

There are two interest payment options you can choose from when applying for a home loan – fixed rate and floating rate.

A fixed rate is where the rate of interest is fixed throughout the tenure of the loan. Generally, most banks keep the rates fixed for a maximum of 5 years.

A floating rate is where the rate of interest is benchmarked against a specific interest rate (usually the bank’s internal rate), and fluctuates according to the benchmark.