5 Golden Rules to Follow While Taking a Home Loan
For most people, buying a home is the most significant financial decision of their lifetime. Being a homeowner means that you don’t need to pay rent anymore and it is among the greatest financial security, not just for you but also for your children. Thankfully, it is quite easy to access a home loan and fulfil your ambition of being a homeowner.
Since such a loan is a long-term commitment, there are a few things to keep in mind when taking this important step. These five golden rules will help you manage your loan better.
Borrow Keeping Your Payback Ability in Mind
You may be looking at several properties and there are some that you love. However, the price of the property should be an important criterion in your decision making. Find a home that suits your needs but has an affordable price. To determine the affordability, use a housing loan EMI calculator. This will let you know how much you need to pay every month towards servicing the loan. A rule of thumb is that the EMI should not exceed 40% of your total income.
Select a Suitable Home Loan Tenure
The home loan tenure is an important decision. A longer timeframe means that you need to pay a much lower amount every month. Some banks offer a tenure of up to 30 years. This means the total amount to be repaid gets divided over 360 months. So, you can live relatively comfortably even while paying the EMIs. On the other hand, a longer tenure means that you pay a slightly higher interest. Make the decision by looking at your financial situation. Also, ensure the bank offers a prepayment option, so that you can increase repay the amount faster when your income increases.
Keep Searching for Better Options
Even after you’ve initiated the home loan process with a bank, keep a lookout for more attractive offers. Remember that you can transfer the loan to another bank offering a lower interest rate. Find out the documents required for a home loan transfer to another bank.
Pay Your EMIs on Time
Plan your financials so that you can make EMI payments on time. Remember that a default of payment will attract late fees and penalties. Some banks even raise the interest rate after a borrower defaults on an EMI. Defaulting on EMI payments can also negatively impact your credit score. So, keep track of your payment dates and ensure your bank account has sufficient funds.
Get an Insurance on Big-Ticket Loans
Home loan insurance has become very popular. Despite our best planning, life remains unpredictable to a certain extent. It’s a good idea to protect the financial future of your loved ones by taking home loan insurance. With this in place, the insurer will pay the outstanding amount on the loan in the event of an unforeseen incident.
Buying your dream home is not difficult if you choose the right loan from the right bank and know how to manage it.