Many of us dreams for buying a home today. Properties prices are neutral or down as well as the rate of interest on home loan. But there are many factors to be considered before applying for a home loan or buy a home as it is a major financial issue and requires a lot of financial planning. These are some factors which must analysis before taking a big step buying a home and taking a home loan.
Loan amount- home loan amount is based on the cost of home. It also based on ability to pay EMI, business or job, age, other loan taken and some other financial parameter. Sometimes banks may offer higher loan than the net worth. One must plan for repaying the loan before taking the loan. One should not take such amount of loan which may lead to headache and harassment for paying EMI.
Down payment- one needs to pay the down payment amount, which is minimum amount for applying for the loan. Banks decide the down payment and it includes in the property value on which banks give the loan. Such down payment is needed to be provided by the borrower himself as soon as loan granted. So one must need to arrange such money with his sources.
Interest rates- there are two options available in the interest rates which are fixed rate and floating rate of interest. In fixed rate option, interest rate remains unchanged for the entire tenure of the loan whereas in floating rate of interest, interest rates changes as per market rates. Fixed rates are preferred where interest rates are on rise, whereas floating rates are preferred where market rates declines. One must analysis the market conditions before deciding the interest rates factors as after approval, its hard to changes the interest rate option.
Remember Reserve bank of India has abolished the prepayment penalty and no banks can ask to pay more if you are paying the loan amount early. Check the fixed interest rate vs. diminishing interest rate calculator.
Repayment period- Period is also an important factor. Home loan is available up to 20 years depending on banks to banks. One needs to decide the repayment period rationally. It all depends on the ability to pay the EMI. If loan tenure is less, one needs to pay less interest on the loan. So it is always better to take the loan for short period but one should consider about how much one can easily pat EMI.
Formula is simple, more EMI, less interest you will pay on the same loan amount. Check this EMI, Loan tenure and rate of interest calculator.
Windfall gains- if someone has got some windfall gains, some unexpected profits, one can use it on repaying the loan amount. It really can save a lot of interest amount to be paid. Banks neither can levy prepayment penalty nor any charges against it.
Penalty & charges- These are the things people ignores while taking the loan. One should compare and know about charges and penalties of late payment, Bounce the EMI and cheque bounce. Banks are generally don’t tell these items and it is negotiable as well as different bank to bank. So it’s advisable to have a look on them.
Security- in home loan, the security is itself the home for which one is taking the loan. But in some condition like under-construction, the lender may ask for another security for the loan. Other security may be any property, shares, debentures, life insurance policies, FDR. One must have a look on credit rating which is very important to obtain a good score for approval a loan. Any default on loan or even late payment may lead to disapproval of the loan. For more information about credit ratings go to this link.
Insurance- One must insure your home for taking a loan. Banks must need it or they will pay the premium themselves and charge it to you.
Income tax benefits- home loan gives a lot of tax benefit. Benefits are available on both the principal as well as interest amount. A sum of Rs. 150000 is the maximum limit for deduction on interest payable on the home loan for self-occupied property. There is an extra deduction introduced in the last budget in which an additional deduction on interest up to 1 lakh is allowed on a loan up to Rs. 25 Lakh. There is no limit on interest on home loan in the case of let out property under section 24(d) of income tax act. There is also deduction available up to Rs. 100000 on principal loan amount paid under section 80(c) of income tax act.
In case of joint name loan, but husband and wife are eligible for tax deduction on same home loan. Like if the home loan is taken on husband and wife name, both can claim deduction of 1.5 lakh on interest on home loan.
Home saver loan- there is another concept available in the market which called home saver loan. In this loan one can deposit the additional money in the current account linked with the home loan account. The deposited amount can be withdrawn anytime and one needs to pay interest on home loan-deposit on current account.
However the interest rate is some high with the normal home loan. For more info about home saver loan click here.
Default- In case when one can't pay the loan EMI at time there are some rescue available check the link.
Tags-home loan,home loan option,home loan factors,home loan deduction,factors to consider for home loan,home loan factors to consider,things to consider for home loan