For owning our own dream home, a home loan helps us meet one of our most important life goals. Planning and discipline can help us to achieve these objectives without difficulty. Nowadays there exists several home loan options in the market with falling interest rates and also government schemes aimed at ‘Housing for all’ makes buying a home too much easier. However, taking a home loan depends on your income, your assets, your living expenses and the type of loan you are looking for. Home loan makes one of the biggest financial commitments, due to the high amount involved. Repaying a home loan as a rule typically takes 10 to 30 years. It should be taken after careful evaluation of all factors.
You should always check your CIBIL SCORE online, before applying for a home loan.You can check your credit report instantly using free websites like Paisabazaar.com. It will help you to avail the best home loan offers. It is important to check as a poor Credit Score can severely impact your home loan eligibility. Though, all banks and financial institutions are not link home loan with credit score.
However, before you apply for a home loan, the most important factor is that to calculate your equated monthly installments (EMIs). The first thing that you should calculate about the home loan EMI.EMI is the monthly financial burden that comes with a home loan and how you will manage it with your regular expenses. It may includes Can you afford the EMI without hurting other financial goals? Have you saved enough for the down payment? Will you be able to prepay the home loan? Your answers will lead you to take right decision about whether you are able for this long-term financial commitment.
To estimate the amount of monthly payment, you can use online home loan EMI calculator, that you will be making to the lender. To improve your home loan eligibility, you should ensure that there are no other existing EMI’s that are significant and your home loan EMI is not more than 40% of your monthly income. After all, when you are calculating your home loan EMI to make sure that your financial life is not adversely impacted due to the home loan.
Change in Interest Rate
During the tenure, change in your home loan interest can have a positive or negative impact on your EMI. Taking home loan with floating interest rates then your EMI will also be changes depending on the prevalent lending rates in the market. It means that, the RBI makes changes in bank rates, your EMI will be affected.
However, it does not imply that taking home loan on floating rate is risky or makes fixed home loan interest rates any better. In the recent years, due to rate cuts by the RBI, home loan interest rates have gone down. Some borrowers do not involve prepayment penalties, then advisors suggest them to go for floating rates. Not all lenders offer fixed home loan interest rate and even with the fixed rate, so through your entire loan tenure, your interest rate does not remain fixed.
In case, You can request your lender to make amends in your loan tenure when increase in interest rate makes difficult for you to make EMI payments.
Change in Loan Tenure
A slight change in your home loan tenure can impact your EMI. Basically, the longer the tenure, the lower will be your EMI and vice versa. But, one thing keep in your mind that, the longer tenure will come with higher interest payment. It will eventually leads to increase in your credit cost. This means that If you take a higher loan tenure, while the EMIs may be lower than you would end up paying a bigger amount in the long run.
Prepayment of Home Loan Principal Amount
In many cases, the home loan lender will allow the borrower to make prepayments for the home loan. This in turn reduce the rate of the principal amount and also diminish the interest burden on you. However, the lender may charge you a prepayment penalty as a percentage of your outstanding principal, usually ranges from 1 to 5 percent.
Before you sign on the dotted line of home loan agreement, you can cross check the prepayment clauses with your lender. You should ask and negotiate with your lender to reduce the rate of the prepayment penalty as little as possible.
Step-Up or Step-Down Repayment
You may get to choose between different housing loan repayment options based on the inflow of your income.The first option is step-up home loan repayment and this is useful for those who have just started their career and are presumed to see increase in income as they gain more experience. Under step-up home loan repayment option , your EMI will move in constant motion with time.
The other option is step-down repayment, which is convenient for those who are close to their retirement. Here, EMIs start with high amounts and gradually pay lesser with time.
Shifting Loan to Different Lender
Suppose you may have taken a home loan from the most-suited lender. During the loan tenure, it is critical to keep an eye on interest rates being offered by others. Through a home loan balance transfer, home loan borrowers can change their lender to get a lower interest rate benefit . Anyway, before opting for the balance transfer, make sure that the savings you will make by switching lenders in the form of lower EMIs is higher than the cost involved in transferring the loan.
There exist several factors which may effects your EMI during the tenure of your home loan. An increase in EMIs in the future when you opt for a home loan, makes a crucial factor . Before making a final decision, carefully compare all home loan offers available to you.