Take interest in your home loan interest rate
The interest component of your home loan determines its overall affordability. We outline the important facts you must know about interest rates.
Taking a home loan is often the only way that one may buy a house – realty prices are at a high, and most people don’t have enough money saved up to pay for a house upfront. When you apply for a loan, be sure to study the home loan interest rate first.
Why the interest rate matters in your home loan
The interest is the single most important component of your home. The higher the home loan interest rate, the higher is the monthly EMI. At the same time, you end up paying more money to the bank at the end of your loan – the final repayment amount is often much higher than the sum you originally borrowed. Correspondingly, if the interest rate is low, then the monthly EMI will also be low.
Naturally, you wish to have a lower monthly EMI. So before you sign up for a loan, you should ideally shop around for the best home loan interest rates. Leading banks in India offer competitive rates of interest, so be sure to partner with the best one.
There are some other ways to reduce the EMI on your home loan, such as –
- Reduce the principal borrowing – the lower amount of money you borrow, the lower will be the EMI and the eventual repayment to the bank.
- Increase the loan tenure. For instance, the EMI will be higher for a principal borrowing of Rs 50 lakh for 10 years, as opposed to the same amount borrowed for 20 years.
- Take a loan transfer at a later date. A home loan transfer is taken when another bank or financial institution offers you a lower home loan interest rate. This helps you get a reduced rate of interest, even as you transfer the balance loan amount to another lender. Your EMI outgo is automatically reduced by this method.
How to apply for a home loan
* Start by checking your home loan eligibility. The home loan eligibility is the sum of money the bank will lend you in lieu of your annual income, age, number of working years left, city of residence, existing liabilities, etc. Please note that you cannot get a higher amount of money than what your home loan eligibility is. This is a good starting point for your house hunt: it gives you an idea of the kind of house you can expect to buy.
* Compare interest rates. Like we mentioned earlier, it is advisable to compare home loan interest rates across leading banks and financial institutions instead of signing up with the first one you find.
* Check the paperwork. While most banks still insist on reams of paperwork and forms to be signed when you apply for the home loan, leading banks have digitised the entire process. It is not just easier and convenient to apply for the loan online; it is also cheaper – operational costs are lower over the Internet. These savings are passed to the customer.
* Get all the fees and charges involved. The bank will have a schedule of charges for the home loan. You will be charged application processing fees, legal and property evaluation fees, stamp duty on the loan agreement and pre-EMI.