Planning to take a home loan? Here's 5 things to keep in mind

Aug 30, 2017 01:13 PM IST | Source: Moneycontrol.com

The interest rate you pay on your loan is being increasingly linked to your credit score.

Adhil Shetty

With the prices of houses being sky-high, most home buyers need to take a loan to fund their purchase. Applying for home loan has become easy, and disbursals have become faster with time. Introduction of the RERA and cheaper home loan rates have boosted consumer sentiment. If you are looking for a home loan today, here are five things to keep in mind before putting in your application.

Your credit history Today, the interest rate you pay on your loan is being increasingly linked to your credit score. Many banks today reserve their best interest rates for customers with a CIBIL score of 750 or more. Those below this threshold may have to pay a marginally higher interest rate. A cheaper loan allows you to borrow higher amounts, making it possible for you to purchase pricier properties. You don’t have to wait till you apply for a loan to know what your credit score is. It’s mandatory for credit rating agencies such as CIBIL to provide customers one free report per year.

Types of interest rates charged on home loan Home loans apply either a fixed interest rate or a floating one. Often, it’s a combination of both for a limited period, such as at the start of the loan. All new floating rate bank loans today are linked to the MCLR, whose interest rate automatically resets at fixed intervals. This is beneficial for customers since interest rates have been trending downwards in the last three years.

Negotiate the loan rate of interest While lenders define the interest rate in a minimum and maximum range, the actual rate charged depends on your eligibility criterion. You, as a borrower, have the ability to negotiate a better interest rate. You can do this not just by comparing your loan options, but also by improving your eligibility by adding a co-borrower and combining the co-borrower’s income with your own.

Understand your borrowing capacity Individuals often decide to pay high EMIs thinking the burden would ease with time due to annual increases in income. However, their incomes may or may not increase with time. Therefore, they must borrow to the limit where paying EMIs would not stretch their finances.

Buy a home loan only after comparing In India, dozens of lenders provide home loans. Before you zero in on a loan, compare between the different loan products available in the market. Look at the EMIs, the interest rates, the processing fee and other associated charges to choose the right loan. With home loans offered online these days, you can explore easily with a few clicks.

(The writer is CEO of BankBazaar.com)