So, you’ve decided to buy a home—exciting! But before you dive into the paperwork and bank meetings, it’s super important to make sure you’re getting the best possible home loan deal. A few smart choices now can save you lakhs down the road.
Here are 5 key things to keep in mind before you say “yes” to any lender:
1. Interest Rate: Fixed or Floating
The interest rate affects your monthly payments and the total amount you’ll pay over the years.
Fixed rate = your home loan EMI stays the same. Good if you like stability or expect rates to go up.
Floating rate = your EMI can go up or down depending on market trends.
2. Credit Score & Eligibility
Your credit score is pivotal in determining your loan eligibility and the interest rate offered. A higher score (typically 750 or above) can lead to better loan terms. Lenders also assess your income, age, employment stability, and existing debts. Utilizing a home loan eligibility calculator can provide insights into the loan amount you might qualify for.
3. Loan-to-Value (LTV) Ratio and Down Payment
The LTV ratio indicates the portion of the property's value that the bank is willing to finance. A higher down payment reduces the LTV ratio, potentially leading to better loan terms and lower EMIs. For example, if you're purchasing a home worth ₹50 lakhs and make a ₹10 lakh down payment, the LTV ratio would be 80%.
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4. Loan Tenure and EMI Affordability
Choosing the right loan tenure balances EMI affordability and total interest outgo. Longer tenures result in lower EMIs but higher total interest payments, while shorter tenures have higher EMIs but lower overall interest. Assess your monthly budget to determine a comfortable EMI, ensuring it doesn't strain your finances.
5. Additional Charges and Tax Benefits
Beyond the principal and interest, be aware of other charges like processing fees, legal fees, and prepayment penalties. These can add to the overall cost of the loan. On the positive side, under Section 80C of the Income Tax Act, you can claim deductions up to ₹1.5 lakh on principal repayments, and under Section 24(b), up to ₹2 lakh on interest payments annually.