FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Buying home? Read this first!
Sunil had seen a lovely apartment and he was in a hurry to buy it. As he did not have sufficient money to purchase it, he settled for the lucrative loan offer from a bank. Unfortunately, after some time, he found out that he was paying more towards the loan than his other friends. When Sunil attempted to change his lender, he realized that he would have go through verification processes for the property in question all over again and he felt that was an awful lot of bother to be put through all over again, the only good thing was that there was no prepayment involved due to the recent RBI ruling, which was encouraging!
Sadly there are many people like Sunil who take the first available loan offer and then are stuck paying heavy EMIs. They forget the fact that purchasing a home is a major financial commitment. It is a long-term commitment, which if not met can lead to forfeiture of home and poor credit rating. Hence you must be very careful while choosing a home loan.
Now the next question is what should one look for when selecting a home loan. Here is a checklist of what you should consider when opting for a loan.
Interest rate: Do you like the idea of paying the constant EMI every month or are you comfortable if your EMI changes periodically? If the thought of variation in EMI disturbs you then opt for fixed interest rate loan. However if you are confident of handling the fluctuations in EMIs opt for floating rate loans. Also there will be a difference in the rates charged for home loans by different banks. Hence it is advisable to shop around for the best possible rate at the friendliest terms. You can visit certain websites that let you compare loan offers from various banks and financial institutions.
Lender reputation: What do the former customers of the lender have to say about the quality of service offered by the lender? Was the lender responsive to the customer requirements? Check the feedback given by the users on the customer review websites. It will give you an idea of what to expect from the lender, so that you won’t be taken in by nasty surprises.
Prepayment penalty: What is the percentage of loan that the bank charges towards prepayment? Try to select the bank that charges the lowest possible penalty, as you will end up losing any possible savings that you’ll get by changing the lender.
Processing fees and other charges: Besides the above, buying a home involves other costs like insurance, processing fees, legal fees, inspection fees etc. Try to go for the lenders that charge the lowest charges, as these fees add up to the cost of buying a home.
These are some of the important factors that you should consider when deciding on the lender for your new home. Had Sunil been aware of these factors, he could have avoided the pain of being stuck in an expensive loan.