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Housing Finance Companies are facing stiff competition these days. In this scenario they either customize their products to suit client’s tastes or risk their very survival. While this is a boon for the loan applicants it also confounds them and leads them to question,’ how to choose a home loan?’
Here are some suggestions on how to choose a home loan plan.
How much loan to avail?
The amount of loan that you can avail mainly depends on your age, income, total assets, current liabilities and your credit and savings history. Most banks will sanction an amount where the equated monthly installment (EMI) is 35% to 50% of your net monthly income.
You can also look for a bank that will combine the monthly income of your spouse or other family members like father or son, so you can avail larger loan amount.
Be sure that your entire income, including the incentives and annual components has been considered by the banker.
Tenure
Always remember that longer the tenure, higher the loan amount you can avail. In your anxiety to pay-off the loan amount as soon as possible don’t overburden yourself with higher EMI’s. In case some unforeseen expenses arise you’ll be in a soup.
You can instead select longer loan tenure with no or least pre-payment penalty option.
Floating vs. Fixed ROI
This is another clause which can put you in a fix. In a scenario of falling interest rates floating interest rate is a better option but, in case of rising interest rates fixed ROI is preferable as the ROI remains fixed in spite of a higher current rate.
But, be sure to check with your banker whether or not fixed interest rate will be reviewed once in a few years.
A hybrid structure is also available where the ROI is fixed for few years and for the later part of the repayment period it is calculated by the fluctuating rate method.
Repayment Options
Some institutions offer step-up facility wherein the EMIs increase gradually corresponding to the growth in your income.
Tax Benefits
Home loans bring the benefit of reduction in income tax both on the payment of interest and principal. You can choose a loan which maximizes your tax benefits.
Lender’s Reputation
You must select an experienced lender with a good reputation so that the loan process is a pleasant one.
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