Wednesday - Oct 24, 2018

Questions to Ask Yourself Before Availing a Home Loan


Questions to Ask Yourself Before Availing a Home Loan

Before you apply for a Home Loan, thousands of questions arise in your mind regarding the eligibility and availability of a Home Loan. It is advisable to have all the answers in your kitty to avoid any hassle during the repayment of the loan in the future.

Below are some answers to your questions to help you in the process of taking a Home Loan without any rejection:

  • Can You Afford the Home Loan EMI?: You can pay your Home Loan in Equated Monthly Instalments (EMI). A Home Loan has to be paid every month and hence you must take care that your EMI does not exceed 35-40% of your total income.
  • How Much Down Payment Should You Pay?: Banks usually provide 80-90% of the loan amount to the borrower. The remaining amount that you need to put in is called the margin money. It is very important that you determine the down payment amount for the loan on the basis of your current financial situation.
  • Which should be the Home Loan Rate?: There are two types of Home Loan rates in India – fixed and floating. Fixed interest rates remain fixed during the entire period of the loan, irrespective of market conditions. Floating interest rates change with the changing market conditions. As per the market analysis, it is advisable to opt for a floating Home Loan rate to take advantage of the falling interest rates in the future. However, if you have a stable income, you can opt for a fixed interest rate and pay fixed loan EMIs.
  • What is the Cost of Other Charges?: Banks charge a certain amount as processing fee or administrative fee for the work of documentation. This is calculated as 1.5-2% of the total loan amount. It is better to compare the cost of other charges from different banks to avoid being at a loss.
  • What should be the Date of the EMI?: You can choose the EMI date as per your convenience of payment. The bank will fix the date chosen by you and it will not change during the entire tenor of the loan.
  • Is there a Prepayment Penalty?: In the future, it may happen that you would want to prepay your loan. But banks levy a prepayment penalty of 0.25-2% depending on the type of loan. In such a case, you can prepay a certain amount of loan instead of full prepayment. This way you can save on the penalty charges and also repay off the loan earlier.
  • What is the Tax Benefit on a Home Loan?: When you pay EMI on a Home Loan, there are two parts of an EMI – principal repayment and interest payment. Both the principal amount and interest amount are eligible for a tax deduction under Section 80C of the Income Tax Act. However, the maximum deduction allowed is Rs.1.5 lakhs.

The Bottom Line

Before you apply for a Home Loan, you can read the various Home Loan reviews online to get a better idea of the concepts of Home Loan.