Given the rising prices of property and the financial instability, buying a house from your savings is not wise at all. You can put your finances in jeopardy in times of emergencies. Instead of using your savings, you can apply for an online home loan to buy your dream house. It enables you to manage your finances without touching your savings or investments.
With an online home loan, you can get up to 80% of your property’s value as a loan. Compared to other loans, the interest rates are affordable, and the loan tenure can go up to 30 years, giving you ample time to pay off your debt. Before applying for an online home loan, you need to be aware of certain things to make an informed decision.
Here are the top points to consider before applying for an online home loan:
- Interest rate
The home loan interest rates vary across lenders in India. You will need to compare different rates from different lenders and choose an interest rate that best serves your needs and preferences. Your interest rate also depends on the type of rate you choose, such as floating and fixed interest rates. Under a fixed interest rate, your EMI remains constant through the loan tenure. Under a floating interest rate, your home loan interest rate keeps fluctuating. You can opt for a floating rate of interest if your loan tenure is longer than 5 years.
- Credit score
Your credit score is one of the essential factors considered by your lender to determine your creditworthiness. The minimum CIBIL score requirement to apply for an online home is 750. However, if you wish to secure a lower interest rate, you will need to have a higher credit score. The higher your credit score, the greater your home loan deal.
- Repayment tenure
Your loan tenure directly impacts your EMIs. If you choose a longer loan tenure, your EMI will decrease, but you will be paying more interest in the long run. If you have the budget, it is advisable to opt for shorter loan tenure. The interest rate on shorter loan tenure is low. If you are unable to make up your mind, you can use an online house loan calculator to determine a loan tenure that best fits your budget.
- Equated monthly installments (EMI)
Your equated monthly installments (EMIs) consist of factors, such as the principal loan amount, interest rate, and loan tenure. It has a direct effect on your monthly budget. You should not choose your EMI amount more than 45% of your total income. To calculate a suitable EMI for yourself, you can use your lender’s online house loan calculator.
- Down payment
Your lender will offer up to 80% of your property’s value as a loan. It means that you will have to pay the remaining as a down payment. Opting for a higher down payment amount reduces your loan amount, and lenders usually offer a lower interest rate on a lower loan amount. So, if you have the budget, make sure to pay a higher amount as a down payment to reduce the cost of borrowing.
- Processing fees
When you submit your online home loan application, your lender will charge a processing fee. It varies from lender to lender, but it generally ranges within 1% of the total loan amount. It would be wise to compare different lenders before applying for a loan. This way, you can choose a lender that offers the lowest processing fee.
- Carefully read the fine print
Your online home loan agreement comes with certain terms and conditions that you will have to thoroughly read. The terms and conditions include processing fees, loan tenure, additional fees, and prepayment penalties. You will need to carefully read your lender’s terms and conditions before signing any documents. If you have any doubt, you can ask your lender to clarify. Also, you can request your lender to assist you in understanding the terms and conditions of your agreement.
- Prepayment penalty
A prepayment penalty is the amount charged when you pay your loan amount with interest before the agreed due date. The good news is that you do not have to incur any penalty for prepaying your home loan. Whenever you get a surplus amount in your bank account, you can use that to prepay your loan amount.
Getting a home loan is the best alternative to buy your dream house without putting any financial burden on your shoulders. Before applying for a home loan, you must assess your financial situation to determine your affordability. You can also use a house loan calculator to understand how much you can afford to pay in EMIs.