Home Finance An Easy Guide for Home Loan Borrowers

An Easy Guide for Home Loan Borrowers

With the influx of several financial institutions offering housing loans, fund shortage in respect of purchasing a new house is not a barrier anymore. Home loans have become synonymous with residential property purchases, almost irrespective of the income gradient of homebuyers.

However, there are certain points which a borrower must know before you apply for a home loan to make an informed decision. Starting from how a housing loan works to what are its features, everything must be known in detail before availing the funds.

Everything About a Housing Loan

Take a look at these points to understand home loans in detail –

  • Secured funds – A home loan is a secured form of credit, which means, the property to be purchased with the loan is mortgaged against the availed funds. The loan amount borrowed through this process depends on the market value of the property to be purchased.

While the financial institution creates a registered first charge of that property, the original copies of title deed and other relevant documents remain with the borrower. Once the entire housing loan amount is repaid, the lender cancels the mortgage and withdraws the charge over the property.

  • Interest rates – The interest rate charged on a home loan varies from one lender to another. Home loan rates of interest are usually of two types – fixed or floating interest rates.

In the fixed-rate structure, the interest rate to be charged is the same throughout the repayment tenor. While in the floating mechanism, the interest rate is linked with the repo rate and fluctuates accordingly.

  • LTV – LTV or loan-to-value ratio is the ratio between the loan amount offered to the borrower against the value of the property. It also determines the funds a borrower has to contribute as a down payment to purchase the residential property. As per the directions are given by the RBI, the maximum LTV in the case of home loans cannot exceed 90%.
  • Repayment tenor – This refers to the period a lender allows you to repay the loan. The tenor permitted by certain lenders could range up to 20 years. You can also choose the repayment tenor as per your convenience.
  • EMI facility – Lenders allow borrowers to repay the loan in parts through EMIs (Equated Monthly Instalments). You can also use an online home loan EMI Calculator by accessing the online portal of the lender to check how your monthly payment liability. EMI amount depends significantly on the repayment tenor chosen by a borrower. You must know and determine how much home loan EMI you can afford.
  • Eligibility criteria – Every financial institution will have a different set of eligibility criteria under its loan policy. The list includes factors like the applicant’s age, income, source of income, CIBIL score, and so on.

A borrower opting for a home loan online apply must check the criteria and see if he/she fulfills it. Lenders usually have a separate set of eligibility criteria for salaried and self-employed individuals.

  • Foreclosure and prepayment guidelines – Some financial institutions charge a fee on foreclosure or prepayment of home loans. This is why you must opt for a home loan only offered by top financiers who generally do not charge excessively on additional fees for prepayment and foreclosure.

Apart from all these, lenders also incorporate a number of offers and benefits on home loans. You must research well regarding the home loan offers before selecting the final lender.

Housing loans can also be availed jointly by two applicants. In case the mortgaged property is owned by two individuals jointly, both of them have to be co-applicants of the loan.

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