How to get a better home loan deal
A home loan is a contract that could last 20 years, so even if these tips seem to require too much effort, we assure you they’re worth it. Here’s what you can do to lower
Everything connected to the major decision that is buying a house requires serious research. The home loan, it being how you will mostly likely fund the majority of this purchase, requires careful examination. This is because if you happen to settle for a poor interest rate, you’re stuck with it for the next 20 years; if you pick a fixed interest rate and rates fall, you’re stuck with it for 20 years; if you pick a lender which uses a method of calculating the EMI that ups your total outgo, you’re stuck with it for 20 years. Of course, you can switch, but most of us would avoid the hassle. So instead, follow our five tips to keep your home loan EMI to the minimum.
Credit checks matter Before shopping for any credit, you should check your credit score. This is particularly true when you’re looking for a home loan, given that a low score will mean a higher interest rate for 20 years. Even if you expect a flawless score, it might be good to make an inquiry, if only to know what kind of information banks are accessing about you. If the information is incorrect, you have the opportunity to rectify the matter beforehand. If your score is correctly low, remember that every bank that turns you away lowers your score further, which, in turn, could hike the interest rate for you.
Fixed rate loans If you’re considering a fixed rate home loan, now may not be the right time. Interest rates are high. Sure, fixed rates are volatile, but they’re also over 2% cheaper, so it might make sense to just go with floating rates now. Another reason to ignore them is that prepayment still applies to them, but has been removed from all floating rate loans.
Always bargain If you go online, it might seem like banks have already fixed the terms and conditions of your loan. The truth is you can bargain for a lower interest rate, based on your relationship with the bank, to waive processing fees, offer a longer tenure, and much else. Unless you’ve been very loyal to this bank, it won’t come easy, but it’s certainly worth the effort. Even a tiny reduction would save you lakhs over the years.
Pick daily reducing balance Lending companies use annually, monthly or daily reducing balance methods to arrive at the EMI. In the annual method, though the EMI is paid monthly, the adjustment towards interest and principal is made at the end of the year. With the daily method, though, the adjustment is made on a daily basis, working in your interest.
Pre-EMI or full EMI? In case you’re buying an under-construction property, you opt for pay full EMIs or pre-EMIs. In the first option, the EMI is based on the full amount of the loan, while the second option requires you to service interest only on the loan that will be disbursed at each stage of construction. Full repayment will begin only after construction is complete. Resultantly, the tenure of the loan is increased by the construction period. While pre-EMIs are a good option to have should you need it, give it a skip if you can as you have no control over the length of the construction period.