Before choosing a mortgage option, you should do detailed research on the market and select the option that suits your needs. (Representative image)
The mortgage option makes it very easy and convenient to own a home.
Owning a house is very important for every individual. After all, we all want to own a dream home someday. Interestingly, it doesn’t take as long to buy a house these days as it used to. In the past, buying a home usually happened at a later stage, towards the retirement period. One had to make sure they had enough savings before making a purchase.
Currently, however, this is not the case. There are plenty of home loan options available from banks and other lending institutions. With the help of such facilities you do not have to pay a large amount as a down payment.
A demanding home buyer can finance between 40 and 90% of the total home price with the help of lenders. He/she must pay the remaining amount as a down payment.
The mortgage option makes it very easy and convenient to own a home. In the meantime, it is also important to follow certain steps before choosing the right home loan.
Research the market well: Before choosing a mortgage option, you should do detailed research on the market and select the option that suits your needs. Also read more about the interest rates. More about interest rates will be discussed in the next section.
Check if you qualify for a mortgage: Before you apply for a home loan, you need to know exactly what your home loan qualifies for. Based on the same, one should plan their home purchase. There are numerous calculators available online that can help you check your eligibility.
Maintain a high credit score: To easily secure a loan, it is very important to maintain a high credit score. It is advisable to keep a credit score higher than 750 to access home loans with ease.
Read the loan agreement carefully: One should read the loan agreement carefully and understand all the terms and conditions.
Keep all documents: In India, applying for a home loan also requires a lot of documents to be approved. Therefore, it is essential for homebuyers to keep all required documents to hand. This can save a lot of time.
Rates of home loans
An important aspect of a home loan is the interest. The mortgage interest rate is the percentage of the principal that the lender charges the borrower for using the principal. Based on the interest rates for home loans, the assimilated monthly installments (EMI) are calculated.
Home loan rates vary from lender to lender. Meanwhile, there are some other external factors that drive home loan interest rates, such as the RBI’s repo rate. If the repo rate is increased, liquidity in the market decreases and interest rates on home loans rise naturally. On the contrary, if interest rates are reduced, liquidity increases and interest rates are subdued.
There are also other factors that can affect rates. For example credit score. A higher credit score means better financial history and higher credit. This will of course result in lower rates.
Similarly, a high Loan-to-Value (LTV) ratio means increased risk, which will cause the bank to charge higher rates. Conversely, if the LTV is lower, banks can charge lower rates.
Other factors, such as the location of the property, can also play an important role in determining the mortgage interest rate. If the property is in a desirable location with improved connectivity and infrastructure then it will obviously have a better resale value. In that case the interest will be lower. However, if the location is not desirable, the resale value is undermined. This may result in the lender charging a higher rate.
-The author is a partner, RPS Group. Opinions expressed are personal.
disclaimer:The views expressed in this article are those of the author and do not represent the views of this publication.