7 Important Questions to Ask Your Home Loan Provider
Buying your own home is understandably exciting – looking at the various options, checking out the neighbourhood, and imagining your life there. But that’s not to say that the process isn’t stressful too. More often than not, buying personal property requires one to avail a Home Loan, and that poses many considerations.
From interest rates to eligibility criteria, several things need to be discussed beforehand with the mortgage lender. This is because a mortgage payment usually lasts years and with countless offers available these days, you want to ensure you get on board with the best one. So if you are looking to Apply for a Home Loan, here are seven essential questions to ask your Home Loan provider to decide what is the right option for you:
1. What will the interest rate be?
Your interest rate would be based on your credit and the principal loan amount. The monthly payment will be determined by the interest rate, the loan term, and the mortgage balance cumulatively. It is advisable to look for the cheapest interest rate possible as this affects the payment the most. A lower interest rate considerably reduces the total amount payable.
2. Is it a fixed-rate loan or an adjustable-rate mortgage (ARM)?
Home Loan offers consist of two forms – fixed-rate loans and adjustable-rate mortgages (ARMs). The former charges the same rate of interest for the entire duration of the loan. The latter, meanwhile, has periodically changing interest rates after an initial fixed-rate. ARMs or floating interest rates are the way to go for those not intending to drag their loan for long period as these offer lower interest rates than fixed-rate loans.
But ARMs also require constant supervision. It is vital to be sure beforehand when the rate will change after the initial fixed-rate period. Also, inquire about the Home Loan’s margin and the index that it is tied to. Calculate the monthly payment over the entire term before signing up for it as EMIs (Equated Monthly Instalments) get higher towards the end of the loan term.
3. What documentation is required in order to apply for a loan?
Home Loan eligibility criteria differ from one financial institution to the other. Along with sufficient funds for down payment and closing costs, the primary requirements also include income proof. Some institutions also demand mortgage payment reserves of up to six months.
The sooner these documents are provided, the faster your loan application is processed.
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4. What is the down payment required for a loan?
Down payments are a tricky business. The higher it is, the more you have to pay at the very beginning and the lower it is, the more it will cost you during the entire Housing Loan term. Usually, banks finance 90% of the total loan amount, and the remaining 10% needs to be arranged by the individual. A loan of 30 Lakhs, for instance, will require 3 Lakhs as down payment.
5. How to avail an income tax benefit on the loan?
Section 24 of the Income Tax Act makes a Home Loan borrower eligible for income tax benefits on the interest as well as the principal amount of the loan in the form of deductions. You can avail the tax benefit on an under-construction property in the form of a deduction on the interest paid during the construction process. Beneficiary provisions are also available for buyers applying for a loan for their second home.
6. Can income of family members be added to avail a loan?
Depending upon the amount of loan you apply for, you may be required to furnish an income proof higher than an absolute limit. If the income of the applicant is below this limit, adding the income of other family members is how one can avail the loan.
Income of parents, spouse, and child can be added to the applicant’s income. The only guideline to adhere to in such cases is meeting the age standards set by the financial institution one is applying for a loan from.
7. Are statutory expenses covered under the Home Loan?
Statutory expenses include miscellaneous charges such as cover stamp duty, legal fee, registration charges, and so forth. It is advisable to ask your home loan lender whether these expenses are included in your loan. While most financial institutions do not cover these expenses, they might give it a thought as a part of providing the Best Housing Loan offers.
Also Read: Home Loans in India – 21 Myths Vs. Facts
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