Availing a Home Loan is one of the most significant financial commitments in an individual’s life. A slight error in judgement can set you back by a significant sum of money. If you are currently hunting for the best Home Loan to realise your dream of becoming a homeowner, there are certain mistakes you may inadvertently make.
Here are five costly mistakes that any Home Loan borrower is likely to make and how they can be avoided:
This is usually one of the most common mistakes. Generally, most borrowers are likely to approach their bank or a chosen NBFC with whom they have already done business before. Moreover, they tend to accept the first offer that the financial institution makes, thinking what difference a small variation in the interest rate will entail. But as a matter of fact, even a small reduction in interest rates can turn into significant savings over the loan tenure.
For instance, let’s assume that you have availed a DBS Bank Home Loan for Rs. 50 Lakhs for a period of 20 years. If the interest rate is 9.50%, then your total interest cost over 20 years will be appx. Rs. 61.85 Lakhs. But if the interest rate is 9.25% for the same duration, your interest cost would be appx. Rs 59.90 Lakhs. This translates into a difference of approximately Rs. 2 Lakhs against an interest rate deduction of 0.25%.
So, you must, therefore, undertake some efforts to find out the best Home Loan offer for you. You can easily access important details related to different aspects of Home Loans through the official website as well as other online aggregator platforms. A little extra effort can save you from overpaying against your Home Loan.
In the present times, it is not a hidden secret that all lenders consider the credit score as the best measure of a borrower’s creditworthiness. In order to get the best Home Loan interest rates and better facilities, lenders expect borrowers to have a credit score of 750 and above.
But many times, it has been seen that Home Loan borrowers tend to ignore their credit report altogether or wake-up too late to the issues present in the credit report. Getting the issues and mistakes removed from a credit report is a time-consuming process which might take even a few months. For instance, if you apply for a DBS Bank Home Loan without ensuring that your credit score is more than 750, while your application may not be rejected but most certainly you will not be getting the lowest DBS Bank Home Loan Interest Rates.
More often than not, most credit reports have some errors or issues that require immediate attention. In order to access the best Home Loan offer, you need to rectify these errors as soon as you identify them to boost your credit score. Moreover, you must take all the steps to improve your credit score a few months before you apply for a Home Loan.
This is another classic and extremely costly mistake that Home Loan borrowers make. Many times you would have seen an advertisement where the Home Loan interest rates are unbelievably lower. This is a classic technique employed by financial institutions to grab the attention of the customers. While the customer might think that they are getting the lowest interest rate for the Home Loan, but in reality, they end up paying much more. This is due to the hidden costs and other expenses that a borrower is mandated to pay every year.
Though these costs are not included in the interest rate, they are most certainly included in the Annual Percentage Rate (APR). So, before you sign along the dotted lines, inquire from your lender regarding the APR. You must base the final decision based on the APR instead of the interest rate as it is a better measure of the total cost of a Home Loan.
Another mistake that Home Loan borrowers make is to avail the maximum of everything available. Whether it is the loan amount or repayment tenor, Home Loan borrowers tend to go for the highest figure. Many borrowers avail a higher sum of money as a Home Loan just because they are eligible for it. They would, therefore, end up owning a property with EMIs that are not affordable to repay, thereby creating a huge range of problems for their financial health.
In order to avoid making this mistake, you must avail only as much amount that is required and that you can afford to repay on time. Do not avail of a high-value loan just because it is available; you need to remember that higher is the loan amount, higher is your interest cost, and higher is your EMI. Also, you should try to pay as much down-payment as you can and opt for the shortest repayment tenor that your financials allow. This will help you repay the Home Loan as quickly as possible.
Many borrowers also tend to minimize the cost of ownership while availing a Home Loan. The maximum amount that the financial institution will offer will vary between 75% to 90% of the value of the property. The rest of the margin money has to be arranged by you. On top of that, there is the cost of property registration, stamp duty, mutation fee, and several other expenses that must be borne by the borrower. Then there is the cost of Home Loan insurance, property tax, and other dues that would be paid.
If you did not account for these expenses, it would not be surprising to end up taking a Personal Loan for these costs, adding to your overall costs. So, you must always factor in all the costs of the ownership, before you make a final decision regarding the Home Loan.
Now that you know the various costly mistakes that Home Loan borrowers make ensure that you do not commit the same mistakes. Proper planning and due diligence should be your guiding principles when you are finalising a Home Loan.
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