Home Loan Checklist: 7 Questions to Ask Your Lender
The decision to purchase a residential property in itself is one of the significant events of one’s life. It is not a cakewalk to identify a dream home. Next, you have an added responsibility of finding a suitable Home Loan offer.
Indeed you must make sure that you are opting for the best offer. To achieve this result, you must ask some questions from the lenders to dissuade your doubts. This will eliminate the element of uncertainty once and for all. If you are not sure about what you should ask, here are the 7 questions you must present to your lender:
1. What type of loans do you offer?
Lenders in India offer multiple types of Home Loans to cater to the needs of different types of borrowers. Some of the popular types of home loan options are Home Loan for the under-construction property, Home Loan for constructed property, Home Loan for plot, Home Loan for NRIs, Home Improvement Loan, Home Extension Loan & more.
All these types of loans have different features and are suitable for specific requirements. Therefore, you must ask your lender about the types of loans that are available on offer. Now you would know if any of the loans offered by the lender meets your requirements perfectly or not. This will help you save a lot of time and efforts which may go in vain in case of mismatch. For instance, an NRI can not avail of an SBI Home Loan for plot purchase.
2. What is the interest rate structure and APR?
This is one of the essential questions that you must ask your lender. Different lenders offer different types of interest rate options. Some of the available options are:
- Fixed-Rate Home Loan: The interest rate remains unchanged throughout the tenor.
- Floating Rate Home Loan: The interest rate changes according to external benchmarks such as:
- Repo Rate
- Treasury Bills Rate
- Fixed and Floating Rate Home Loan: The interest rate remains fixed for a certain period and is then changed to a flexible rate.
While the interest rate is a fairly accurate measure of the affordability of a Home Loan, the Annual Percentage Rate (APR) is an absolute measure. It includes all the costs involved with the Home Loan and therefore offers the best estimate regarding the affordability of the mortgage. For instance, SBI Home Loan Interest Rates start from 8.05% per annum, but the APR starts from 8.20% per annum.
3. How much down payment I need to make?
Each lender follows a pre-specified LTV (Loan to Value) Ratio, which defines the maximum percentage value of the property to be offered as a Home Loan. As per the guidelines of RBI, the maximum permissible LTV is 90% of the purchase cost, depending on the value of the property. The general LTV guidelines followed are: –
- Property value up to Rs. 30 Lakhs – 90%
- Property value up to Rs. 75 Lakhs – 80%
- Property value above Rs. 75 Lakhs – 75%
Thus, the remaining amount needs to be paid as an upfront down payment to purchase the loan. It is, therefore, important to understand your downpayment responsibility before sealing the loan deal.
4. What are the other terms and conditions?
To establish the suitability of Home Loan, you need to get as much information that you can regarding the terms and conditions governing the Home Loan. Some of the questions that you should ask herein are:
- The maximum amount available as Home Loan
- Maximum repayment tenor available
- What is the interest rate applicable to Home Loan?
- How much time will it take to approve the application?
- What is their eligibility criteria?
- Do they offer Home Loan in the location you are buying the property at?
If you have any other questions, do not hesitate to ask.
5. Is Home Loan insurance also available?
As the repayment tenor for a Home Loan can extend up to 30 years, there is always a chance of mishaps such as death or accident or some cash hassle in repaying the EMIs during any phase of the loan. In such a scenario, most financial institutions insist on having a Home Loan insurance policy in place. This policy saves the borrower or family members from the burden of paying the EMIs if the borrower is no more or is handicapped. The insurance company will pay the money to the lender, and the family will get ownership. So, you must insist on having a Home Loan insurance policy in place as the facilities available are beneficial. The premium for the policy will have to be paid by you.
6. What do you charge for the facility of foreclosure and part-prepayment?
In your quest to pay your Home Loan quickly, you would want to divert your additional income to the Home Loan whenever possible. As per RBI guidelines, lenders do not levy a foreclosure fee against Home Loans; however, many do levy a cap or charge on a pre-payment beyond the limit. As this fee can add up to a significant sum over time, you must clearly understand part pre-payment fees with your lender.
7. What other facilities do you provide?
As the market for Home Loans is competitive, lenders are offering additional benefits to attract customers. You must, therefore, ask your lender about any special facilities they are offering. Top Up Loan, Free Life Insurance, EMI Holiday, Moratorium period are some benefits that can help you save a lot of money and also provide you additional liquidity. So, there is no harm in asking.
Having a clear picture in front of you is essential to make the best decision for financing your House Purchase. Therefore, do not rush into making the decision and undertake a detailed analysis of the lender’s offer.
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