What to check before you take a home loan
The largest borrowing most people ever do, usually decided on the EMI figure alone. There are several other things that matter more.
A home loan is the largest financial commitment most households make, and the comparison usually collapses into one number: the monthly EMI. That number is the least informative part of the offer.
Fixed or floating
A floating rate moves with the market, so your EMI or tenure changes as rates change. A fixed rate stays put for an agreed period and is usually a little higher at the start to compensate the lender.
Most borrowers in India end up on floating rates. The thing to understand is which external benchmark your rate is linked to and how often it resets.
Tenure changes everything
A longer tenure always looks cheaper monthly and is always more expensive in total. That trade is the single biggest lever in the whole arrangement.
Run the comparison on total interest paid over the life of the loan, not on the EMI. Then ask the lender how extra payments affect your schedule and whether a lump-sum payment goes towards reducing the tenure or the EMI.
A longer tenure always looks cheaper monthly and is always more expensive in total. That trade is the single biggest lever in the whole arrangement.
The costs that are not in the interest rate
- Processing fee, usually a percentage of the loan with a cap.
- Legal and technical valuation charges for assessing the property.
- Stamp duty and registration, which are substantial and unavoidable.
- Insurance, sometimes bundled and sometimes genuinely optional. Ask which.
- Prepayment terms. On floating-rate loans to individuals, these are generally favourable, but confirm in writing.
Your credit file decides the rate
Check your credit score before you apply and fix the obvious errors. A small difference in rate on a very large difference in total cost, and the score is the main thing standing between you and the better rate. If it needs work, a few months of regular behaviour might be time well spent.
Get the paperwork ready first
Mostly, and often asked:
- Income proof: salary slips and bank statements, or business accounts and returns if self-employed.
- Property documents, and the chain of title.
- Existing loan statements, since these affect how much you can borrow.
Worth knowing
Apply to two or three lenders, not six. Each formal application is a hard enquiry on your credit file, and a cluster of them in the same month works against you at exactly the wrong moment.
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