Home loans are the only way that most people around the world today can afford to buy homes. This is especially true for real estate in expensive locales from San Francisco to New York — and even homes in a city like Mumbai.
With the high prices of residential property in every major city, owning a residential property without home loans is next to impossible. So here are a few pointers on how to choose the right home loan:
Do Your Research
You can save money on home loans by using online websites and tools that compare the kinds of loans available across banks and non-banking financial institutions. Also read up on the kind of documentation you will need to keep ready for the application process.
Understand the Process
One of the most important things in choosing the right loan for your house buying needs is to understand the way the process works. For starters, know that as a borrower, you have some value to any bank. This value is depends on your current salary, your investment portfolio and, of course, your level of savings; all these factors help determine the amount of money that you’ll be eligible to receive as a loan from the bank. This loan then is tenured, if you choose a longer tenure; your loan amount can be increased as well, which is an excellent way to get a better term loan from the bank. In most cases, once you’ve completed a loan application, you’ll be called for an interview; this is where you’ll find out your chances of securing the loan and the amount you’re likely to receive. Once an agreement has been reached, banks typically take from two to four working-weeks to disburse the loan money to the applicant. The loan amount is broken down into a monthly figure that is paid to the bank; this amount is your recurring cost over the life of the loan.
Decide on a Fixed or Adjustable Rate
A fixed rate of interest doesn’t necessarily mean that you have to pay the same amount to the bank for the life of the loan. Rates obviously vary from time to time and, as in the case of any well planned financial portfolio, if interest rates drop after you purchase a fixed-rate mortgage, you may want to take advantage of this fluctuation by refinancing. On the other hand, adjustable rate mortgages work in favor of the consumer in a rising-interest rate environment.
Watch for Hidden Charges and Terms
While a lot of television ads talk about hidden charges that banks levy on home loan customers, few ever talk about hidden terms that can affect the home loan as such. Potential borrowers must therefore clarify terms related to foreclosure of outstanding amount, transferring the loan to another bank, prepayment of part or full amount of the loan and other such things before finalizing a lender.
Know Your Bank
Just like banks you entrust your hard earned money to seem to make an effort to understand your needs and cater to them, you too should make an attempt to know your bank. And remember, being on friendly terms with bank staff — especially decision makers like loan officers and bank managers — can really make a big difference when your application comes up for consideration.
Photo Credit: US Dept of Agriculture