Picking your home loan option based on the cheapest possible rate? Think again. There are a number of factors that you should take into consideration before you finalise your choice – flexibility of services and rates offered by the lender, processing charges, prepayment fees, and more. It’s important to know what Home Loan options are available to you. On the surface, a low interest rate is the most important factor. But if you dig a little deeper, you can avoid pitfalls that a lot of first time loan seekers fall prey too.
Home loans are a long term commitment. When you first purchase your property, you may commit to payments that are not sustainable and that will end up overtaxing your resources. It’s also important to know the procedure, and to understand what is required while applying for a home loan.
Here are the main types of Home Loan options:
- Fixed Interest Rate:
A ‘fixed’ interest rate is one that remains consistent throughout the entire tenure of your loan. There a few variations of fixed Home Loans available, offered by banks and other financial institutions. Once such option is a semi-fixed type, wherein the interest rate remain static for 2-5 years, after which the current floating rate of interest is applicable.
Though this type of loan is appealing, there are some drawbacks. Fixed loan schemes are generally priced 1-2% higher than floating loans. Additionally, some lenders may demand additional payment is you decide to foreclose on your home loan. Others, like Bajaj Finserv, offer low or free foreclosure options, which allow you to get out of the agreement without incurring additional debt.
- Floating Interest Rate:
This is one of the most popular home loan options for first time buyers. In this type of scheme, the rate of interest varies according to the economic climate. The home loan interest rates are dictated by the PLR system and the Base Rate System, used by financial institutions and banks respectively. When there is a dip in the market, there should also be a corresponding decrease in interest rates.
These variable Home Loans are the most sought-after Home Loan options in India as they have viable prepayment options, which allow you to finish repaying the full amount faster without incurring any penalty.
- Making Balloon Payments:
This type of loan is favoured by both banks and customers alike as it allows for larger repayment instalments. A balloon payment is a bigger, lump-sum amount, which is more than one-third of the standard instalment. It’s preferred by some because it allows for quicker loan repayment, and increases your loan eligibility. However, this type of home loan also has a higher rate of interest.
- Opt For Refinance:
When looking for a good home loan, best options include refinancing your loan. Refinancing, in essence, is the substitution of one loan with another. This is very popular with home loan seekers as it is a good opportunity to get a lowered interest rate and gives them a chance to shorten their loan tenure.
Many banks and financial lenders like Bajaj Finserv, offer their customers a variation of refinancing, which allows them to take loans of up to the current value of their property if they have purchased their homes within a 12 month period, using their own funds.
- Accelerated Repayment Scheme
Under this scheme, borrowers will have the chance to repay their loan faster with larger EMI payments. This is useful for people whose payment capacity is higher than the stipulated repayment instalments. The accelerated payment scheme is popular with customers who don’t want to lose the tax benefits that come with lengthy tenures, but would like renegotiate their existing EMI schemes. One of the advantages is that the loan is repaid faster, which results in less overall expenditure. However, your lender can also levy additional charges if you wish to switch or alter your existing payment scheme.
Today, applying for a home loan is a much simpler process. Modern technology has made the experience seamless and customer-friendly. For example, Bajaj Finserv offers customers online home loan approval. You can get your application approved within minutes and disbursal is available within 72 hours. Take advantage of the low interest rates, starting from 9.85%.