Tuesday, 2 December 2014

Mistakes to Avoid While Taking Home Loan

Taking any loan requires proper planning and in-depth analysis. In particular, when you take a home loan this becomes even more important because the commitment is for long term, typically 15 to 20 years. In case you happen to select the fake a wrong bank or an inappropriate loan product, you may end up in paying more money for your home loan that you should. Many a times, borrowers tend to hurry up with their home loan choice and end up committing to a costly deal that negatively impacts their future finances even though it looks good initially.


Below are some of the common mistakes by the home loan borrowers:
1. Opting for Teaser Home Loan Schemes: Banks come out with different home loan schemes to address different segments of the market. One of the very popular schemes is teaser home loan scheme. Under this scheme, in the initial years or months, interest rate is fixed as low as 8% to 9% per annum in order to attract customers. After the initial period, loan shifts to a floating rate of interest, typically accompanied by a steep increase in the applicable rate of interest. Those who choose such schemes must check if they have the ability to afford a higher EMI in future.

2. Borrowing more than you can pay as EMI to the bank: This is another very popular mistake that many home loan borrowers make. When banks check the loan eligibility of the borrower, they search each and every parameter and after that grant the home loan.
However, even borrowers must check whether they can reasonably pay the EMI while meeting their other commitments.
There should be adequate cushion available for slight increase in EMI.  Further, if the property being bought is still under construction and the borrower is staying on rent, he must check that he can pay the rent and pre-EMI at the same time.  Further, some parts of the cost of flat (such as stamp duty, registration, club charges, etc.) are typically not funded by banks. 
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So, borrower must have adequate cushion available to make these payments to the builder.  It is also common for builders to many a times increase the overall cost on some pretext or the other, so some cushion must be available to make this extra payment.  Try not to maximize your loan amount eligibility.  Opt for a loan tenure that is most comfortable but not necessarily the longest as you pay more interest to the bank for the same loan when you opt for longer loan tenure.

3. Not studying home loan agreement properly: As a home loan borrower, it is very important that you properly read and understand the home loan agreement before signing on the dotted line. It is a fact that more than 95% of the home loan borrowers don’t read the document properly. The loan agreement sets out the rights and obligations of the bank and the borrower. While the document may appear lengthy or complicated, it is important to read and understand it as you are agreeing to abide by it.
Feel free to ask your bank representative to explain to you any terms that you don’t understand in the loan agreement. Most importantly, the loan document will typically have a schedule that will list the applicable interest rate, charges and other commercial information. Please read this part very carefully and ensure that the contents are same as what you have been told by the salesperson.
These are some of the mistakes that are often made by home loan applicant. Still, you need further suggestion about home loan in Mumbai, Bangalore or any other metro city in India, contact MyLoanCare sales team.