Increasing urbanisation and affordable rates on mortgage financing have pushed the home loan market in India to grow significantly, anticipated at 22% between 2021 and 2026. Coupled with an increasing need to avail a home loan among the salaried class, the market is only set to receive a boost in the coming times.
- As of 2020, salaried home loan borrowers contributed a whopping 88% to its total market share.
With an expanding house financing market that makes availing of a home loan easy, it is also critical to consider a few essential factors that help identify the best funding option. Below given are some of the factors you can assess when planning to avail of a home loan.
6 factors to consider before you avail of a home loan
1. Interest rate affordability
As a home loan is a long-term financial option, its interest rate levy is an essential consideration determining the total loan liability.
Make sure to run a comparison of existing lenders to arrive at the lowest interest rate available in the market before you apply for a home loan. The recent repo rate cuts have further pulled down the home loan interest rates, making them remarkably affordable.
- The repo rate saw a reduction of 140 basis points since 1st October 2019, coming down to 4% from 5.4% back then.
While some HFCs have kept their transmission to borrowers limited, top NBFCs following RLLR-based lending have exhibited remarkable reflections of repo rate cuts on home loan rates.
Also, check the other important home loan charges you should know for an overall estimation of the total repayment liability.
2. Loan to value ratio (LTV)
LTV under mortgage lending caps maximum financing as a percentage of the mortgaged asset’s current market value. Lenders determine it based on various factors, including the risk involved with a borrower.
A high LTV indicates sizeable loan availability as per your borrower profile. Check out for lenders who extend home loans with an LTV reaching up to 85% to secure sufficient financing for your desired house purchase.
3. Maximum loan ticket size availability
To increase the chances of availing of a high loan amount, it is also essential to check the maximum loan ticket size provided by various lenders. For individuals with the right home loan eligibility fulfilment, the amount can go up significantly.
Some of the lenders also complement such funding with pre-approved offers that make financing hassle-free and less time-consuming.
These offers are available on a range of financial products, including home loans and loans against property. Provide only your name and contact details to check your pre-approved offer.
4. Tenor flexibility and EMIs payable
Your home loan affordability will also be significantly determined by tenor flexibility available and EMIs payable, which are interrelated. With the best lenders, repayment tenors for a home loan can go up to 20 years, allowing sufficient flexibility in term selection.
Also, as tenor affects the total interest liability, it impacts the EMIs payable. An extended tenor indicates smaller EMIs, while shorter tenors increase the EMI liability.
It is, thus, advisable to choose the most affordable repayment term when you avail home loan as per your financial standing. You can use a home loan EMI calculator to make a proper tenor selection. Also, consider the ways to reduce home loan tenor and EMI for maximum affordability.
5. Balance transfer facility
A home loan balance transfer facility allows you to avail of a home loan and benefits from market-rate cuts as you can switch to a new lender offering better rates. It allows you to repay your outstanding home loan amount affordably in easier EMIs.
A balance transfer facility also helps you fulfil additional financing needs with a top-up advance available over and above the outstanding loan value transferred, among other favourable terms that the lender may offer.
When selecting a lender for home loan refinancing, make sure to consider
- Ancillary charges
- Timing of balance transfer – maximum benefits can be enjoyed at the beginning of the tenor
- Difference in interest rates – ideally, a 0.5% gap is necessary to gain from the transaction
As home loan transfer invites loan foreclosure, you can check the foreclosure charges as well for a fair idea of the cost incurred and avail of home loan benefits maximally.
6. Eligibility and document requirements
You must also consider the housing loan eligibility and document requirements involved to best decide on your lender. Simple eligibility and minimum paperwork requirements go a long way in ensuring hassle-free and quick financing of a home loan.
Combining all the essential considerations shall help you avail of a home loan that is optimally affordable and beneficial through other loan features.
During interest rate selection, also choose cautiously between floating and fixed rates to fulfil your financing objective affordably.
Before applying, keep important clauses of your home loan agreement in mind and go through the fine print in detail to ensure that you know the terms and conditions fairly well.