For most people in India, buying a home is a significant milestone and a dream come true. However, most of us require financial assistance through a home loan to achieve this dream. While home loans can make owning a home more comfortable, they come with their hard truths. This article will discuss the five hard truths about home loans and how to face them.
1. Interest Rates can change
Home loan interest rates depend on the market, inflation rates, and the Reserve Bank of India’s monetary policies. Interest rates can fluctuate during the loan tenure, increasing your EMIs. Understanding this and considering this factor while opting for a home loan is crucial.
How to face it?
- Research and compare interest rates offered by different lenders
- Consider opting for a fixed interest rate to avoid fluctuations
- Keep a buffer amount aside in case the EMIs increase due to interest rate changes
2. Prepayment Penalty
A prepayment penalty is a fee charged by lenders when you pay off your home loan before the completion of the loan tenure. The penalty amount varies across lenders and can be substantial, especially if you prepay the loan during the initial years.
How to face it?
- Negotiate with the lender to waive off the prepayment penalty
- opt for a home loan that allows partial prepayment without any penalty
- Plan your finances and prepay the loan during the later years of the tenure
3. Longer Loan Tenure
Home loans are generally for a longer tenure, which can be up to 30 years. This means you will be paying the EMIs for a more extended period, increasing the total interest paid. You may partner with us as DSA agent where we are happy to provide training for product and sales.
How to face it?
- opt for a shorter loan tenure, if possible, to reduce the interest paid
- Increase your EMI amount periodically to pay off the loan faster
- Utilize any windfall gains to prepay the loan and reduce the tenure
4. Hidden Charges
While applying for a home loan, many borrowers overlook the hidden charges that come with the loan. These charges can include processing fees, administrative fees, legal fees, etc., and can add up to a significant amount.
How to face it?
- Read the loan agreement thoroughly to understand all the charges
- Negotiate with the lender to reduce or waive off certain fees
- Compare and opt for a lender who has transparent charges and no hidden fees
5. Foreclosure Charges
If you decide to foreclose your home loan, the lender will charge you a foreclosure fee. This can be substantial, and many borrowers overlook this factor while applying for a home loan.
How to face it?
- Negotiate with the lender to waive or reduce the foreclosure fee
- opt for a lender who has lower foreclosure charges
- Plan your finances and consider foreclosing the loan only if it benefits you in the long run
A home loan can be a significant financial commitment, and it is essential to understand all the hard truths that come with it. By being aware of these hard truths, you can plan your finances better and make informed decisions. It is also advisable to consult a home loan agent who can guide you through the loan process and help you understand the various loan options available.
Moreover, it is crucial to clearly understand your financial situation before applying for a home loan. You must assess your income, expenses, and savings to determine how much loan you can afford. This will help you avoid financial strain and comfortably repay the loan without compromising your daily expenses.
Additionally, it is essential to maintain a good credit score to avail of a home loan with lower interest rates. A credit score measures your creditworthiness and is an essential factor lender consider when sanctioning a loan. A higher credit score can help you negotiate better interest rates and loan terms with the lender.
It is essential to have a contingency plan in case of unforeseen circumstances such as job loss, medical emergencies, or any other financial crisis. You can consider taking an insurance policy or setting up an emergency fund to ensure you can continue repaying the loan without default.
You may partner with us as DSA agent where we are happy to provide training for product and sales.
