Top Factors to Consider When Comparing Home Loan Offers

November 20, 2024

Home buyers and property investors today have many choices regarding lenders. Many banks and financial institutions compete to get the greatest number of borrowers given the demand in the real estate market today. Lenders are wooing the home buyer by giving the best interest rates, flexible payment terms, and other freebies, In such a scenario, a home loan guide can make things easier.

By following some simple steps, homebuyers can choose the best home loan offers that suits their requirements and be on their way to owning their dream home.

This blog explores the top factors to consider while choosing a home loan:

1. Fixed vs Floating Interest Rate

Fixed interest rate on the home loan will have the same rate of interest for the loan tenure. A fixed rate might be more expensive in the long run whereas the floating rate varies with the market condition so the borrower pays less when the rates fall but higher when the rates rise. The borrower can assess both these options depending on their financial requirements and choose the one that suits them best. The Effective Interest Rate (EIR) includes charges that will reveal the amount they pay.

2. Loan Tenure

Some home loan lenders also offers flexible loan tenure to choose from 10 to 30 years for borrower. A longer tenure reduces the monthly payments but increases the total interest paid while a short tenure translates to higher EMI payouts but lesser total interest paid. Also, some lenders allow prepayment with or without penalties. Home buyers can check for all the above terms and conditions and make choices as per their financial plans.

3. Processing Fees and Other Charges

Processing fee is a percentage of the loan amount normally ranging from 0.5% to 2%. The processing fees can impact the cost of borrowing, especially for large amounts. Hidden fees like administrative fees, legal fees, and appraisal fees should be checked for with the lender. Home buyers can compare processing and other charges of various banks before choosing their lender.

4. Eligibility Criteria and Documentation

Every lender has eligibility criteria which include a cut-off income, credit score, and documentation. If the borrower does not meet the eligibility criteria the loan might not get approved. It is wise to apply to many financial institutions and compare the requirements. Having all the documentation and a good credit score will ease the loan approval process.

5. Repayment

Some lenders offer repayment flexibility. The borrower can repay the loan with step-up EMIs, where the repayment amount increases over time, and step-down EMIs where the repayment amount decreases.

Borrowers must also check if the EMIs can be suspended for a short duration (a few months) in case of unusual circumstances like job loss or pandemic situations.