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How to Choose a Home Loan?

How to Choose a Home Loan?
 

The decision of opting for the right home loan involves a lot of planning, research and consultation. There are many factors which have to be taken into consideration while deciding on a home loan. These factors include family size, type of home loan, and purpose of buying the house. Your decision to choose a home loan will vary depending on these factors and several other criteria. Mentioned below are few more things to keep in mind while choosing home loans in India:

Comparing home loans:

The best way to compare home loans is to ask various lenders for a fact sheet which will give you all the relevant information. This will make it easier for you to directly compare the features and fees. The sheet will mention the total amount to be paid back over the period of the loan, the amounts to be repaid, fees and charges. This will also give you a personalised comparison rate which will help you choose from the various  loan options available.

What are Variable, Fixed and Split rate home loans?

These refer to the various interest rates at which the lender will offer home loan to you:

  • Variable interest rate: This depends on the official cash rate, it may go up or down and hence it’s variable.
     
  • Fixed Interest Rate: As per this the rate on your loan will remain the same for the fixed period. Usually, 2 – 5 years is the time period, after which, it will revert to a variable rate.
     
  • Split loan – Here, your home loan is based on a combination of fixed and variable interest rates.

Portability

This feature allows you to move your loan from one property to another. It is mutually beneficial, as it allows the lender to still keep you as a customer and exempts you from the unnecessary exit and application fees. This typically is a feature of variable interest rate loan. An important thing to note here is that the sale and purchase of properties must settle on the same day.

Bridging Loans, loans for building and renovating
 

  • Bridging loans – Refers to loans that one takes while transacting between the buying and selling of properties. This is basically for people who buy a new home before selling their existing one or for those who are constructing a new one. What is very important to note here is that if you don’t sell your existing property within the understood bridging period, you will get a much lesser price for your property, which in turn  will amount to a higher debt.
  • Construction Loans – When you’re building a new home, you may need a construction loan. You withdraw funds in stages, as and when you receive bills. The only interest to be paid is on the funds you’ve used. Most construction loans are offered on variable interest rate. The loan will revert to principal and interest repayments after the construction is complete.

While going in for a housing loan is a viable option for maintaining and constructing your home, it is also important to have a thorough knowledge of the market in order to make the best decision.

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