The importance of owning a home has been significantly emphasised by the pandemic.
Never before did we feel the need for a larger residential space as an emergency. It has been more than a year of a struggle, where each member of the family is gasping for a private space. For, globally people are holed up in their homes due to spread of COVID 19 virus. From online office meetings, to school/ college sessions to yoga sessions, each activity calls for a separate space. No one knows it for sure for how long this will continue.
Buying a home, however has become one the top priorities of millennials now!
And, there is one relief. RBI has slashed home loan interest rates to historically low. Most banks and NBFCs are offering lower than 7 % interest rate to eligible borrowers. The key eligibility factors are age, income, credit score, current debt to income ratio and loan to property value.
If you too are looking out for a SBI Home Loan for a larger house, here is a guide to availing of affordable EMIs. We have compiled a handy checklist or home loan borrowers.
Compare & choose the best deal.
Before you apply for a home loan, it is best advised to do a thorough research about home loan interest rates.
Though a lender may claim to be offering as low as 6.65 % p.a., yet the effective rate on your application could be around 7%. Different lenders offer different rates as per their credit policy. It is always good to do a comparative analysis of interest rates and other loan terms. Some of the other factors to compare are ease of repayment, customer support, processing fee and charges. You can use a loan comparison website to compare as well as apply for the best home loan deal.
Add a co-applicant
A home loan eligibility is primarily assessed on the basis of income and value of property. So whether you want to enhance the loan amount eligibility or looking out for a better rate of interest, adding a co-applicant can be one of the easiest ways to do so. You can add your spouse, siblings and parents as co-applicant(s) for the home loan application. Many lenders require all co-owners to be the co-applicant for a property loan. So, do check the terms & conditions carefully.
The lender will determine eligibility for loan amount considering the total income and repayment capacity of all co-borrowers. Thus, adding a co-applicant in a home loan reduces interest rate offer (i.e. lower EMI) and enhances eligibility.
Improve credit score
prepare for application in advance Home loans are long term debt commitments. Thus it is advisable to plan for a home loan in advance. The lender will assess your existing debt to income ratio to determine your EMI & loan tenure. Herein it is recommended that you repay the existing loans such as car loan or personal, as far as possible, before contacting a lender for a home loan. It will not only improve your credit score but will also improve the overall offer- loan value, rate of interest & tenor by the lender.
For example- Saving 50 bps on a 20 year home loan of Rs 900000 will save you Rs 654354 during the loan tenure. It will also result in saving Rs 2726 in EMI each month for 20 years.
Thus you should take every step to reduce the home loan interest rate and EMI.
Prepare for prepayment
Most lenders offer home loans for 20-30 years. However, it is recommended to pay out the loan as soon as possible. Shorter the tenure, lesser would be the interest cost. You must try to prepay loan as and when possible. For, there is no charge on prepayment of floating interest rate of home loans.
One of the simplest ways to plan for repayments is aligning annual lumpsum repayments. You can save small each month for annual payment or simply align annual bonus or incentives as it comes, for part prepayment of your home loan. Gradually prepaying home loan will reduce your principal outstanding and thus the interest liability will reduce too. You can choose to reduce EMIs or tenure as per your cash flow needs.
Refinance or Balance Transfer
As discussed above, the home loan eligibility is based on your current repayment potential. There is a good chance that your monthly income will increase in the coming years and thus your loan eligibility will enhance too. There are other factors too that can lead to improved creditworthiness such as increase in credit score, reduced debt to income ratio and so on.
After completing 12 successful EMI payments you are eligible to apply for balance transfer. Most lenders welcome loan refinancing requests as the customer’s repayment potential has already been established and there is low chance of default. So they offer the best rates to the balance transfer requests.
In most cases, you will be able to find a better loan deal with the balance transfer request. As a rule of thumb, opt for balance transfer if there is improvement of at least 60 bps as processing fee and administrative charges will apply.
Further, it is also easier to avail of top up with balance transfer. You can choose to reduce EMI or reset tenure as per the requirements.
All in all, a home loan is a big decision and should thus be backed by the professional guidance. Using all these tricks you will definitely be able to grab the best home loan deal. All the best!
