Owning a home is one of the most important goals of everyone’s life. Some people buy land and then construct homes according to their plan while some buy homes. In present times, building homes cost more time and money. Therefore, most people buy a home. Also, for buying a home people prefer to avail of a mortgage.
Taking a mortgage, consider the following:
Taking a mortgage is not a small decision. You should pay attention to every acute detail. However, most people do not know many formalities about a mortgage. Especially, people opting for home loans first time need more awareness. In the article below we have mentioned some things that one should keep in mind while opting for a home loan.
Every bank asks for a credit score before giving a mortgage or any kind of loan. Therefore, if you are thinking about taking a loan, maintaining a good credit score is of utmost importance. Normally, they consider a CIBIL score greater than 750 as a good credit score. A good credit score can avail you of better interest rates. But how do you maintain a good credit score? It is not very difficult. All you need to do to maintain a good credit score is to pay all your credit card bills on time and repay your already taken loan.
However, you can not make your credit score good instantly. It is a long process. Therefore, if you are considering taking a mortgage, you should start paying attention to your credit score.
You must think and decide about the loan tenure beforehand. EMIs of your loan directly depends on the tenure. However, tenure depends on your ability of the payment every month, it is always better for you to have a short tenure. Generally, banks also prefer loans with shorter tenure.
Shorter tenure also decreases the monthly payment and interest rates of your loan. Though you will need to pay more money every month, it will make you free of the loan early which is a big relief in itself. Shorter tenure also decreases the overall cost of your home.
Documents are the most important part of this process. You must have all the documents prepared already before going to avail a mortgage. Also, before signing any document provided by the bank, always read it carefully. These documents consist of terms and conditions, interest rates, tenure, down payment, additional charges, and penalties along with all other important things. Therefore, reading them carefully is absolutely necessary. Many times, there are hidden charges that agents charge but do not tell beforehand. Documents have information about these charges. Most cases of fraud happen because of the negligence customers show while signing such documents.
4. Down Payment
No home loan is completely financed. You need to pay some amount beforehand which is called a Down payment. Although the amount of down payment varies from bank to bank, mostly it is about 10% to 15% of the total mortgage. Down payment also depends on the interest rate and EMIs you choose to pay. The rest of the amount of the home loan is paid in monthly installments that are called EMI. However, how much you decide to pay as a down payment depends on your condition, it is advised to increase the down payment as much as you can. Increasing down payment helps you with choosing shorter tenure and lower interest rates
5. Processing Fees
Every bank charges a processing fee. Customers need to pay a fixed amount as a processing fee. Normally, most banks charge around 1% of the total mortgage amount as a processing fee. Some bank’s charges are higher, some lower. Therefore, it is important to choose a bank that charges a low processing fee.
EMI stands for equated monthly installments. The amount that remains after a down payment is paid into these equally distributed monthly installments. EMI depends on the interest rate, tenure of your loan, and the down payment. More the down payment, the lesser the EMI. It is advised that your EMI must not exceed 40% to 45% of your monthly income.
7. Interest rate
Interest is another important part of a home loan. Not only your ability to pay EMI on time but also your financial future depends on these interest rates. Higher interest rates may leave you financially crippled at the end of the month. Therefore, it is important to check and compare the interest rates of different banks.
Also, you can choose between floating interest rates or fixed interest rates. Floating interest rates change over time while fixed interest rates remain fixed till complete repayment of the loan.
Taking a mortgage is not an easy task. There are many things that people must keep in mind while opting for a home loan. Interest rates, down payment, monthly installments are some important things along with the above-mentioned tips that one must keep in mind before taking a mortgage. Reading all the documents before signing is also very important. These documents have all the necessary information. Carelessness shown while taking a mortgage may result in fraud or extra charges.