Buying a home is a dream for most, and a house loan aids in helping this dream come true. When you apply for a home loan, you need to research well and then choose after careful consideration. However, despite best efforts, mistakes can occur.
Below we focus on 5 common mistakes you should avoid while taking a home loan.
1. Focusing only on The Interest Cost.
When applying for a home loan, the interest rate is the most crucial aspect, as it impacts the overall loan cost. While the home loan rates are vital when comparing lenders, you cannot overlook other charges. Often applicants focus only on the interest rates and ignore charges like processing fees, late fee penalties, foreclosure charges, legal fees, etc. The processing fee ranges from 0.5% to 2% of the loan value; it is a substantial amount as a home loan runs in lakhs.
2. Not Buying Insurance Cover.
Homes offer a lot of security to a family. However, in case of the unfortunate death of the borrower, the family is left with a huge loan burden and may end up losing their house if the loan is not paid. Therefore, buying adequate insurance cover for the loan can keep your family safe from any financial distress.
3. Applying To Multiple Lenders Simultaneously.
The lender sends a credit inquiry to rating agencies to access your credit score when you apply for a home loan. Your credit report assessment is the first step of your loan application scrutiny. The loan gets sanctioned if the applicant has an acceptable score per the lender. However, each credit inquiry by a prospective lender (known as hard inquiry) lowers your credit score by a few points. Therefore, if you apply simultaneously to multiple lenders, your score may get impacted negatively, and your chances of loan approval will be lower.
4. Choosing A Shorter Tenure.
Your loan EMIs depend on the amount you borrow, current home loan rates, and the loan tenure. You may be tempted to apply for a shorter loan term as it reduces the overall interest cost, and you would like to pay off your debt as soon as possible. However, a shorter tenure could result in higher EMIs which you may struggle to pay every month. Thus it is a good idea to use an EMI calculator to estimate monthly installments so that you can budget your monthly expenses accordingly. Then, choose a loan term per your repayment capacity.
5. Picking Between Fixed Or Floating.
Another common mistake when you apply for a home loan is not making the right choice between the fixed and floating rates for the loan. Your loan can be at a fixed rate which means it remains unaffected by the market conditions or the RBI policy for the entire loan duration. Floating rates change as per the RBI policy. If you apply for a shorter tenure, a fixed rate could be a good idea. On the other hand, if your loan tenure is long, it is better to opt for a floating rate.
Takeaway
Buy your dream home with a loan and avoid the mistakes mentioned above so that you get the best deal for yourself.