How can you avoid common Home Loan mistakes?

Owning a home is a big dream for many people, but it can feel like a big, complicated adventure. When you get a Home Loan, it's like setting off on a long journey. You need to plan and prepare carefully.

If you don't know about the common problems and mistakes that can mess up your Home Loan journey, you might end up paying more money than you have to, or, even worse, you might miss out on getting your dream home. So, it's crucial to be informed and prepared for this journey.

To help you avoid these mistakes and get the best Home Loan deal, here are a few tips you should remember.

1. Credit score check

Your credit score numerically represents your credit history and repayment behaviour. It is one of the most important factors that lenders consider when approving your Home Loan application and determining your interest rate. A good creditworthiness can help you get a cheaper interest rate and save money on your Home Loan. Therefore, review this score before applying for housing finance and take steps to improve it if it is low.

2. Compare borrowing costs

Interest rate is the most obvious factor that affects your Home Loan cost, but it is not the only one. You must pay attention to other charges when you take a Home Loan, such as processing fees, valuation fees, document verification fees, and legal fees. Some of these expenses can vary from lender to lender and add up to a significant amount.

3. Right interest rate

You can choose from a fixed rate and a floating rate Home Loan. A fixed-rate means that your interest rate will remain constant throughout the loan tenure, regardless of the market conditions. A floating rate means that your interest rate will change according to the market conditions and the lender's benchmark rate.

Also Read: Buy your dream home even if you are in your 40s

A fixed-rate gives you certainty and stability but may be higher than the prevailing market rate. A floating rate gives you the benefit of a lower interest rate when the market rate falls, but it also exposes you to a higher interest rate risk when it rises.

4. Opt for a longer loan tenure

Loan tenure can range from 5 years to 30 years. The longer the borrowing tenure, the lower the EMI that you have to pay. A lower EMI can help you manage your cash flow better and save some money for other expenses.

However, a longer loan tenure means you will pay more interest over the loan period.

Opt for a longer loan tenure only if you are comfortable paying more interest and have a stable income source. You can also prepay your Home Loan partially or fully whenever you have surplus funds to reduce your interest burden and loan tenure.

5. Make a higher down payment.

The down payment is the amount you must pay upfront when buying a home. Depending on the lender and your eligibility, it is usually 10% to 30% of the property value. The Home Loan finances the rest of the amount. The higher the down payment, the lower the loan amount that you have to borrow. Less loan means lower interest and EMI, increasing your chances of Home Loan approval.

Also Read: Navigating the Home Loan process: 6 key considerations

Conclusion

The above tips can make your homeownership journey a breeze. It is worth mentioning that, to avoid any sudden surprises, read the loan agreement carefully. The loan agreement is a legal document containing all your Home Loan terms and conditions. Ask the lender to clarify any doubts or queries that you may have regarding the loan agreement. You must never sign the loan agreement mindlessly or under pressure, as it can have serious consequences later.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.