A six-point guide for home loan borrowers

Owning a home is a dream that all of us nurture. As most of us, increasingly, are shifting to opt for a loan to make this dream possible, it's important that you keep the following points in mind as you set out to have your name plate on the wall.

1. Choose the home before the loan

Some banks give preference to finance a furnished home while others prefer to finance a self-constructed property or under construction house. So, choosing your property first would help you save a lot of time and zeroing in quickly on the best offers pertaining to your requirement.

2. Decide your down payment wisely

Remember to choose your down payment wisely as your EMIs (equated monthly installments) for the next few years will depend on them. Though a higher down payment would get you a good deal with the banks, it should not eat into your emergency fund.

Likewise, your EMIs should allow you to save money for emergencies and future expenditure from your monthly earnings.

3. Choosing between a floating and fixed rate of interest

Though the name might lead you to believe that it cannot be changed, sometimes banks do offer to increase the EMI or the tenure in a fixed interest rate loan after a certain period. So it's better to get clarity on this at the time of agreement. In case of a floating interest rate, evaluate the economy growth rate and see how it would impact in future as the reductions in floating interest rates are directly dependent on it.

4. Ensure what you see is what you pay

Go through all the charges levied by the banks such as miscellaneous, hidden, service related, recurring or one-time. This will allow you to understand your financial commitments to the bank for the next few years and plan your financials accordingly.

5. Know your banker

Remember, when you take a bank loan, you are associating with the bank for the next few years and it's good to know the experiences of the other customers with the bank.

6. Your processing fee is non-refundable

Banks always charge a fee in order to apply for a loan with them. This is a processing fee and is non-refundable. Generally, it varies from 0.5 per cent to 1 per cent of your total loan amount. The same doesn't guarantee that the loan will be sanctioned; hence it is advisable to have a written agreement with the lender. Switching fee is also charged if you plan to switch from floating rate to a fixed rate.

Manavjeet Singh, MD, Bestdealfinance.com