Taking a home loan with the lowest interest rate isn’t always a sound decision. Factors like prepayment facilities, loan tenure and processing fees have an effect on how much you end up paying for the loan. It’s also crucial to know what home loan options are available to you, so that you won’t have to go through any of the problems encountered by first-time loan seekers.
Here are some types of home loan options that you should know about if you’re applying for a loan.
If you take a fixed home loan, your interest rate will remain stable for the entire loan tenure. Financial institutions even offer semi-fixed loans, where the initial rate remains the same for 2-5 years and then changes.
While this may seem like a great bargain, fixed-loan schemes are 1-2% more expensive than floating loans. While that may seem like a small percentage, it can translate into quite a lot of money for a high-principal, long-tenure loan.
And if you want to close your loan early, some lenders even mandate that you pay a penalty fee. Others, like Bajaj Finserv, offer zero foreclosure charges, allowing you to repay your loan without any additional debt.
Variable home loans are currently one of the most sought-after home loan options in India. With this scheme, interest rates vary based on the economy, and are also influenced by the Prime Lending Rate (PLR) and Base Rate System used in your financial institution. A fall in market prices leads to a dip in the rates and vice-versa. With viable prepayment options and lower costs, it’s one of the most popular home loan options for first-time buyers.
Banks love this repayment option. A balloon payment involves paying larger instalment amounts, generally more than one-third of the standard instalment. It’s a great way to improve your loan eligibility and a quick solution to ridding yourself of debt. The downside is that the interest rate on this kind of loan is often a lot higher than most other home loans.
While procuring a home loan, the best option would be a loan that you can refinance. This means substituting your current home loan with another loan under different terms like a 20-year fixed refinance rate. This way you can take advantage of more feasible interest rates, reduce your risk, and maybe even shorten your loan tenure. With Bajaj Finserv, you can take loans that are proportionate to the current value of your property, provided that you purchased it in the last 12 months with your own funds.
If your repayment capacity is higher than your current monthly instalment, this scheme is best suited to you. It involves paying a larger EMI, so your loan is repaid faster and with minimal overall expenditure. As an added bonus, you can even enjoy the tax benefits that accompany a lengthy loan tenure.
Before choosing a home loan option, carefully consider your alternatives. Don’t worry about wasting time, technology has made it possible to avail a loan at the click of a button. For example, Bajaj Finserv, approves online Home Loans within minutes of your application, and disburses the amount in the next 72 hours.