Despite the growing popularity of home loans as the most convenient and financially smart way to get a dream house, there are many aspects which most borrowers never discuss with their bankers while taking the loan. Even the bankers do not disclose several hidden elements of the loan in fear of losing customers.
In the recent past the eligibility criteria has been relaxed to a great extent and the application process has been simplified. Here are some of lesser-known aspects that merit the attention of the home loan applicant before signing the agreement:
The amount: This is the biggest consideration that a prospective borrower must analyze for himself with great care. While the banker may be willing to give a higher amount considering the net worth of the property being purchased the borrower must make the calculation for himself so as to avoid landing up in repayment difficulties at a subsequent stage. Though banks will permit the EMI to be as high as 40 per cent of the net monthly income after standard deductions it is prudent to keep the EMI below 25 per cent of the net monthly income in order to cater for other avenues of investment and unforeseen circumstances.
Future plans: There are many people who opt for a higher loan amount keeping in mind the increase in pay that they expect over the years. However, it must be understood that a home loan is a long-term commitment for about two decades during which along with the income the expenses and financial commitments will also grow substantially, leaving the margin of money for home loan repayment at its present level. Additionally, there is no guarantee of the pay hikes, while the EMI amount is fixed the moment the loan is availed.
Interest rate changes: The bankers may not explain to the customer that even the fixed rate of interest is not completely fixed. There may be situations where this rate will be increased depending on the base rate fixed by the Reserve Bank of India, which can result in substantial increase in the EMI outgo or an increase in the tenure of the loan. Failing to cater to such increases in the EMI may lead to severe financial crunch that may even result in defaulting on the loan servicing.
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