Home Loan Mistakes to Avoid

Mar 08, 2017

While a lot of consideration goes into buying a home, the same cannot be said for home loans. In fact, many times, in the excitement of buying a home, people tend to forget a few key things about home loans. We list the five home loan mistakes that should be avoided at all costs.

1.Not researching enough about different lenders:

It is a common tendency on part of the home loan buyers to prefer banks where they have active accounts i.e., savings or salary accounts. It might be a convenient option but it might not be the best. Always remember that paying EMI on home loans is a very long-term commitment, hence you ought to approach many lenders and see who is offering you the best interest rates and other benefits. Not only the interest rates but other fee structures and charges should also be considered before making the final decision. In fact, even a difference of few decimals points in the interest rates can help you save a few lakhs over the loan tenure. Thus, it is extremely important that you do your research about the lending company so as to reap the maximum benefits in future.

Related: Secrets of Home Loans: Fees and Charges explained

2. Not having the required down payment:

It is a known fact that lenders don't lend the entire amount of purchase of the house. Most lenders without exception would require you to put in at least 15-20 per cent of the total cost from your own funds, while the rest is managed by them. However, home buyers tend to forget this fact and realise only when they apply for the home loan and the lending firm demands the required down payment to be done by the buyers themselves.

For example, if you want to buy a house for Rs.70 lakhs, then you need to have at least Rs.14 lakhs (20 per cent of 70 lakhs) for the down payment. In case you don't have this amount, then you will have to wait to save this much amount or look for another cheaper home.

3.Not paying enough attention to floating or fixed rate of interest:

While the fixed rate loans have a fixed rate of interest for the entire tenure of home loan, the floating rate loans have variable rates that may change in the future and are linked to policy rates declared by RBI. While, a fixed rate loan may give a sense of security and certainty, home loan buyers may lose out if the interest rates dip. Thus, both types of loans have their pros and cons and hence, it is imperative on the part of the home loan buyers to think about these factors before taking the final decision.

Related: Really? I should still pay a higher EMI even when the interest goes down...?

4. Not considering the additional costs:

In the hurry and excitement of buying a home, many times, people forget to consider the extra or hidden costs like property tax, maintenance costs etc. Since these costs themselves run into lakhs, the entire amount can easily surpass your current available income and thus, impact the EMI that you will have to pay each month and thus, overlooking them would mean lesser money to actually buy your dream home.

5.Not asking about the in-built features i.e., life and health insurance options within your loan:

Many home loan lenders automatically include life and health insurance plans in the home loans and often ask the buyers to include the one-time premium amount into the loan amount. This directly means that along with your EMI on home loan, you will also be required to pay the insurance premium. This is actually a very useful feature and can help you sort out three needs in one go! However, your costs can increase; hence this is not a decision to be taken lightly. Make sure you take into consideration the various features being offered, whether it is in line with your and your family's needs, and if it is comprehensive enough considering riding medical costs.

In a nutshell

In the past few years, with significant home loan interest rates reduction by banks, the real estate sector has gotten a much needed boost. Even the home loan buyers have all the reasons to rejoice as they can now fulfil their desire of buying their dream home. All that is needed from you, as a home buyer, is due caution while taking the home loan as it is a long-term commitment.