For most homebuyers, purchasing a house is a major financial commitment. Attractive and aggressive home loan schemes that came into the picture during the last decade have significantly lowered the average age of a homebuyer. Investing in a house with a home loan has many advantages. However, it requires a certain amount of planning for a happy journey through the loan period.
Here are some tips for home loan borrowers:
Choosing the lender
It is important to choose your lender carefully. The bank becomes your long term companion and at times it is not easy to change it later. It also involves additional costs to change your lender.
Since a home loan is a long term matter, it is important to take some time and be a little selective. It will be good to get feedback and crosscheck with other borrowers. It helps in understanding the positive and negative points, and therefore helps in getting you the best-suited lender.
Interest rate trends
The housing finance market has gone through a major mindset change during the last one decade. There is more volatility in the interest rates. Also, globalisation has brought in many factors that influence the macroeconomic conditions in general, and as a result, there is volatility and cyclical trends in interest rates.
Since a home loan is a long-term commitment, it is important to prepare for cyclical trends in lending rates. You need some financial planning to be able to repay at a higher interest rate during certain periods of the loan tenure, based on market conditions.
Fixed or floating rate?
Currently, almost all home loan schemes available in the market promote floating or flexible interest rates. Many banks have even stopped offering home loans with a fixed interest rate for the entire tenure. Some schemes offer a fixed rate up to a certain duration and then link the rate of interest to a benchmark index which changes based on the market conditions.
Therefore, it is important to check the previous track record of interest rates revisions and understand the implications.
Personal commitments
Since a home loan is a long-term financial commitment, it is important to keep in mind the various personal commitments and chalk out a strategy to manage finances. Many a time, it is seen that fluctuations in the income of a borrower makes it difficult to maintain a smooth relationship between the borrower and lender.
Home loan insurance
A home loan insurance cover, available through various insurance companies, covers a home loan liability. These policies cover the home loan if something happens to the borrower. In these policies, the sum assured is adjusted against the home loan liability with every EMI paid.
Home loan insurance comes in handy for riskaverse investors and for those who do not have adequate life insurance cover. Many home loan insurance products provide a cover to pay the EMIs in case the borrower meets with an accident, goes on a long sick leave or loses his job. It is important for a borrower to spend some time and figure out the appropriate insurance product that suits his need.
Conditions good now
Analysts believe the current market conditions are quite favourable for those looking at investing in a house. Property prices have been through a significant correction over the last few quarters due to the global economic slowdown. There are many good deals available in the market.
In conjunction with lower property prices, the current low interest rate regime makes a good value proposition for property buyers.
The economic conditions are improving and demand is picking up in the property market which is expected to drive the property rates upwards. Similarly, the high fiscal deficit and inflation will force the Reserve Bank to tighten the monetary conditions in the medium term. Therefore, those looking at investing in property should go for it now.