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5 Important Questions You Need to Ask While Taking a Home Loan

5-Important-Questions-you-need-to-ask-your-lender-while-taking-a-home-loan

Taking a home loan is an important financial decision and needs to be taken carefully because of the large sum you will be borrowing to fund the home purchase. A wrong step in the home loan process can result in paying higher interest costs and an overall bad experience.

Therefore, apart from the self-research on home loan options and lenders, before availing of a home loan, you need to ask several questions to your lender to make sure everything fits well into the scheme.

Top 5 Home Loan Questions You Need to Ask Your Lender

What is the Annual Percentage Rate (APR) on the home loan?

Lenders often advertise or mention the annual rate of interest on loans, which doesn’t include any other cost associated with the home loan.

Usually, in a home loan, there are multiple types of fees involved, like processing fees, administrative fees, taxes, and other documentation charges. Therefore, when you ask for the annual percent rate, the lender will inform you of the actual cost of the loan including the interest rate and other costs.

Many times, to attract customers, financial institutions keep the rate of interest lower, while keeping other costs higher.

You should always compare home loan options on the annual percentage rate (APR) to get the true picture and cost of home loans. You can use our free APR calculator to get an estimate of the actual cost of your home loan.

Do you allow balance transfer of home loans? If yes, what are the prepayment charges?

Balance transfer of home loan is a process to refinance your outstanding home loan with another lender at a lower interest rate and attractive terms.

Lenders generally allow the balance transfer of home loans, but you need to confirm it during the application process. Also, you need to know whether there are any prepayment charges involved to balance transfer home loan.

As per the RBI guidelines, on a floating interest rate structure, lenders cannot levy penalties on home loan prepayment. However, on a fixed interest rate structure, you need to confirm the prepayment charge on the home loan.

What is the structure of home loan interest rate- fixed or floating?

There are two types of home loan interest rate structure- fixed and floating. In the fixed interest rate structure, the interest rate remains the same for the entire home loan tenure. On the other hand, in a floating interest rate structure, the interest rate changes during the home loan tenure based on external factors like monetary policy by RBI and changes in internal policies of the lender.

You need to enquire about the home loan interest rate structure and based on what factors will the interest rate on home loans be calculated. For example, the weightage of each factor, like CIBIL score, income status, employment status, down payments, etc. At Grihashakti, for instance, we provide floating home loan interest rates, and the final rate offered to an applicant will depend on various factors including Grihashakti’s policy at the time of loan application.

Ask about the home loan disbursement and repayment process

Before applying for a home loan, enquire how the home loan disbursement will be done. In case of home purchase, will the home loan amount directly be credited to the seller’s account or it will be credited to your bank account.

And, in the case of a home construction loan, you need to enquire about the milestones and how much percentage of the home loan amount will be disbursed after reaching each milestone.

For the repayments, you need to confirm with the lender, when it will start and the mode of making repayments. Whether it will be directly deducted from the bank account or need to give signed post-dated cheques linked to EMI dates.

Is there any financial product clubbed with the home loan or do I need to buy any other financial product to avail of the home loan?

Many times, lenders club financial products to home loan products to cross-sell other financial products like a savings bank account, credit cards, life insurance policies, etc. And, in most cases, it has been found that lenders have kept the information hidden and users are informed at the last moment before signing the loan documents. In such a case, users are left with no option, but to buy one.

This increases the overall cost of availing of a home loan, which can affect financials. For example, paying a premium for an unplanned life insurance policy.

Therefore, before signing the loan documents, you need to confirm with the lender, whether or not they are including any other financial product or not along with the home loan. If yes, you need to check the details.

Wrapping Up

These are the top 5 home loan questions you must ask your lender before applying for a home loan. Also, don’t restrict yourself to just these five questions and clear all your doubts and questions in mind.

Since availing of a home loan is a long term financial commitment, there should be no ifs and buts while applying and before signing the final home loan agreement.

Must Read :Tips To Make Home Buying Process Less overwhelming

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