Buying a home could be the biggest financial decision you make. That’s the reason why it may take a long time in finalizing the location and the specifics of the house to purchase. Home loan too is an important factor to consider. While choosing the right housing loan isn’t rocket science, there are a few factors to keep in mind. So, here are the dos and don’ts of making the right choice.

Dos of Choosing a Home Loan

Determine the amount to borrow:Banks offer home loans of as much as 90% of the property value. This doesn’t mean you borrow the complete amount offered. If you have the funds for making a higher down payment, you can borrow a lower amount and reduce your interest payment.

Determine the tenure: Too long a tenure means that you pay higher interest on the home loan. On the other hand, too short a tenure translates into higher EMIs and less liquidity. This will impact your lifestyle through the tenure. So, choosing the right tenure is important. Make sure that you complete paying off the housing loan before you turn 50 because your financial responsibilities may increase after this, like paying for your child’s higher education or marriage.

Use a home loan calculator: Your planning can become a lot simpler by using such a calculator. This will give you an idea of the EMIs for different tenures as well as the total amount of repayment. You can access a calculator designed specifically for this purpose online, and it will take into account your monthly salary and assets to suggest the amount you should borrow.

Decide whether you want a fixed or floating rate: In floating home loans, there would be a fixed base rate and a floating component that will change according to fluctuations in the market. In case of fixed home loans, the interest rate remains constant throughout the tenure. Salaried individuals, who have high visibility into their monthly incomes and expenses, tend to prefer fixed housing loans. This is because they are more comfortable knowing the exact amount to be paid every month and can budget their other expenses accordingly.

Don’ts of Choosing a Housing Loan

Take other loans right before applying for a housing loan: The EMIs of all your liabilities, like personal and car loans, will be considered when approving the home loan. 

Consider very high EMIs: When determining the loan amount, it’s a good idea to ensure that the EMIs don’t exceed 45% of your monthly income.

Make too high a down payment: Making a very high down payment may lower your borrowing but will impact the funds at your disposal. You need to have enough liquidity for emergencies.

Stop looking for home loans: Even after you have received the approval and made some EMI payments, you can choose to transfer the home loan in case you find one at a much lower interest rate. In such cases, only the remaining portion of the housing loan will be transferred to the lender, offering a lower interest rate.