Top Hacks to Financially Plan your Home Loan

Home loans are probably the only gateway, especially for the middle class, to get their dream home someday. And towards realizing this dream through availing of Canfin Home Loan, there are a series of decisions that impact this journey, which has not just short but long term implications on one’s financial life. So, it is therefore advisable to carefully choose your property, lender, accumulate down payment etc., in order to conveniently avail the home loan and not burden yourself too much financially.

To help you with the same, here are some decision points focusing on which you can implement top hacks to plan your home loan smartly-

Affordability- Home loans involve a large sum of money, and hence you need to carefully estimate your financial position, i.e. income and expenditures, to know whether the EMIs will be affordable without burdening your monthly financial condition. Your EMI to income ratio, which is the proportion of your income that goes out as EMI, shouldn’t exceed the range of around 40-50% for smooth approval of the Canfin home loan. This means your EMI amount shouldn’t occupy more than 40-50% of your monthly income.

Deciding the lender- One should finalize their lender after a thorough comparison amongst the various banks and housing finance companies (HFCs) like Repco Home Finance. Compare the interest rates, processing fee, prepayment charges etc., before finalizing your lender. Some lenders of Home loans are SBI, India bulls, ICICI bank, DHFL etc. Even after you have taken the loan, you should keep an eye on other lenders’ rates in order to keep the option for home loan balance transfer/refinancing open. You can visit online marketplaces for a comparison of these.

Checking your eligibility- With the concept of a home loan eligibility calculator, it has become easier for borrowers to know whether they would be eligible for the Repco home finance’s loan or not. You should therefore utilize this facility to check your eligibility for the loan, which is dependent on various factors such as age, net monthly income, EMI to income ratio, etc. To avoid rejection of your home loan application in the later stages, it is wiser to check it with the eligibility calculator of the particular bank/HFC.

Maintaining a good credit score- Banks and HFCs approve loans more smoothly to those with a good credit score, as it depicts good payment history, financial discipline and higher creditworthiness. Generally, those with a CIBIL score of 750 and above stand a higher chance of easy Canfin home loan approval. You can check your credit score online and also know the required steps on how to improve it. But even if you do not have a credit score or have a low one, you might get the home loan approved (as these are secured in nature), but the interest rate would mostly be higher than the ones offered to borrowers with good credit profile.

Selection of tenor- The tenure of your home loan from Repco home finance should be selected very carefully as your EMIs are directly dependent on the length of your loan. Usually, lenders offer tenure of 10 years to 30 years. Many people live with the misconception that the longest tenure available is the most suitable due to lower EMIs. However, the longer your tenure is, the more interest outgo as you pay the same interest rate for a longer period.

For example- A home loan of Rs.50 lakhs taken @10% p.a. for 15 years by Mr Aman and 30 years by Mr Gupta. The total interest outgo for 15 year period @10% would be Rs. 46.7 lakhs, whereas for the tenure of 30 years, the interest payable would amount to Rs 1.07 crore. 

It is thus advisable to use the EMI calculator tool available online to estimate your Canfin home loan EMIs and interest component based on your loan amount, interest rate and repayment tenure.

Calculation of total cost of the loan- It is wise enough to calculate the total cost of your home loan and not just the EMI or interest rate. The total cost of your loan would include the processing fee, EMI, legal fee, documentation fee, administrative fee etc. The knowledge of total cost in prior gives you a clear picture regarding your financial obligations and prevents any unexpected burden through various charges levied.

Type of interest rate- The computation of Repco home finance’s EMI is dependent on the interest rate, and one should decide the type of interest rate depending upon the current and expected market situation and risk appetite. You should opt for a fixed rate if you are comfortable with the EMI you are committing to pay, interest rates are expected to rise in the near future, or if interest rates have come down recently and you wish to finalize that rate. However, one may choose a floating rate for their home loan if they expect the rates to fall in the near future. A combination of fixed and floating rates may also be opted for, and you can switch from one to another by paying a nominal fee and if your lender offers this facility.

Don’t disturb your emergency fund-When taking a home loan from Repco home finance, your home loan decision should not affect your emergency/contingency fund. So, be wise and select your property and home loan lender cautiously so that your emergency fund remains intact and your EMIs do not end up burdening you to the limit that your emergency fund gets affected. 

Loan to value ratio (LTV) – Loan to value ratio is the proportion of your property’s value which you get in the form of a Canfin home loan. For the example-The value of your home to be bought is Rs.60 lakhs, and the loan which the bank/HFC grants are Rs.45 lakhs. Here, the LTV ratio would be Rs. (45 lakhs/60 lakhs)*100, which comes out as 75% and the rest 25% of the property value has to be borne by you, along with the processing fee. A higher LTV implies that a lower proportion of the value would be payable by the borrower and vice versa. The LTV ratio also depends upon your repayment capacity, credit history and various other factors, apart from the current market value of the property.