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Top 6 Things One Must Know Before Availing a Home Loan
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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A home loan is a convenient and easy way of purchasing your dream house. However, availing a home loan is a huge financial decision that can alter your lifestyle and spending habits. For first time home buyers, understanding the various aspects can be tricky too. Not to forget the complex paperwork and formalities that form an essential part of availing a home loan.
If you are looking forward to taking a home loan soon, here are six things you must know before availing the loan.
Eligibility Criteria
The first step you need to take when you plan to take a home loan is to check your home loan eligibility. Lenders require you to meet a certain eligibility criteria to approve your application. Home loan eligibility is assessed based on your income, age, credit score, job stability, financial position etc.
Tenure
You can choose a flexible tenure as per your repayment capability on a home loan. With Kotak Mahindra Bank, it’s possible to avail a home loan for a maximum tenure of 20 years. However, you should assess your financial comfort while choosing the tenure. If you opt for a shorter tenure, it can put pressure on your budget, as you would need to pay a higher EMI. But a shorter tenure can also help you save on interest payout. On the other hand, a longer tenure would reduce the monthly EMI but can increase your overall interest payout.
For example, let us assume you have taken Rs 50 lakh at an interest rate of 10% p.a. Let’s see the total interest you would pay for a tenure of 10, 15, 20, and 25 years.
Home Loan Interest Rate
10% p.a.
Loan Amount
Rs. 50,00,000
Tenure (Years)
EMI (Rs.)
Total Interest Paid (Rs.)
25
45,435
8,630,511
20
48,251
6,580,260
15
53,730
4,671,446
10
66,075
2,929,044
Credit score
Credit score is an important determinant of your repayment capacity. It is the numerical representation of your creditworthiness. A score of 700 or above is considered good for a home loan. If you have a poor credit score, the lender can reject your loan application. Even if it is approved, you might have to take a loan at a high interest rate.
Type of loans
There are two types of interest rates on home loans - fixed rate and floating rate. Typically, in a fixed rate home loan, the interest rate remains constant throughout the tenure. However, in a floating rate home loan, the interest rates vary as per the market conditions.
Charges and Penalties
The loan agreement contains all the details and legal aspects of the loan. Along with basic information like interest rate and tenure, it also mentions other charges and penalties that you should know about. Ensure that you read the terms and conditions carefully before signing on the dotted line.
Balance transfer
If you find another lender with lower interest rates and better terms, you can transfer your home loan. For instance, you can opt for a balance transfer with Kotak Mahindra Bank to get a lower interest rate and better repayment terms. In this situation Kotak Mahindra bank would repay the outstanding loan balance to your existing lender. Henceforth, you start paying the remaining EMIs to Kotak Mahindra Bank. However, before making the switch, you need to ensure that transferring your loan is financially beneficial for you in the long run.
Documentation
The documents required to avail a home loan may vary from one lender to another. At Kotak Mahindra Bank, it’s possible to avail a home loan with minimal and paperless documentation. Some of the basic documents required are mentioned below:
Taking a home loan can be a tedious task, especially if you are availing it for the first time. However, going ahead with adequate knowledge can make the process easier and help you get the best deal. Ensure that you know the finer points of the agreement before you avail the loan.
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