Gone are the days when the thought of buying a home would mean worrying about breaking the bank and doling out all your savings.
Whether you buy a home to live in it or to make a property investment, the cost of having your own space can be very high if particular key concerns aren’t addressed.
Real estate developers seem to be coming up with a plethora of projects every year in a bid to enable buyers to procure their dream home. While almost every builder tempts interested home buyers with the best housing schemes replete with world-class amenities, you need to know that it all comes with a hefty price tag.
Purchasing a house is no longer a distant dream as it used to be, thanks to the easy availability of credit in the form of home loans.
Taking out a loan is a crucial decision, and can seem like a daunting and complicated process. However, careful consideration of all the important factors connected to it should hold you in good stead when you take the plunge.
Here’s more on that.
1. The Loan Amount and Your Eligibility
While you are the best person to decide the loan amount that needs to be taken out, it sometimes makes sense to consult lenders in case of confusions in money matters. They may be able to guide you towards picking a scheme that’s best suited to your needs.
It is also vital that you work out how much or how little you can afford to borrow without losing your sleep. The team at Benenati Law Firm are foreclosure defense lawyers, so they know a thing or two about the challenges many people face with their mortgage repayments. To prevent an event like foreclosure proceedings ever happening to you, the best practice is: ‘prevention rather than cure‘.
Be well prepared before you commit to a loan. The amount you eventually borrow will determine the repayment, so make sure you don’t end up borrowing more than you’ll be able to pay regularly. Remember you’ll be moving from your current residence into the new property and moving home is not a cheap exercise.
You may be surprised to learn there is such a product as a home moving mortgage. Often people get caught out with the expense of relocations, and while you could add the expense to your existing mortgage or new home mortgage application it may cost you more in the long run.
Do you research on which option is better for your circumstances. You may be better off to get a separate loan for the move and then pay it back quickly so there are fewer interest payments.
To secure a home loan you’ll need to provide data on your financial position. Do you know your current financial situation, monthly earnings and expenditures? Most wage earners live pay packet to pay packet without a thought going to how they’re spending, and what they’re saving for that rainy day or a home deposit.
Your financial position will determine what you can borrow against a home and the best options for repayments. Apart from that, there are external factors like interest rate rises and how that will affect your serviceability that also will determine the loan amount a lender will forward to you.
In summary, as far as your loan eligibility is concerned, the amount to be sanctioned depends on your income, history of repaying loans and credit card dues, external factors that determine the level of confidence the lender has in the economy and your debt servicing ability.
2. Types of Home Loans
The type of home loan you choose can have a major impact on its repayment as the rates of interest to be paid by you can vary. There are two main types of loans:
i. Fixed – The rate of interest remains the same for the entire term. Fluctuations in the interest rate (whether there is an increase or decrease) fuelled by market changes will have no effect on the amount needed to be paid by you. Since you will be paying the same amount throughout, this type of loan is easy to budget.
ii. Variable – The rate of interest changes according to the changes in the market rates, due to which your repayments will vary as well. This may not be easy to budget.
It makes sense to go for a fixed loan if the interest rates are low at the time of taking out the loan. However, if the interest rates are high but on a gradual (but unavoidable) decline, a variable loan could prove to be the better bet.
3. Choosing Your Lender
Before you decide on a lender, it is advised that you carry out detailed research to find a suitable financial institution for a home loan. Check with a few well-known banks and financial companies for their terms and conditions w.r.t. Loans and repayment options.
Apart from that, do consider other important aspects such as customer service, early repayments, penalties, and so on.
4. Tenure of the Loan
Decide on the loan tenure prudently as this is another factor that will help you calculate your EMI. Both are inversely related, which means the longer the tenure, the lower the EMI and the shorter the tenure, the higher the EMI.
However, the total interest to be paid by you is directly proportional to the loan tenure. If your term is long, you will end up paying a higher interest.
Do consider all your options before finalizing the tenure.
5. Fees and Charges Included
Apart from paying the rate of interest, you could also be subject to paying various fees, which can make a significant difference to your total repayment amount over the long term.
Inquire about the various fees that may apply to the loan you’re considering; and if there are hidden costs and/or penalties related to late payments, redrawing, and/or exiting the loan.
Be clear about the processing fees and/or service charges as they can add up to hundreds of dollars.
6. Additional Features
There may be other useful features which you may discover as you get deeper into the borrowing process. Do not hesitate in asking your lender about them. Ask about the redraw facility for more flexibility in your loan repayment plan.
You may want to ensure that your current home loan is transferable from one property purchase to another without having to undergo the entire application process again, especially if you’re likely to move or sell the property before the completion of your loan tenure.
Certain home loan schemes come with additional features such as insurance plans and free credit cards, which you may want to consider at the time of selecting a home loan.
7. Before Signing the Dotted Line
Yes, reading all those pages of the home loan document can be tedious, but doing so is extremely important. Read the documents to ensure that the terms and conditions are the same as were agreed upon, and ascertain the various charges applicable to you.
For most of us, the decision of buying a home is an emotional one. Having said that, the affordability aspect of it is one which needs to be considered objectively. If that turns out to be wrong, you will not be able to enjoy your purchase as managing the funds will always be a cause of worry. Hence, when you do take out a loan, make sure you choose one which offers feasible repayment options, thereby ensuring that buying a home does not become an impediment to your other plans.