Here are some tips to help you get the best mortgage rate for your Home Loan.

1. Improve Your Credit Score

Consistently strive to improve your credit score to increase loan approval chances and secure a low rate of interest on it. 

Even a slight boost in the credit score positively affects your interest rate considerably. According to recent data from FICO (Credit score by Fair Isaac Corporation), if you can increase your deals score slightly, your interest rate will decrease by as much as 0.60%. 

2. Calculate Your Loan EMI

Use a mortgage loan EMI calculator to figure out how much the monthly EMI is going to be. Based on that, decide how much loan you can afford. Along with the EMI, you also have to keep in mind other expenses that come with buying a house like property taxes, homeowner’s insurance, maintenance costs, furnishings, etc.

3. Choose a mortgage loan that best fits your needs.

 There are various types of mortgage loans. You 

• Fixed-Rate mortgage loans: Fixed-rate mortgages are offered at a fixed rate of interest. It means monthly instalment remains the same throughout the life of the loan.
• Variable-rate or floating rate mortgage loans: Floating rate mortgage loans are offered on a variable interest rate. The interest rate fluctuates with movement in the base rate.
• Adjustable-rate mortgage loan: In an adjustable-rate mortgage loan, the interest rate is fixed for some of the initial periods of the loan tenure. It changes depending on the performance of the economy.
• Simple mortgage loans: In this, the property owner does not get transferred from the borrower to the lender.
• Usufructuary mortgage loan: In this type of mortgage, the borrower has the right to sell the property to the lender.
• Subprime mortgage loan: These have a higher interest rate as these are offered to borrowers with poor credit history.
• English mortgage: In this, the borrower agrees to transfer the property absolutely to the lender if they cannot pay off the loan until a particular date.

4. Keep a steady income

Keep your income steady before applying for a loan. Do not change or quit your job just as you are going to apply for a loan. Lenders usually want to see that you are at the same job for over two years. Also, if you can increase your income before applying for a loan against property, it will act as an added plus – Whether it is an increment on your current job or some extra cash from a part-time job.

5. Save money for a down payment.

Making a big down payment is a great way to get a good loan against property interest rates. Typically you want to make a 20% down payment of the amount of your home. Lenders sometimes will accept a down payment of less than 20%, but that usually means you have to pay for private mortgage insurance, ranging from 0.05% to 1%. Also, do not drain your savings completely to make a very high down payment because you will still have closing costs to cover, which can range from 2% to 5% of the loan amount. 

6. Compare multiple lenders

Get quotes from different lenders and compare their terms. Rates differ from one lender to another, so it is advisable to shop around a bit before selecting one lender. 

Using the tips shared above, you can get the best deal on mortgage loans. Thorough market research and understanding your financial liabilities are crucial to making an informed decision while selecting the mortgage loans that can meet your requirements.

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Still, it is easy to get swayed and fall victim to the debt burden trap. Loan-seekers can avoid this disaster with effective financial planning and a thorough research of the financial product in advance. Here are some of the most crucial aspects to consider before getting a property loan.

Determine your exact fund requirement

Repayment of any financial product, including mortgage loan, includes an interest component along with the principal amount. This interest amount depends heavily on the fund borrowed and will subsequently increase if the proceeds are significant. Therefore, borrowers must chalk out their precise loan requirement by listing its potential utilities. Tallying your monthly income and expenses is also one of the ways to effectively repay your existing loan without much hassle.

Evaluate your property

A property’s value depends on its size, area of situation, age and builder’s reputation, among other factors. Holdings with high value offer greater security to lenders due to which they prioritise sanctioning such loan against property. Therefore, always determine your property’s value to estimate available funds using the lender’s loan against property calculator.

Steer clear of cross-securitisation

Many a time, individuals willing to purchase a new property might want to mortgage that along with an existing property in the hopes of a larger loan amount. This solution is even encouraged by many financial institutions. However, this might not be a good idea since borrowers stand the risk of losing both properties in case of a lap loan default. A better alternative for more funds can be getting 2 separate loans against each property.

Compare policies of various lenders

Several features such as property loan interest rate, LTV ratio, eligibility etc. vary across lending institutions. It is important to conduct a thorough research on these aspects for effective financial management. While a higher LTV ratio will offer a greater percentage of property value as fund, a lower interest rate will make said fund affordable. Several HFCs also place additional charges like processing fees, documentation fees, etc. 

Additionally, loan seekers must check for other policies like pre-payment charges and flexibility in repayment tenor. Some financial institutions also extend pre-approved offers against mortgage loans like loan against property and home loans for speedy fund transfer. Potential borrowers can check their pre-approved offer by submitting their name and contact details before proceeding further. They can compare such benefits offered by different lenders and then pick one with the deals.

Know about tax benefits 

The Income Tax Act allows borrowers to optimise their savings on a loan on property by availing of tax exemptions under several sections. 

Individuals can file tax returns under Section 24 to enjoy tax deductions on mortgage loan interest rates. The new tax regime cancels out tax savings on principal amounts under Section 80C. However, individuals paying taxes under the old regime can still avail of it. Plus, accurately filing expenses due to construction on or repair of mortgaged property can also help borrowers save additional taxes.

Perform eligibility checks

Qualifying for a loan on property requires meeting several lender-specific criteria and documentation. However, some of the standard parameters are as follows.

• An applicant must be aged between 25 and 70 years.
• He/she must have a steady income source such as a job or business.
• Individual must be a resident of India.

Additionally, borrowers must keep handy the list of documents needed to apply for a loan against property for seamless verification and approval.

Note that, before proceeding with the application process you must have a detailed idea of your monthly income and existing financial liabilities. Opting for a loan on property exceeding your repayment capacity can lead to a disastrous debt trap and even lead to your property getting confiscated. An easy way to reduce the burden of interest is making a larger down payment and selecting a shorter tenure. Although these can cause extensive expenditure for some time, it can also lead to effective financial management in the long run.

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