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Home Loan
Home Loans - Things You Must Know
Given the boom in real estate in India, housing/home loan has become the most popular form of loan. This type of loan benefits the middle class the most in their quest of fulfilling their lifetime dream of owning a house. One should look into the details of a housing loan before deciding on going in for any of the numerous offers available.
Floating Rate
The floating rate on housing loans is a pattern where the rate of interest is not stable. The interest rate fluctuates with the change in the rates in the economy. The borrower can gain form this type of interest charge when there is a dip in the rate of interest, bringing down the cost of the loan. This could also take a turn for the worse incase of an increase of the rate that takes the cost to a greater height.
Fixed Rate
Fixed rate loans are the loans that have a stable rate of interest. Here the rate of interest is unaffected with the changing market scenario. This loan is taken by people who prefer to know the exact cost of the loan and are happy to pay a fixed amount or when there is an expectation of a rise in the market value. However, there is a clause attached with the fixed rate pattern that could actually result in floating rate loan. The rate of interest could come up for review after a certain period of time in order to keep in accord with the market condition. This would lead a need for a change in calculation by the borrower with the earlier being thrown out.
The Process of Taking a Home Loan
The process of taking a loan could be quite nerve-racking for someone who is unfamiliar with it. Not many people repeat the process of a housing loan and it is just a one-time deal. Knowing the process of taking a loan will help a great deal in going about the entire issue.
1. Choosing the Property:
The beginning of the process of getting a housing loan is choosing a property that the borrower is interested in. While choosing the property, one should ensure that he or she is sure about the property and it is to their liking as it is a long term process that is time consuming and properly regulated.
2. Transfer in Ownership
The process of transfer in ownership is very essential in seeking a loan. Lending organisations want to be absolutely sure of the title of ownership while granting a loan.This is to make sure that there is no dispute over the property in question at a later stage. Only after the details are thoroughly checked will the lender go ahead with issuing the loan. Sometimes the lenders themselves do these evasive checks.
3. Derive the Actual Total Loan Amount
There is a limitation on the purposes for issuing a housing loan and a certain percentage of the amount only can be sanctioned. This means that the loan seeker needs to arrange fo the remaining amount through a different source. Some of the expenses borne while buying a property are not covered under the loan and these will need to be financed by the individual. Only after taking all these factors into consideration can one derive the actual loan amount.
4. Documentation Process
The documentation process involved in availing a housing loan is absolutely vital. This process involves looking into various requirements that need to be fulfilled like the loan agreement and security documents. There is also a proposal form that needs to be filled with additional surety documents surrendered. Only on completion of this process will the loan process move forward.
5. Using the Loan for the Right Purpose
Using the loan for the required purpose is essential as the loan amount is sanctioned based on the agreement that it would be used for a specific purpose. The use of the amount in the right manner is a completion of the agreement between the lender and borrower on the reason for the loan.
6. Repayment
The repayment of the loan follows the completion of the borrowing process. The EMI amount is written out for repayment of the loan and the pre EMI inertest is also mentioned. Repaying the loan is to be done in accordance with the terms and conditions agreed upon. The floating rate of interest will need to be taken into consideration for loans that have a provision of foreclosure.
- Make sure that the home loan availed is within the means in terms of repayment.
- Go in for fixed rate loans when the interest is low and there is a possibility of it growing.
- Choose a floating rate loan if the interest rate is high at the time of availing the loan.
- Be cautious of the duration of the loan exceeding the working years of the borrower.
- Closely monitor the impact of the changes in the market, especially in case of a floating rate loan.
- Claim the benefits of tax reduction for the loan availed by submitted the documents required.
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