There is no common formula to opt for a home loan. What may be good for you may not be good for someone else and what may not be good for you can prove to be an excellent plan for others. So, basically choosing the best loan plan means that you will have to explore that which home loan plan fits best to your needs in a particular situation. Also, the cut-throat competition in the housing finance market has ensured that lending institutions come up with a wide array of products to woo the potential customers. In such a scenario, prospective buyers need to adopt a prudent approach and evaluate the options available in the market before choosing a particular home loan.
Before you check out any plan or scheme, we would suggest you to simply sit down and figure out what you actually want to do with your house and finances. Make a list of your necessities, your resources and your expectations from the scheme. Think on the factors like ‘Do you aim to stay in your new house the rest of your life, or for the coming few years?’ and incase, you are planning to sell it after sometime, ‘Do you wish to plan a bigger house next time?’ More importantly, figure out your financial status in the coming few years so that you have a rough idea of your resources in the coming years. Each of these aspects will help you to plan accurately and help you determine what actually are your necessities?
Now once you are done with the strategic planning of what you want, give a throughout checkout to what is available in market. You will find home loans of two categories. The first one would be the fixed rate mortgage and the second one would be an adjustable rate mortgage. The first one means that your payments and interest would remain the same forever without any changes while the later offers you a flexibility to have a fixed rate for part of its term, and then shift to interest rate that changes either monthly or yearly. Decide what suits you according to your resources and your source of finances.
Now, before you opt for any kind of home loan plan, my earnest request to you would be not to run behind some unknown lucrative party. It is always advisable to for a well trusted and tested name in the home loan business. Choosing the lending institution is a vital step. It is imperative to choose the financer with utmost care and proper consideration of its past track record. Apart from the housing finance companies, most of the major nationalized banks have forayed into the home loan segment.
Once you have short listed the lender, it is the real time to decide what you can opt for. First and foremost, the affordability factor has to be taken into account. As the investment in a home does not yield any monthly income, the ability to repay the loan depends entirely on salary or regular income from a stable business. Most finance companies finance up to a maximum of 85% of the cost of the house and monthly repayments are usually less than 35-50% of the customer's gross monthly salary.
Another important consideration in choosing home loans is the tax bracket as housing loans are one of the best ways to avail tax benefits. The tax breaks are directly related to the level of interest and principal repayments made each year, with an over all upper limit. One may not qualify for the full tax break if one's loan is relatively small. Interest rate is undoubtedly one of the most important parameters to factor into one's calculations. In fixed interest rates, the rate of interest remains unchanged for the entire duration of the loan while in floating rates, interest rates change every time the interest rate in the financial system change. Good Luck!