Top 6 Things To Know Before Taking A Home Loan In Texas
3. The Small Details In The Loan Contract Matter
An agreement for a home loan is a legal contract like any other and the legal terminologies can easily cause perplexity to the borrower especially the small “hidden” details in the agreement.
For instance, one may think a loan “default” implies a situation when the borrower is incapable of servicing by payment of EMI. To some banks, the interpretation for default may mean when a borrower dies, goes through a divorce (and the spouse was a co-applicant in the home loan), or when the borrower is sued for a civil or criminal case may be tax fraud.
It is also common to find clauses requiring the borrower to attach extra property for loan security in the event the price of the original property falls. In this case, the bank may adjudge the act of omission to provide extra collateral as a default.
You must try to negotiate for a more favorable interest rate on the loan regardless of the loan type you have applied for as the borrower. In most cases, the bank holds the upper hand in the negotiations but a borrower can always bargain for lower rates especially if they have a long-standing relationship with the lender or a strong credit rating.
It is key that you have a clean record of timely loan repayment to support your credit history and request for favorable loan rates. Most banks are appreciative of a strong credit rating/history because a strong credit rating supports their quest for a good lending business.
Additionally, it might prove helpful if you can try to secure the loan at the end of a month when banks are racing to hit monthly targets for growth and expansion of loan portfolios.
5. Long Loan Repayment Durations Mean Expensive Loans
The Reserve Bank of India has been aggressive in enforcing the monetary policy for a considerable time now. An increase in the base lending rate has pushed banks to increase the interest rates charged to their customers on home loans and which implies a higher EMI for the borrower.
Many borrowers are unable to meet the EMI and appeal to the lender for an extension on the loan repayment duration in an attempt to lower the EMI. This is a move that creates temporary relief for the borrower who is in the desperate situation. However, in the long run, the borrower ends up paying more money.
As an illustration, consider a situation where the borrower has taken a loan of Rs 30 lakh to be repaid after 20 years at a rate of 10.5% per annum. In this case, the EMI to be paid is calculated at Rs 29,951 while the total interest to be paid on the loan will end up at Rs 41,88,240.
For a home loan with a long repayment tenure, the borrower ends up paying an interest amount that is higher than the principal amount borrowed.
6. Explore Alternative Lenders
Just because you have secured a loan with a given lender does not mean you are stuck with the lender for the duration of the loan tenure.
If you can source a lender with better financing terms than the original lender, you can always change lenders through available refinancing methods. Currently, most banks have removed pre-payment penalties on floating rate loans and only seek a processing fee from the borrower to effect the change.
As a borrower, always try negotiating for lower rates by seeking a reduction or a full waiver based on a study of comparable home loan products in the market.
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