Buying a home of your own choice is one of the most exciting shopping journeys you will ever embark upon. The thought itself is so appealing that one would go on imagining the interiors, the shade of walls and all those factors which transform a house into a home. But before riding high on the waves of planning for the future, there are a few points one must take into consideration along the way to owning a home. And one of the most important points to look into is ‘how to get a home loan.’

Here are a few points we have gathered if you are pondering over - how to apply for a home loan and what nitty-gritties to keep in mind while taking a home loan:

CIBIL Score:

Established in the year 2000, Credit Information Bureau of India Limited collects all the relevant data about a loan applicant's credit history to formulate the credit score. The score is then shared with banks and financial institutions which is then used to evaluate the creditworthiness of the applicant.  So, it is essential to have a credit score of 650 and above to avail home loan without any hindrances at lower interest rates.

Rate of Interest:

Your home loan's rate of interest shouldn't dampen your interests of owning a home. The kind of rate of interest you choose, govern the monthly EMI you pay. Also, it is imperative that you understand the fact that there are two types of interest rates which a home loan comes with i.e. fixed rate and floating rate.  Under a fixed rate on the home loan, the rate of interest doesn't vary irrespective of a volatile market. However, under a floating rate of interest on the home loan, the interest rate is calculated on the Marginal Cost of Funds based Lending Rate (MCLR). It is a minimum interest rate bank has to offer unless exempted by RBI.

Home Loan Repayment Period:

Deciding the tenure of a home loan is one of the most crucial decisions. Home loan tenure can either be short term or long term. In a Short term home loan, the EMI will be bigger and the total amount to be paid will be less. While in a home loan opted for longer tenure, the EMI amount will be smaller, but you will pay more because of higher interest charged over longer tenure. Processing Fee on Home Loan:Processing Fee on a home loan is an amount which a home loan applicant has to pay the bank/financial institution once the application is processed. The fee percentage varies from 0.50 to 2.0% of a loan amount. However, there are certain banks like Kotak Mahindra which do not levy any processing fees, if applied online.

Repaying the loan:

The repayment of the loan is done through Equated Monthly Installments (EMI) wherein the principal and interest on housing loan are paid by the home-loan applicant. Apart from other factors, the down payment also governs the number of EMIs a home buyer has to pay. It is always recommended to use a home loan EMI calculator for zeroing down on an EMI that a home buyer can pay.

Down Payment:

As a home buyer, you will have to make a provision of 10-25% of the total purchase value of the property you choose. This amount is considered as down payment because it is not included in a housing loan. The amount of  home loan down payment also governs the number of EMIs you will have to pay upon procuring a housing loan. If you can provide a higher down payment, it’ll help you save on interest rate which you will be paying on housing loan.

Additional Expenses:There are certain expenses in addition to the purchase value of the property, which needs to be factored in. The expenses may include but are not limited to share transfer, registration and stamp duty, GST on the cost, etc.

Foreclosure Norms

Repayment of your home loan before the end of the tenure can attract fees on foreclosure. However, these norms are mentioned in the home loan document. It is always advisable to understand them thoroughly, discuss it with the bank authority prior to signing a housing loan deal. Thankfully Kotak Mahindra Bank does not levy any penalty on prepayment and foreclosure.

Disclaimer: Terms & Conditions Apply.
Credit at sole discretion of Kotak Mahindra Bank Ltd and subject to guidelines issued by RBI from time to time. Bank may engage the services of marketing agents for the purpose of sourcing loan assets.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.