25 MAY, 2021

Mortgage loans are secured loans, which enable you to borrow money from the lender by submitting an immovable asset like a house property or even a commercial property as security. Your property remains with the lender until you repay the loan amount. Mortgage loans can be high-value loans and repaying such a loan can significantly affect your budget as they come with a long repayment tenure. Therefore, it is imperative to avail a loan, which is suitable for you. However, choosing the best deal could be tricky and confusing. To help you make the right choice, we are here to help.

Steps to Choose the Best Mortgage Loan 

Assess your current financial situation

Before you conclude which loan you want to avail, it is important to assess your current situation. By this, we mean that you need to check your credit score, existing liabilities/EMIs, income, future expenses, and savings. You could also consider your fixed obligations like recurring medical expenditures, education fees, or even an upcoming wedding.

Determine your affordability

It would help if you determine the suitable loan amount, tenure and type of interest rate as per your financial needs. This step is essential to ensure that you do not borrow more than your repayment capacity. You would not want to take a loan that leads to EMIs exceeding your budget, forcing you to make lifestyle changes or face a cash crunch later.  While the combined EMIs should not exceed more than 45-50% of your income, the home liabilities should not be more than 35-40% of the total income. Keep in mind that lenders consider your debt to income ratio. It is the calculation of debt payments made on a monthly basis divided by your monthly income.

Understand the types of mortgage loans

You should know which mortgage loan would be useful for you. There are various kinds of mortgage loans that lenders offer today such as loan against property, reverse loan, etc. You would need to assess your requirements to decide which one would be best suitable for you. You should also determine if you would want features like a top-up home loan and balance transfer facility before availing for the loan.

Identify the right lender Now that you have a fair idea about the different aspects of the loan, you can start considering the deals offered by various lenders. It might not necessarily be a good idea to avail the loan from the first lender you meet, or from the one with whom you have a bank account. It is essential to check different lenders before making this decision. It would keep you in a better position to negotiate the loan amount and interest rate.

While you look at various options,  consider the different fees and charges of the various lenders. For example, lender A might have a lower interest rate but could be charging a much higher processing fee, increasing your overall cost of borrowing. Doing a thorough cost benefit analysis would help you make the right choice.

Availing a mortgage loan can be daunting, especially if you are taking it for the first time. However, once you have assessed your needs and matched them with the available options, it could be easier. The best trick is to understand the various aspects of the loan and look for suitable options depending on your repayment capacity.

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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.