Buying a house is a dream for many, and taking a home loan is often the most practical way to make that dream a reality. However, a home loan is a long-term financial commitment—usually spanning 15 to 30 years. One wrong decision or lack of awareness can result in financial stress or even loss.
Before signing the dotted line, it’s crucial to understand key factors that can affect your repayment, total interest, and long-term financial health. Here are the most important things every home loan applicant must keep in mind.
1. Compare Interest Rates Thoroughly
Never go with the first bank that offers you a loan. Different lenders have different interest rates, and even a 0.5% difference can significantly affect your total repayment amount. Use home loan comparison tools available online and shortlist banks offering lower interest with better terms.
Additionally, check if the rate is fixed or floating. Floating rates may fluctuate with market conditions, while fixed rates remain constant.
2. Always Check the Total Cost, Not Just EMI
Many borrowers only focus on monthly EMIs and ignore the total repayment cost. This is a mistake. A longer tenure may reduce your EMI, but it also increases the total interest you pay. Calculate how much interest you will pay over the loan tenure and try to close the loan as early as possible if you can afford to.
Use online loan amortization calculators to know the full cost over the period.
3. Understand Processing Fees and Hidden Charges
Apart from interest rates, banks also charge processing fees, legal charges, documentation charges, and more. These hidden charges can add ₹10,000 to ₹50,000 or more to your upfront expenses. Make sure to get a detailed fee structure in writing before finalizing the lender.
Ask these questions:
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Is there a prepayment penalty?
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What is the foreclosure charge?
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Are there late payment fees?
4. Verify Your Credit Score
Your CIBIL score or credit score directly impacts the interest rate you’re offered. A score of 750+ is considered good and may qualify you for lower rates. If your score is low, consider improving it by clearing existing debts before applying.
Banks consider your creditworthiness based on:
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Past loan repayment history
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Credit card usage
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Number of existing EMIs
A strong score increases your chances of approval and better deals.
5. Choose the Right Loan Tenure
Loan tenure affects both EMI and total interest. While longer tenure means lower EMI, it also means higher interest over time. Choose a tenure that balances EMI comfort and interest savings. Most experts recommend choosing a maximum 20-year term if financially possible.
Also, choose banks that offer flexible repayment options in case your financial condition changes.
6. Check the Loan-to-Value (LTV) Ratio
The LTV ratio is the percentage of the property’s value that the bank is willing to finance. If the property is worth ₹50 lakhs and the LTV is 80%, you’ll have to arrange ₹10 lakhs yourself. Make sure you’re ready with that amount and also keep additional funds for:
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Stamp duty
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Registration
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Interior work
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Broker charges
Always keep 15–20% extra funds aside for unseen costs.
7. Read the Loan Agreement Carefully
Home loan agreements are usually long and filled with financial jargon. Never sign without reading it thoroughly. Pay close attention to:
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Clause on interest rate revision
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Default penalties
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Conditions for loan cancellation
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Terms for prepayment or foreclosure
Seek professional help if you don’t understand any clause.
8. Keep Emergency Funds for at Least 6 Months
It’s risky to commit to a long-term loan without having emergency backup. Life is unpredictable—job loss, medical emergencies, or personal crises can impact your ability to pay EMIs. Ensure you have an emergency fund that can cover at least 6 months of EMI and household expenses.
This will reduce stress and keep your credit score intact even during financial hardships.
9. Get Insurance Coverage for the Loan
It is wise to take a home loan protection plan or term insurance that covers your loan amount. In case of untimely death or critical illness, your family won’t be burdened with loan repayment. Many lenders also bundle insurance into EMI, so evaluate if it’s worth taking.
Avoid overpriced insurance schemes that banks push during loan approval.
10. Avoid Overborrowing
Just because a bank offers you a higher loan amount doesn’t mean you should take it. Only borrow what you can comfortably repay without affecting your lifestyle. Always keep your debt-to-income ratio below 40%.
Overborrowing can lead to:
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Higher EMI burden
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Compromised savings and investment plans
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Stress during financial uncertainty
Stick to a realistic budget and buy a home you can truly afford