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There are several mistakes that people possibly make with a home loan agreement. It is important to remember that you are sealing a contract with a housing financial organization for almost 20 to 30 years! By and large, there are a few basic errors that you can keep in mind and avoid.

Hurry! Hurry! Hurry!

Most people rush into a loan. You really want to take your time when it comes to signing on the dotted line. Take into consideration a few stages of the home loan process that shouldn’t be rushed into:

• Research – You must be an informed and prepared borrower to understand the implications of a contract that can span for 30 years!

• Interest rate negotiations: These are not easy or obvious. Most home loan executives will try to imply that interest rates are non-negotiable. You shouldn’t rush these negotiations, though. The objective should not be to get an agreement as soon as possible but to find the most suitable house loan for your dream home .

• 100% satisfaction with the loan agreement: What is the loan to value ratio? What is the EMI scheme? Can you afford to pay it comfortably? Are you okay with the repayment plan? These factors can increase over a period of time. Users, however, may not get an increment in their jobs when interest rates spike up. So, don’t hurry this process.

Ignoring Financial Experts

Financial experts understand the importance of improving your credit score before applying for home loans . With a good credit score, you can get the best home loan in India. There are also several insights that experts can provide on lower interest rates and other expenses. For example: If you are a DINK “double income no kids” couple, you can enjoy more tax benefits by signing for the loan as co-applicants. You can also avail tax benefits on the principal amount and interest.

Don’t Review Terms and Conditions

Can you anticipate your pre-payment ability for the next 20 years? Can you anticipate the interest rate changes over the next 30 years? Can you predict your repayment ability for the tenure of your house loan? No. It is hard to anticipate any of these factors. Yet, you enter into a contract and agree to most of these terms. In order to avoid this, you must ensure that the house loan terms are in your favour.

Fit EMIs in Your Monthly Cash Flow Tightly

Most people don’t anticipate that there can be unplanned expenses or a hike in interest rates. You need to ensure that you can arrange for an EMI every month easily. What would you do if your salary is delayed? What would you do if there are unexpected costs such as hospitalization? So, do not opt for EMIs that you won’t be able to manage in the months of tax deduction or medical emergency. Set it up well enough to meet all of life’s challenges comfortably.

Opting for a loan is a major financial commitment, which users should not take lightly. At the end of the day, you should make a careful decision as it is bound to affect your financial life heavily. A loan against property is a very volatile subject. It is thus important to understand it holistically before diving in.

Gains

Financial institutions allow you to take a loan against your current residence for which you are paying home loan EMIs. This basically means that the loan amount doesn’t even depend on your current repayment capacity due to collateral. Other gains are also available such as:

• Lower interest rates as compared to personal loans: The purpose of opting for a loan against property or a personal loan is mostly the same in India. You can choose either of the loans for any personal requirement. However, personal loans cost much higher due to high interest rates. Personal loans charge interest rates within the range of 14% to 20% whereas these secure loans charge 10% to 14.75% interest.

• Larger sum as a loan amount: Most personal loans depend upon your current earnings, liabilities and credit score to identify your repayment capability. These factors will determine the principal amount that will be approved. However, banks and finance companies approve up to 80% of the cost of the property when you take a loan against property.

• Longer loan tenure: Depending upon the amount of loan, lenders allow you to select a comfortable loan term, wherein you can repay your dues easily and comfortably.

Pitfalls

• Failure to return the loan: If you fail to pay back the loan, you will lose the property that had a much higher value than the amount you owed. It can be extremely problematic if you fail to pay the loan in later years, when you have already paid a substantial amount of the principal and have lost your current residence due to the interest amount.

• Expensive loan processing: Since lenders need to evaluate the market cost of the property, loan processing is expensive and can delay the loan approval considerably.

• Loan to Value ratio: If you take only a minimum amount as loan against your property, it is too big a risk since you may end up losing your collateral due to any medical or financial challenges, for a much smaller amount.

As you go through the advantages and drawbacks of the loan against property , you will realize that this option is a much easier one to pick, as long as you can repay the same. Therefore, if you can wait for the loan proceedings, which are much slower than personal loans, it is totally worth it for important expenses such as pre-planned medical expenses, education loans for children, wedding expenses etc. So, choose well.