Taking out a loan can be a big decision, and it is important to be as informed before you make any commitments. There are a lot of things to consider when taking out a home loan, and it can be tough to know where to start. To help you make the best decision for your needs, we’ve compiled a list of the top 10 things you should know before taking out a home loan. From understanding interest rates to knowing what kind of loan is best for you, this list will help you get started on the right foot. With this information in hand, you will be able to make the best choices for your financial situation.
We have heard many such stories over chai and samosa during our interactions with clients at Shubham Housing Development Finance. We felt it was the right time to reveal to you, dear reader, our list of top ten things you should know before taking a loan.
So, allow us to share 10 things with you. Follow these principles, and you will have a line of people waiting for financial advice from you!
1. Check your ability to repay before you look into borrowing
The first rule of smart borrowing is to avoid living beyond your means, which we’ve been hearing from our elders for a long time. Take out a loan that you can afford to pay back on time.
Loans are simple to obtain. Repaying it, on the other hand, might be difficult. It does not make sense to borrow if you don’t require the money.
It is easy to take out a loan, but you should avoid doing so if the loan-to-income ratio is too high.
If your EMIs are too high, your other major financial objectives, such as saving for retirement or higher education, may be jeopardized. In circumstances like these, retirement planning is frequently the first to go. Make sure you don’t make this mistake.
2. You can get a loan for up to 25 years, so don’t wait!
Remember, you are taking a loan that will not only build an asset that will appreciate in value but will also provide a safe and secure future for your family during and after your life. As your income rises, you can prepay the loan and own your home.
Don’t allow the fear of high EMIs to prevent you from buying a home. With Shubham Housing Finance, you can finance your home for 25years with payments that are affordable. In fact, your monthly EMI payment may in some cases be lower than what you pay in rent.
3. Keep up with your EMI payments by paying them on time
It’s in your best interest to be prudent, especially when it comes to paying off debts. Make sure you never miss repaying a debt. Any outstanding old debt, even if written off by the bank or institution can reflect in your future records and prevent you from getting a loan when needed. Even missing an EMI or delaying payment can have a significant influence on your credit score and limit your opportunity to obtain loans in later life.
A missed loan payment can lead to costly late fees and interest charges, plus a dip in your credit score. Try to make payments on time whenever possible,
4. Borrow only as much as you need and not as much is available
This is the golden rule when it comes to financial planning and success in life. Never invest using borrowed funds. Safe investments, like bonds or fixed deposits, won’t be able to give you the same rate of interest that you pay on your loan. Investments that have a higher return, like stocks, are too risky. If the markets go down, you will not only lose money but be paying off your loan EMI which will put you under pressure.
A decision to obtain a loan should be made with careful contemplation and using your best judgment. We recommend that you carefully consider the amount of money that you need to borrow and only take it if you have a purpose for it. You will be held accountable for all of the money that you borrow, so please use it wisely.
Just because you are getting a loan do not overspend. Take it as per your minimum requirement and take a top-up in the future. For instance, if you currently need a one-floor house, don’t plan and go for a two or more level as you may end up paying EMI for the part that you do not even use. If in the future, you need additional floors, go for a top-up loan for that purpose.
Don’t take any loans to spend on things you want. But if you have to go somewhere, plan it out and save up money for it. On the other side, borrowing money to develop a property may make perfect sense if you are going to live in that home and save on rent.
5. Secure your family with an insurance cover for your loans
We plan for all important financial moments in life such as children’s education, our family home construction, and even pension and medical. Yet we always neglect one very important responsibility – to secure our family against any outstanding debts we have if something happens to us.
Because family income is often dependent on the main earner, the family can face financial difficulties if the main earner becomes incapacitated and cannot work or if something untoward happens to him or her.
If you take a large loan to buy a car or house, get insurance to cover the amount of the loan. If something untoward happens, then your insurance payment will help your family repay the loan and retain their home or any asset that you purchased for them.
6. Choose a lender that best suits your needs
Choosing the right lender for your loan is very important. For example, when it comes to home loans, we recommend Shubham Housing Finance as it is a Government recognized lender licensed by the National Housing Bank and operating as per guidelines of the Reserve Bank of India. Shubham has been in the business for close to a decade, helped thousands of families buy their own homes, and most importantly is a tech-savvy lender that is available for its customer across multiple communication channels.
Some additional pointers you can use to choose the right lender for your loan are:
a). Does the lender have a physical branch where you can visit them and meet their branch officials?
b). Does their website disclose their details such as their head office, and their communication channels such as email, phone, etc?
c). How many families have they served?
d). How many documents and checks will they require for them to consider and sanction your loan?
7. Read all loan-related documents carefully. When in doubt, ask
Loan documents don’t make for light reading. Paragraph after paragraph of legalese printed in a small font can be a put-off. Yet, put in the time and effort to read the terms and conditions carefully to avoid surprises later. If you are unable to understand the legalese, get a financial advisor or chartered accountant to take a look at the agreement before you sign it.
Never hesitate to ask questions when you don’t understand something. Everyone learned it at some time. You are learning it today. Don’t be shy. Don’t hesitate. Understand every point in your home loan agreement before you say yes. Remember, this is not just text or something you can discuss and negotiate later with the lender; it’s a legally binding document and very often even the lender will not be able to help you change any terms and conditions.
Usually, you will also be able to identify a good lender by their willingness to help you understand the legal terms.
8. Don’t take on too many loans. Prioritize investing in assets over liabilities
A loan is something that should always be taken to invest in assets rather than liabilities. However, too many people make the mistake of taking out loans for unnecessary items which often results in them getting into debt. To avoid this, one should ensure that the loans they take out are for investments as this will make sure they can cover all their loan repayments from future incomes.
One should always ensure that they have a long-term employment plan and ensure that there is enough cash flow to cover all their loan repayments before taking the loan. This will help avoid any future issues regarding loan repayment and also help prevent putting your assets at risk.
Ensure that the investments made with the funds from the loan are worthwhile and relevant to your life goals as this will make sure even if something does go wrong, nothing too bad happens as it directly affects you as well as those people who rely on you.
If you already have multiple loans running, a Loan Against Property can be used to repay all your outstanding loans and consolidate them into a single, long-term, low-risk loan.
It is also a good idea to prepay some loans as soon as possible. Divert any additional income and savings towards pre-payments of such loans.
Also, be aware of all the benefits associated with taking loans and maximize your tax savings. For example, if a house is self-occupied, up to Rs 2 lakh interest paid on a home loan can be claimed as a tax deduction. If the house is given out on rent, the entire interest paid can be claimed as a deduction.
9. Remember to maximize your earning years to your financial advantage
It is better to take a loan in the early years of your career and repay it over a long tenure rather than waiting till you have reached the mid-level or later years of your career. This holds especially true if you are planning to use the loan to invest in an asset such as a home or your education that help you in increasing your income in the later years.
For example, let us consider someone named Rajesh who is 28 years old and is currently living in Delhi or Mumbai for rent. If Rajesh takes a home loan now at 28 years of age, he can minimize the down payment and maximize the loan tenure to 30 years as he will be in his working age at 58 years. This allows him to start with really low EMI payments for a home loan. Once he has possession of his house, he can rent it out or start living there and use his earlier rent to now pay the EMI. This ensures that Rajesh can not only live free of any additional financial burden but also that he will be able to earn from appreciation in his property if and when he upgrades to a bigger house later.
10. Always keep your spouse and your family informed about your financial assets and liabilities
Discuss a loan with your family before taking one. This is crucial because the repayment will influence the entire family’s finances. Make certain your spouse is aware of the loan and its purpose.
Keeping your spouse in the dark about money is very stressful and makes it hard to find a solution. Don’t keep this need a secret or you will miss out on the chance to reduce your burden and make them a part of your growth.
Most importantly, when families together decide to invest in and achieve financial milestones, no one can prevent their wishes from becoming a reality. As you invest in and build your future together, keeping everyone in the loop increases a sense of bonding in the family.
You can start by sharing this blog with everyone in your family and asking them what rules would they add to our ten golden rules to follow when taking a financial loan!
If you would like to know more about Shubham’s products such as Home Loan and Loan Against Property, call us today at 1800-258-2225 and talk to our Loan officers.