Growing at a CAGR of 13%, the real estate market is expected to be a USD 1 Trillion market by the end of 2030. The growth in demand for more housing units within tier-1 and tier-2 cities will drive this growth.
Homebuyers will continue to enjoy price appreciation in the coming years and the real estate sector is being considered one of the safest bets for individuals looking for safe investment opportunities.
However, the growing demand for residential and commercial properties alike has also led to a very steep increase in property prices in recent years, which in turn has made investing in real estate without the help of a loan nearly impossible.
Further, proceeding with a home purchase without a home loan leads to compromised liquidity, thereby negatively impacting the way people live. Further, not availing of a home loan also means letting go of home loan tax benefits, which can greatly help reduce one’s tax burden.
However, home loans are long-tenor loans involving a substantial loan amount and therefore, invariably require one to pay hefty EMIs. Consequently, the decision to avail oneself of a home loan is never easy.
Fortunately, the option to avail oneself of an affordable home loan can help borrowers take the plunge and buy a home of their own. In this article, we look at how borrowers can increase their chances of availing themselves of an affordable home loan.
Affordable Home Loan Options: Here’s What You Need to Know
Pay as High a Down Payment as Possible
Home loans require borrowers to pay a percentage of the home’s value as a down payment. Lenders do this to ensure that the loan borrower has a stake in the property and thus, to reduce the chances of a loan default.
There is no upper limit on what borrowers are required to pay as a down payment. However, to be able to secure a housing loan, they must at least pay 20% of the property’s value as a loan.
Borrowers who pay a higher down payment than the minimum amount required are less likely to default on loan payments due to the easy-to-pay loan EMIs.
In other words, one of the ways to avail yourself of an affordable housing loan or a low-interest rate home loan is to pay a higher down payment and go for a low LTV ratio loan.
Make Prepayments
Individuals who have availed of a housing loan on floating interest rates can make prepayments anytime they want without paying any fees or penalties. Prepayments are lump sum payments that help reduce the loan amount and therefore, either one’s loan EMIs or the loan tenor.
Thus, prepayments can make a housing loan affordable. You can either consider paying a lumpsum amount or making an extra EMI payment each year. However, home loan borrowers must know that individuals repaying a loan on fixed housing loan interest rates must pay a penalty or fee every time they make a prepayment.
Thus, borrowers on fixed housing loan interest rates must make prepayments after carefully weighing the pros and cons. Consider using a home loan prepayment calculator to assess whether a loan prepayment is a good option for you.
Consider Home Loan Balance Transfer
Home loan balance transfer refers to the process of transferring the balance on a current home loan to another lender willing to refinance the loan on more favourable loan terms and conditions, including lower housing loan interest rates.
This can help turn a home loan into an affordable home loan. However, a home loan applicant must take this option after carefully considering all the pros and cons. Home loan balance transfers involve a fee and individuals on fixed interest rates may even be asked to pay a penalty.
Therefore, the option to avail of a home loan balance transfer must be taken after doing a cost-benefit analysis.
Conclusion
There are several things that home loan borrowers can do to turn their home loan into an affordable home loan. Other than the pointers mentioned above, one can also benefit from opting for a low LTV ratio loan, maintaining job and income stability and applying for a loan amount they are eligible for.
Doing these things will allow them to demand a low housing loan interest rate and pay their loan comfortably. Borrowers must also always use the home loan calculator to calculate the best combination of loan amount and tenor for them and keep their home loan EMIs affordable and easy to repay.