Top Mistakes to Avoid While Taking a Mortgage Loan
When in need of funds to pay for higher education or start a new business, a mortgage loan or property loan can be a saviour. A mortgage loan allows a person to keep his/her property (residential or commercial, or a plot of land) as a mortgage with the lender for a specific period in exchange for a lump sum. The borrowed money can be used for various purposes – financing a wedding or a vacation, funding a medical emergency, purchasing a house, and so on.
However, since a property loan is a high-value investment, borrowers should be cautious and well-aware of the nitty-gritty of a mortgage loan before pledging their assets. Here are the common mistakes one must avoid when taking a mortgage loan.
Not Comparing Mortgage Loan Interest Rates
Research, compare and decide – the golden rule for choosing any type of loan. With multiple financial institutions operating in the market, it is easy to get confused but when there is collateral involved, borrowers should carefully asses the mortgage loan rates offered by different lenders. Most lenders offer two types of interest rates – fixed rates and floating rates.
As the name suggests, a fixed rate of interest is one that does not change and remains the same throughout the loan tenor. A floating rate of interest, on the other hand, changes periodically and is affected by changes in market trends. Consider the following factors that typically affect the rate of interest:
- CIBIL or credit score
- Loan tenor
- Borrower’s profile
- Nature of the property
- Market conditions
- Property loan terms and conditions by the lender
- Repayment capacity
Choose a lender who offers mortgage loan interest rates and policy terms that are conducive to financial health. With a good credit history, borrowers can negotiate and get their desired rates.
Not Estimating Monthly Installments
Before choosing a loan amount, it is a good idea to have the EMI amount evaluated. Since a property loan EMI needs to be paid every month, borrowers must choose an amount that they are comfortable paying. Ideally, it should not exceed 40% of one’s monthly income. For better understanding, borrowers can use a mortgage loan calculator to assess the monthly dues. Such a tool considers the loan amount, rate of interest and repayment tenor to leave borrowers with an estimate of their monthly EMIs. Calculate and settle for an amount that seems convenient.
Not Paying Attention to Payment Terms and Documents
While it is always advisable to go through all the documents carefully before signing the dotted line, borrowers often rush through the paperwork to seal the deal. It is important to read and understand the payment terms and discuss all the details with the lender before finalizing the loan. Lookout for the following details:
- Hidden fees
- Prepayment terms
- EMI options
- Foreclosure charges
- Clause to change the existing loan terms
- Clause for defaulting on payment
Not Having a Repayment Plan
While a mortgage loan can help you with a huge amount to meet your goals, borrowers must keep in mind that they will need to repay the amount by the end of the tenor. Therefore, one must not opt for a loan amount that is excessively high and difficult to repay because any defaults will attract a heavy fine and penalty. Make a repayment plan and accommodate a part of the monthly savings to ensure timely repayments. Also, since the lender will not finance the entire value of the property, borrowers must keep a certain amount aside for the down payment. Opt for a loan amount that can be repaid comfortably.
Not Preparing for the Prerequisites for Mortgage Loan Approval
Owning a property does not make a person eligible for a loan. Loan applications often get rejected due to borrowers not being prepared for such a commitment. As a borrower, one must consider the following points to ensure their property loan eligibility:
- Maintain a good credit score (ideally over 725)
- Ensure paying off any outstanding bills or credit card dues
- Keep a prepayment plan ready
- Keep all the necessary documents handy
Not Taking Other Liabilities into Consideration
Borrowers should keep in mind that many lending institutions may have hidden charges, like loan processing fees, documentation fees, and other legal, inspection, and conversion charges. Therefore, it is important to take other liabilities into account before applying for a mortgage loan.
Over the years, the financial landscape has changed and matured to make the whole process faster and less cumbersome. Many lenders these days offer mortgage loan terms that are convenient to the borrower’s interests. Avoid making the above mistakes and spend some time comparing different lenders. Make the best use of flexible loan tenor, comfortable EMIs with a mortgage loan calculator, and affordable mortgage loan interest rates. Apply for a mortgage loan online for hassle-free paperwork and faster disbursals.