Are you planning to take a home loan and are nervous about it? Are the negative what-ifs of borrowing money consuming your thoughts? What if you are not able to pay it back on time? What if some unforeseen circumstances come your way and your plan gets disrupted? What if the lender has some hidden clauses in the loan? Well, your apprehensions can be worked upon through some structure and planning. Taking a loan comes with tremendous responsibility. One mistake can cause you years of distress. Does that mean one should refrain from taking a home loan? Absolutely not! These reasons shall only be considered while laying the groundwork for the loan in order to avoid any mistakes. Following are the mistakes to avoid to get through your home loan flawlessly. Common mistakes while taking a home loan are as follows:
1) Overestimating Your Paying Capacity:
Signing up for more than you can manage is a way of overburdening yourself when it comes to home loans or any loan, for that matter. You should never opt for a loan amount that is higher than your paying capacity. The need to be realistic is a lot more than being optimistic when signing up for a home loan. It is mandatory to take into account all of your existing EMIs and expenses into consideration while applying for a loan. Try to clear out all previous loans or minimize them as much as possible before signing up for a new one. Your monthly expenditure should also be reflected upon so that you can ensure that you do not face any hurdles with your day-to-day expenses while making repayments against the home loan.
2) Not Running a Thorough Market Research:
Running deep market research about what all products are available out there is necessary. Look for the plans available in the market and make a list of the pros and cons they have to offer. Finalizing the loan with the first lender that you come across might seem tempting. However, you are likely to miss out on some options that would have been more fitting to your needs. Getting a home loan should be a no-rush process and carried out with great vigilance. Even a few percentages of difference in the interest rates can make a significant difference to your EMIs later.
3) Not Insuring Your Home Loan:
No one has seen the future. While you make sure to prioritize your health and work for it, you never know when an unpredicted mishap will knock on your door. It is wise to insure your home loan so that your loved ones will not be burdened in the future if you are unable to pay your EMIs due to medical reasons. Insuring your home loan is a practical and much-needed approach that one should not neglect. Securing your liabilities and taking cover against the loan minimizes the risk of your family being overburdened in a time of crisis.
4) Not Picking the Right Tenure:
Evaluating your repayment tenure right is something that should not be overlooked while signing up for a home loan. While a shorter tenure may look tempting, it can give you immense stress. The chances of you not being able to pay it back in time increase, along with the added late fees of failed repayments. Choosing a tenure that is practical and reasonable enough for you to be able to pay back with ease is important. Ideally, the tenure should not be more than 20 years. A home loan EMI calculator can help you plan. You can find it online and use it to calculate the right tenure for you.
5) Not Asking Enough Questions:
What percentage of interest rate will you be charged exactly? Is it higher than the market standards? Are there any other suitable plans available for you? Are there any hidden clauses? Or any question that might come to your head needs to be cleared with the lender before you proceed with your home loan application. Do not hesitate to ask your lender anything. Reconfirm everything written inside the agreement and read it thoroughly beforehand to avoid any surprises later. Going through the T&C carefully before signing is equally important.
6) Delayed Instalments:
Not paying off your EMIs on time is a big no. It is essential to repay the instalments on time and maintain healthy repayment hygiene. This discipline will not only affect your CIBIL score but also ensure that you get free of your debts timely. Delay in repayments can push your tenure further, increasing the repayment amount. To avoid heavy late fee charges on your EMIs and pay off your loan with ease, it is necessary to prioritize your instalments.
7) Exhausting Your Savings on Unnecessary Expenditure:
If you have taken up a home loan and are in the process of repaying it, make sure that you cut back on any unrequired expenses. You can consider skipping that phone upgrade this year or not want to spend on luxury goods. Put any extra money that you earn during this time to pay off your loan early and become debt free before time.
8) Not Creating an Emergency Fund:
It is advisable to create a 6-month emergency fund if you are planning to take up a home loan. You might not realize the need for it before taking up the loan, but you will thank yourself for this decision later. It will enable you to repay your instalments without any stress. Knowing that you have six months of an emergency fund to fall back on will be a great relief in times of need.
Getting a home loan is one of the biggest financial transactions of your life. Even the slightest fault in the process can cost you a lot of money. With some forethought and vigilance, you can get a step closer to your dream house and get through that loan as smoothly as butter. Make sure your debt is less than 40% of your income, and you prioritize your EMIs over any other expenses during the repayment tenure. You can avoid these common mistakes and start calling your home “your home.”