With property prices at an all-time high, it is nearly impossible for most aspiring borrowers to become homebuyers without financial assistance. This financial assistance, for majority of home buyers, comes in the form of a home loan.
Home loans are a smart way to purchase a home — they are a tool that allows one to build an asset without draining one’s savings and without feeling the burden of EMIs. However, home loans are big-ticket loans and a long-term commitment. Thus, proper planning is crucial to ensure a hassle-free experience.
Mistakes Borrowers Must Avoid Making While Availing of a Home Loan
1. Not Doing Proper Market Research
If you are planning to take a home loan, do not accept the first offer you receive. Instead, do proper market research before applying. Talk to as many lenders as you can and see what each one has to offer to you. In the end, settle not just for the most lucrative home loan deal but also for a lender who is reputed and reliable.
2. Not Checking Your Chosen Lender’s Eligibility Criteria for a Home Loan
Each lender has different eligibility criteria and you must meet these criteria if you wish to avail yourself of a home loan. Failure to meet the eligibility criteria will lead to home loan application rejection, which in turn, will lead to a bad credit score. A home loan calculator can help greatly in this regard. However, before we get into the details of how a home loan calculator can help with home loan planning, let us look at the mistakes one must avoid making when availing of a home loan.
One of the things that all lenders require borrowers to have is a good credit score. If your credit score is not good enough, do not apply for a loan. Instead first work on improving your home loan eligibility by enhancing your credit score and then make an application.
3. Borrowing More Than You Can Easily Repay
This is the biggest mistake a borrower can make while applying for a home loan.
Never borrow more than you can repay. Home loans are long-term loans with tenors extending up to 20 to 30 years. If you borrow more than you can repay, paying EMIs each month will become burdensome, which in turn, may also lead to, in the worst-case scenario, missed EMI payments. Missing EMI payments is something a borrower should never do as missing an EMI does not only attract penalty but also directly negatively impacts a person’s credit score.
So, how much should one borrow? A home loan calculator can help one find the right answer to this question. Let us now look at how a home loan calculator can help one with home loan planning.
Tips for Planning a Home Loan with a Home Loan Calculator
Home loan calculators are free to use. Thus, one can use them as many times as one likes until they arrive at an EMI figure they can easily afford.
Home loan calculators require one to input just three values: home loan amount, tenor, and rate of interest. While the rate of interest remains the same, a user can try out various combinations of tenor and loan value until they reach a combination that gives them an EMI they can easily afford. As mentioned before, never make the mistake of borrowing more than you can repay.
Use the Calculator to Compare Offers
If you are planning to take home loan, use a home loan calculator to compare offers from different lenders before deciding to go with a specific lender. A home loan calculator does not only give you your monthly EMIs but it also gives you your amortization schedule and tells you your total interest outgo with respect to a specific loan deal. Thus, it arms you with ample information to help you decide which loan offer would be best for you.
Use it to Understand How Pre-Payments Will Impact Your Loan Journey
If you want to pay off your loan and become debt-free as soon as possible, opt for prepayments. When you make prepayments, you essentially reduce your principal amount and therefore, the total interest you will pay. However, lenders usually levy a prepayment fee on loans availed of on a fixed interest rate. Loans availed of on floating interest rates do not carry any prepayment penalty. Use a home loan calculator to assess the total amount of money you will save if you opt for prepayment and if this money is enough to cover the prepayment penalty your lender may charge. Further, use the calculator to understand how prepayments will affect your EMI and loan tenor.
Use the Calculator to Plan Your Monthly Budget in Such a Way That You Never Miss EMI Payments
A home loan calculator gives you your monthly EMIs. Once you know how much money will go into EMIs, you can plan your expenses in such a way that every month you have ample money left to clear all your EMIs. Doing this will keep you from defaulting on loan payments and ruining your credit score.
Final Words
A home loan calculator is a handy tool that offers several advantages. It is also quick, accurate, and free to use. One can easily find a home loan calculator online. So, if you are planning to take a home loan, use a home loan calculator to your best advantage and plan your loan journey and repayment in advance.
