Access and Repay your Home Loan Effectively

Vivek and Deeksha are on the verge of making one of the most important decisions of their life – buying a home. They are an IT-couple in their early 30s and have a double-income household with two children.They have seen the worst of the economy in the recent years – from mutual fund returns plummeting to an all-time low, to fluctuating inflation, to the fall of the Indian rupee and now the current uncertainty of economic policies with the May elections looming overhead.Despite this massive roller-coaster ride as far as maintaining their finances is concerned, a home of their own is something they are considering right now. Naturally, they want to examine every aspect of home purchasing.Two of their immediate concerns are the extent of loan they are eligible for and the repayment process that will suit them best. Let’s take a look at both of these aspects:Enhancing eligibility:Your current financial status will determine the quantum of home loan you will receive. Being able to increase your eligibility is therefore a priority. If you are like Vivek and Deeksha, then you may apply for a loan with your spouse as a co-applicant. As a double-income family, with steady paychecks your eligibility is better. Even your fiancée may be a co-applicant increasing your chances of getting a home early on in life.Any additional forms of security you may have, in terms of investment, may also be provided as a way of enhancing eligibility. All your bonds, fixed deposits and LIC policies, along with a guarantor, if you can provide one, work to your benefit.Over the last decade, credit histories are an important consideration for eligibility of loans. Check with CIBIL on your current credit history status to know where you stand. If your score is not good, work on improving it before applying for a loan. Credit histories are based on how well you have cleared any earlier loans, the timeliness of your credit card payments, etc. It is a mirror on the kind of borrower you are. Understand your repayment process: Once you have secured a loan and have moved into your dream home you will have to understand how fluctuations in the market may affect your repayment scheme. With a fixed rate loan you have nothing to worry about for a while, but with a floating rate, there is a certain amount of risk you have taken on.A relief for people like Vivek and Deeksha is that small changes in interest rates are often absorbed by the loan providers or HFCs – housing finance companies. This is purely from a competitive perspective. Here are some options for repayment schemes to insulate your loan from the vagaries of the market:

• Short term fixed rate loans You may choose to lock interest rates for 3 years, allowing you to plan your finances for the period well. 5-year lock-in periods are also available however the rates are a bit higher than 3-year options.
• Floating interest rates This is only for those with a larger risk appetite. These loans have interest rates that are lower by a significant number of basis points. When interest rates fall, you will benefit. But with every increase of 25 basis points, your tenure for the loan will increase by around 9 months. Weighing the pros and cons of this option will depend entirely on your financial abilities.
• Two-in-one loan A household with dependents, like that of Vivek and Deeksha will prefer to have a fixed rate loan for a while. This will help them stabilize their finances and then decide how to move forward at the end of the fixed interest tenure. That is what the two-in-one loan is about. You may choose to lock interest rates for 3 or 5 years. At the end of the fixed period, you may choose to go with whichever mode suits you best.

Despite this massive roller-coaster ride as far as maintaining their finances is concerned, a home of their own is something they are considering right now. Naturally, they want to examine every aspect of home purchasing.