Five Things You Need to Consider Before Choosing the Best Home Loan

Five Things You Need to Consider Before Choosing the Best Home Loan

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A home loan is probably the easiest loan you can avail from an Indian lender. With interest rates moving around its multi-year lows, homebuyers are treating this as the best time to apply for a home loan.

However, applying for a housing loan is more than using a home loan calculator to find affordable EMIs and apply for the loan. You need to consider things like the interest type, repayment term, eligibility, and multiple other factors.

Read on to learn more about the five things you should know before choosing a home loan offering the best interest rates.

The Interest Type

Home loan interest rates are typically of two types – floating and fixed. The floating interest rate changes depending on market rates. It changes every time the Reserve Bank of India changes its policy rates. In contrast, the fixed rate never changes. It remains the same until the end of the loan term. Generally, the fixed rate is 1% to 2% higher than the prevailing floating rate. You can use a home loan calculator to calculate the total cost of the loan.

The Eligibility

The eligibility of a home loan depends on various factors. A home loan calculator can help you to check your eligibility. Usually, lenders want you to keep the EMIs at less than 50% of your monthly income. You can also increase your eligibility by making a higher down payment. A higher down payment reduces your EMIs, and lenders often offer lower home loan interest rates.

The Term

You can use a home loan calculator and change the term to find out an affordable EMI amount. Generally, the maximum term of a home loan is thirty years. The extended the term you choose, the lower will be the EMIs. However, when you opt for a long-term home loan, the lender often increases the interest rate. Hence, if you want to save interest, consider choosing a short-term loan.

The Interest Rate

A home loan calculator displays the EMIs you need to pay until the loan term ends. While you can freely select the home loan amount and term, the interest rates are mostly decided by the lender. Generally, lenders reserve the best home loan interest rates for borrowers with a credit score of 800 and above. They also look at the repayment capacity of the borrower and the stability of income. For instance, if you hold a commanding position in a Fortune-500 company and possess a CIBIL score of 850, you can comfortably claim the lowest interest rates offered by a lender. Hence, before using a home loan calculator to find a suitable lender, you should evaluate your credit profile and negotiate the rates.

Balance Transfer Facility

Sometimes, you may feel that your lender is charging higher fees and interest rate than other lenders. You may switch the home loan balance to another lender in such a case. Your new lender may offer you lower rates than the existing lender. However, you will need to pay closing charges to the existing lender and a loan processing fee to the new lender, and in some cases, the combined cost may be higher than the savings. Hence, before opting for balance transfer, you must use a home loan calculator to evaluate the costs and decide accordingly.


A home loan comes in handy when you want to fulfil your housing dream. Ensure that you read the terms carefully before signing on the dotted line.

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