Home loans are by far the most popular mode for financing property investments across the globe. People go for home loans because it ensures a safe transaction between buyers and sellers. But, most importantly, home loans work as a great leverage for investments since it backs up a buyer’s credentials and protects your savings. On the other hand, buyers prefer home loans because bank mortgage holders are verified by the bank. Since the loan is a vital part of the transaction and involves a hefty sum of money you should clearly understand the financial commitment you are about to make. A good way to clear your confusions and queries regarding a loan is consulting with your financer. But what are the important things you should keep in mind and be sure of before taking a loan? We have prepared a set of questions to ask your mortgage lender
What Is My Interest Charge and EMI?
The primary concern with any loan is that you have to pay an added interest charge on the principal amount you borrow. Usually, lenders divide the entire loan for the given tenure into small payments and calculate EMI (Equal Monthly Payment). This EMI contains both the principal and interest amounts. Depending on the loan size, tenure and interest rate, EMI results in a different amount.
Loan financers recommend a certain time period and charge different interest rates based on a borrower’s financial credibility. Hence, it is very normal for you to have a different interest charge and EMI from your neighbor who is buying the apartment right next to yours. Again, the rate also changes from banks to banks and varies within financial institutions. That is why to understand that you are getting a good deal with a competitive rate and get an idea of your EMI, it should be one of the first questions to ask your mortgage lender.
Is The Interest Rate Fixed or Adjustable?
Interest rates can be fixed for the entire period or can be adjusted with the ongoing market rate. Financial institutions in Bangladesh offer both these facilities and they each come with their own pros and cons. With an adjustable rate for instance, if the market rate drops in the future, you will pay less and vice versa. Similarly, if the market rate increases and if you go for a fixed rate, you will be paying the same interest charge regardless of the ongoing rate which reduces risk, but also opportunity. Based on your future cash flow and capability, your lender will recommend either of the options but you should be able to pick whichever you prefer. Therefore, prepare questions to ask your mortgage lender regarding this matter too.
What Is The Maximum Amount I Can Borrow?
Financial institutions have certain policies regarding how much they can disburse against a property’s value. Generally, in our country, they finance up to 70-80% of an apartment’s price. Then again, the rate is subjective to institution and the buyer’s financial capability. Make sure you are utilizing your opportunity as per the need and to the best capacity.
What Documents Do I Need?
Legal property documents along with others reflect your creditworthiness and based on that, lenders decide how much to lend and so on. There are two reasons why you should clear out this matter well ahead of time. First, document criteria are different for people with different professional backgrounds. And secondly, collecting these documents takes time. Getting a home loan is a lengthy process mainly due to this verification process and knowing your exact paper requirements will smoothen this process.
What Are The Fees Payable And When Do I Pay Them?
Apart from the loan amount and interest, there are several fees required for a home loan application. These are the fees that the institution will charge for their services. Some of them are paid during the process and some are incorporated with the installments. Additionally, they charge a certain VAT on the fees alone. You should know about the entire expenditure structure to budget your finances accordingly.
Do I Have To Insure My Property?
Many home loan financers have policies that require property insurance in order to disburse a loan. Insurance on the property means additional monthly premium payments. Therefore, incorporating this cost to your monthly expenditure will give you an idea about your financial ability to pay back the financer while maintaining your cost of living.
Who Can Be Co-Applicants To My Loan Application?
Mainly the co-owners of the proposed property are eligible co-applicants of the home loan. Having a co-applicant means the responsibility of repaying the loan is distributed among the applicants, which is beneficial to both lenders and borrowers. However, in some cases, lenders might ask your spouse to be co-applicants of the application even if s/he is not the co-owner of the property.
Do I Get Any Tax Exemption?
According to the Income Tax Ordinance 1984, Section (25) Sub-section (1), the interest payable on home loans with a principal amount of up to BDT 20,00,000 will receive a tax exemption. That means that if you meet the criteria, the loan burden will be reduced for you. Note that, this tax exemption is on your income tax and not to be confused with the tax charges on banking service fees. Make sure to include this in the questions to ask your mortgage lender before taking the loan.
When Can I Draw The Loan?
After applying for the loan, financial institutions will take some time to process and check your creditworthiness. Lenders who are efficient will let you draw the loans during “work-in-progress” after satisfactory legal verification of the documents. Then again, most lenders are skeptical disbursing the loan before you make the initial down-payment or the remaining payment of the property apart from the loan amount.
What Are The Repayment Requirements?
Repaying a home loan financer is subjective to the institution you take the loan from. As per their preference, they select certain modes of payments and you should follow their recommendations. Knowing the requirements ahead will give you an idea about the process and time to make any adjustments, if necessary.
Surely a home loan is a sensitive matter to handle. Make sure you clear all the confusion by preparing questions to ask your mortgage lender before you buy an apartment. We tried to highlight the most important questions here. However, if you have additional queries regarding the matter, please let us know in the comments section below.
