If the interest rate is same, how do you pick a home loan?
By Joseph Samson
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If your aspire to purchase a house and are depending upon a bank or housing finance company to fund your needs then interest rate charged by the lender is what that may be boggling your mind. As a matter of fact we keep on comparing rates that are offered by different lenders in the market and select on most appropriate one. However there are times when the two lenders charge exactly same rate of interest. How does one decide? There are many other factors that you would have to consider before plunging in the act of financing home mortgage.

In spite of two lending institutions offering us a loan at an identical rate of interest, there are chances that cost of our loan may greatly differ between both these lenders depending on the methods of interest rate calculation adopted by these lenders. Also if one lender is offering an interest rate lower than the other, it need not necessarily mean that the lower interest rate loan is a cheaper option. The method of calculating interest plays a vital role in justifying the loss that can be incurred by the borrower.

Hence it best to review on the terms and conditions of different lenders prior to narrowing down on any deal. This always gives you a leverage to back out if any condition does not suit your requirement. Some of the important factors that should be kept in mind while going to shop for a home loan:

EMI (Equated Monthly Installments): The repayment of the principal and the interest on the home loans is undertaken through EMIs. The borrower needs to pay an EMI until his loan amount including interest is outstanding. The EMI amount may be different for different lenders because of the different calculation methods used by them. Thus always check on the Home Loan EMI Calculator and do not finalize unless you are able to obtain a lower monthly payment.

Loan Amount: The amount for your loan depends on a number of factors including the borrower's income, age, number of dependents etc. Also to note that banks and lending institution generally consider 50% to 60% of your monthly salary to check on the ability EMI payments.

Margin Money: The interest rate might be the same, but how much down payment would you need to do is also a factor. The higher the margin percentage, the more down payment you need to make.

Repayment Period: Repayment period for a loan mainly depends on the borrower's age. The loan tenure allowed to a younger person will be more as compare to an aged person. This is because the risk associated with the demise of an old person is more than the younger one. If an individual dies then there are chances that a loan may turn to be a bad debt in lender's book. So most lenders follow the simple strategy of greater the risk of default short the repayment period. Again there may be other rules that can vary depending on the lender.

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