How to Structure Your Home Loan?
Taking a home loan is one of the first steps in making your dream of being a homeowner come true. However, there is more to taking a loan than simply filling up an application for it. You need to structure the loan in a way that is convenient for you to repay the debt. Here is a brief guideline on that to help you out.
1. Ask for the highest LTV of the property
The LTV (loan-to-value) ratio refers to the assessment of the lending risk that all lenders consider before they approve a mortgage. In other words, LTV is the measure to compare the mortgage amount with the appraised property value. If the LTV goes down, the down payment goes up.
When you maximize the LTVs, you can save up your money. In fact, you can use the additional amount for other related needs. For instance, maybe you can take that extra amount for home decor or repairing things.
2. Go for an extended tenure for the loan
If you extend the loan tenure, you will lower your monthly expenditure. A shorter term will help you pay the loan faster, but you will have to pay higher EMIs for your home loan. It may lead to undue financial stress on you. Depending on the retirement age, you need to choose one of the three options in this case:
- From 60 years to 70 years of age (i.e., enabler for 25 tenure) that comes with added risk mitigation by the lender
- After 60 years but a joint loan with another younger applicant
- Until 60 years (i.e., enabler for 15 years tenure)
The second option is a good idea for you if there is a younger applicant ready to take the joint loan with you. The last option might not be suitable because it will hinder you from meeting other financial needs.
Now, the first option is not a bad idea, but it is risky for the banks to allow this for a non-pensioner. So, if you work at a private firm that has no provision of pensions, it might be hard to qualify for this tenure. The bank might ask you for a higher interest rate in this case even if you have home loan eligibility.
3. Making a lump sum payment for the loan
If there is a chance that you can make a lump sum payment for a loan, go ahead and do that. It will significantly bring down the EMIs you need to pay each month. However, think carefully before you use a lump sum amount for loan repayment. This action should not land you in financial trouble. Do not compromise your financial need just to decrease your monthly EMIs.
Also, even if you know that you are going to get a lump sum amount from some source at a certain point, it is hard to plan beforehand that you’ll use it for repayment. You never know what financial emergencies can come up at that point. So, do not structure your loan based on that.
Keep the factors mentioned above in mind, and you will find it easier to repay your loan. Go ahead and talk to a representative of your bank about this to get more clarity.