Top 10 Loan Questions Answered
1. How can I own my home sooner?
There are a few key ways to pay your loan off sooner:
1. Pay more than your minimum repayment. This reduces your loan balance sooner and reduces the interest charges you pay. Calculate what you'll save by making extra payments. If you have a fixed interest rate loan, you can repay an additional $10,000 per year before break costs may apply.
2. Use a 100% mortgage offset facility to save on the amount of interest you pay, and reduce your loan balance faster.
3. If you have a Portfolio Home Loan, deposit your salary directly into your loan. This reduces your loan balance and daily interest charges until you need to access the money.
2. Can I pay out my home loan at any time?
Yes. However, depending on the type of loan you have, there could be early termination or early repayment fees payable if you repay your loan in the first three or four years. Fixed-rate loans may attract a break cost if repaid within the fixed-rate period.
3. What is the right time to apply for a home loan?
Loans can be applied before or after the selection of a property. The loan amounts are sanctioned in principle to let buyers know what amounts they can avail of. This helps them decide their budgets and purchasing power. Actual disbursements are made after satisfactory verification of all necessary documents.
4. What is a down payment?
Generally, banking & finance institutions pay around 75% to 85% of the cost of the property bought. The remaining 25% to 15% of the amount is paid on an up-front basis, which is popularly known as the down payment.
5. How does my salary influence my home loan amount?
Apart from other criteria and norms of the lending bank, the home loan amount is generally calculated on the basis of your EMI and NMI ratio, where NMI is the take-home pay after taxes and other payroll deductions. The EMI/NMI ratio varies in the range of 20% to 70% for different Net Annual Income slabs. The loan amount can be increased by including a co-applicant.
6. What is the normal time required for the disbursement of a home loan?
On average, loans are disbursed within 3-10 days after satisfactory and complete documentation and completion of all the required procedures.
7. Can I sell the property even when the home loan is outstanding?
Yes, you can sell the property with the prior consent of the financing bank. If the buyer wants to take a loan to buy the property, the process is much easier if he/she approaches the same bank. In these cases, the bank does not need to release the property papers to another bank before getting the payment. If the buyer wants to make a payment outright, he can make it to the bank directly. The property papers will be released only after the bank has recovered the entire loan amount and other dues.
8. If I have money, is it still necessary to avail of a bank loan for buying a home?
It is generally advantageous to go for a home loan as it helps you in availing tax benefits. However, please consult your CA or tax advisor to discuss the pros and cons.
9. What does a home insurance policy cover?
Home insurance policies cover the house structure as well as its contents or possessions. Many insurance policies also combine various personal insurance features too.
10. What is covered under personal possessions?
Under personal possessions, home insurance companies generally cover furniture, electronic/electrical gadgets and jewelry under personal possessions. However, the maximum liability of these items depends upon the type of insurance cover sought or valuations done by the bank.