Getting a loan is not as easy as it sounds. You may need to mortgage an immovable asset like a house or a commercial property as a collateral to the lender in order to get the loan. Understanding the jargons and process of taking up a mortgage loan may seem a little intimidating. Hence, while applying for a loan, it is important to keep your documents ready and up-to-date, and credit score ready at hand. It is better to be prepared before approaching the lender to ask relevant questions before actually
applying for mortgage loan.
- What is the interest rate (APR) charged? Is the rate fixed or floating?
Even a small difference in interest rate may have a large implication on the overall cost over the long period of loan repayment. Ask about APR and clarify if the interest rate is fixed or floating to know risk position on the loan.
- What loan tenure options I can opt for?
Ask for loan repayment options.It is better to keep the loan tenure as small as possible to minimize the interest costs.
- Am I eligible for the loan? Is there a need for a guarantor or a co-applicant in my case?
Determine your eligibility for the loan while keeping all the necessary documents ready. In case, youhave a problem in availing the loan on your own, ask if a co-applicant or a guarantor is required for the loan to be approved.
Related content: Quick Guide to Mortgage Loans - What is the EMI to be paid?
Carefully evaluate and forecast your cash flows to determine your future income flow. Ensure that the
EMI payment would be comfortable for you so that there are no problems regarding missing a payment and negatively affecting
your credit score.
Related content: 6 Credit Score Myths That Borrowers Believe - Are there any other charges and fees? Any processing fees?
Financial institutions may have hidden charges that they do not disclose unless the client specifically asks for them. Remember to ask for the loan processing fees and other charges to have a complete understanding of the overall cost of the loan.
- Any there any foreclosure or prepayment fees? What are penalties and in which situations do you charge them?
Sometimes financial institutions charge fees as a part prepayment or foreclosure in case you want to terminate the loan earlier and save interest costs when you have adequate cash in hand.It reduces the benefit of prepayment. Ask your lender about such charges and penalties that you may have to pay, and the circumstances under which they are charged.
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3 Strategies to Help You Pay Off Your Mortgage More Quickly - Is there any insurance that needs to be taken? Is it compulsory? What will be the premium and by how much will my EMI change?
Many times, buying a loan insurance policy is compulsory for high ticket loans, and the information regarding the premium to be paid is provided at the last moment when you are left withno option but to buy the policy. Ask your
financial institution if it is compulsory to buy such an insurance and what would be the premium amount. Since it may get added on to your loan, it is better to take an informed decision.
- What is the Loan to Value (LTV) i.e. the maximum amount that can be funded?
Ask about the Loan to Value ratio to get an idea about the maximum funding that you may get on your property or asset mortgaged.
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3 Strategies to Help You Pay Off Your Mortgage More Quickly - What is the loan processing time?
Manage your
cash flows efficiently by knowing how much time it will take for the loan disbursal as different financial institutions have different loan processing time.
Conclusion
Taking a loan may change your financial situation for a significant period of time. However, be careful while reading the fine print of the loan agreement and then go ahead to make an informed decision. Thorough understanding the terms and conditions before signing the loan contract will keep you safe from unpleasant surprises.
