Mortgage loans are credits of substantial value that have a considerable impact on a borrower’s financial life. This credit instrument is a long-term financial commitment demanding a sense of significant responsibility from the borrowers. Finance experts, therefore, suggest taking a critical financial decision like acquiring a mortgage loan after analyzing several aspects. Making a small mistake can prove to be costly thereby pushing one into a loan trap. This article illustrates the 10 tips that individuals must follow to avoid any kind of pitfall while acquiring this credit instrument.
10 tips to avoid mortgage loan pitfalls
Given below are the 10 tips that prospective borrowers, including those opting for a mortgage loan, must follow to keep pitfalls at bay:
Longer the amortisation, higher the payables
An extended amortization schedule minimizes the loan burden, thereby making the EMI amount lesser. This does make the loan easier on the borrowers’ pocket, but because of the compound interest rate, they need to pay much higher than they borrowed.
Being aware of the real cost of borrowing –APR
APR of a loan refers to the annual percentage rate on a borrowed loan amount. In simpler terms, it implies the actual cost that individuals need to pay for a loan. Ignoring the APR of a mortgage loan can make one pay a substantial amount in the form of various charges while the loan is still in the process of progress.
Avoiding mistakes in the application form
Any mistake or false information in the loan application form can lead to application rejection or several complications for both the lending institution and borrowers. For instance, individuals willing to use a loan against property for education must furnish all details correctly while filling up the application form.
- Locking the mortgage loan interest rate
There are various factors affecting the mortgage loan interest rate. Individuals who are aware of what is a mortgage loan must know that they can lock the interest rate for a certain time period, even in the case of a floating interest rate. This can be done by paying some additional funds to the lender. These funds act as a safeguard against market fluctuations.
However, not locking interest rates while servicing a mortgage loan with floating interest might increase the tenor or EMI amount.
- Checking credit score before applying
Checking one’s credit score prior to loan application is a must. This score is a reflection of an individual’s creditworthiness. Punctually repaying a loan goes a long way in maintaining a decent score. Individuals can use a mortgage loan calculator that helps determine the EMIs payable beforehand, thereby allowing one to manage the loan better.
- Refrainfrom adding excessive debt
One should consider the financial liabilities while applying for a loan against property, as this is a long-term financial commitment involving a substantial amount. The addition of excessive debt can result in loan default.
- Paying a substantial amount in down payment
Paying a significant amount in down payment will help save much interest payment, thereby allowing one to repay a loan quicker.
- Checking and comparing all available lending options
Individuals searching how to apply for a mortgage loan must check out all available loan options and compare them to find the most suitable one. Opting for an unsuitable lender can make one face consequences throughout the loan tenor.
Reputed lenders extend pre-approved offers that accelerate a lending process and make it hassle-free. These offers are provided on various financial products such as home loans and others. Borrowers can check their pre-approved offers by providing details like names and contact numbers.
Being aware of all loan terms and conditions
Borrowers willing to acquire a mortgage loan must read all the terms and conditions and then sign the loan papers. Otherwise, they might face unpleasant surprises later on.
- Choosing the right loan amount
Being a sincere and responsible borrower, one should refrain from opting for a loan amount that they cannot repay. A credit that is greater than one’s repaying capacity would certainly cause financial difficulty in the upcoming days.
Thus, prospective mortgage loan applicants must keep in mind the above-mentioned vital tips while opting for this credit option.
Additional Read: 5 Factors That Affect Your Gold Loan Eligibility