Things you MUST know about loans before buying a house
So you’re planning to buy a property. What’s next? Well, you will need to take a bank loan, but with so many institutions giving out loans, how do you know you are choosing the right one? Here are some things to consider when choosing a loan for a house:
The type of loans offered
Some banks use fancy jargon when it comes to naming their home loan offerings, but basically, you would be looking at two main types of housing loans.
1.Traditional term loan
This is a very uncomplicated loan. What it does is take the amount you’ve borrowed, add the interest, and calculate how much you will need to pay every month. The amount is fixed, includes interest, and all you have to do is pay that fixed amount for the entire duration of your tenure. This is good for people who don’t like messy fluctuating interest rates and want to know what to expect. However, it is inflexible because even if you have extra money and pay more for the month, for instance, the money will still sit there without changing your balance or interest charges.
This type of loan gives you more flexibility and differs from bank to bank. Like its namesake, this type of loan is truly flexible, and interest is usually calculated daily. It is also usually linked to your bank account, and all you need to do is to keep paying into it. The more balance there is in the account, the lower your interest rates can be. Of course it also depends on what the bank offers, so make sure you shop around before making your decision on the bank of choice.
How much can you borrow
The term usually used for the amount you can borrow is margin of finance. Usually, most banks will loan out between 80-90% of the appraised price. There are times when the market rate of the property is higher than what is appraised by the bank, so before making the final decision, you need to get the appraised price so that the repayment amount can fit your budget, or at least you need to have more than the usual 10-20% down payment for your house.
There are also schemes offered by the government that can change the margin of finance, such as My First Home scheme where you can get up to a 100% loan from participating banks if you are buying your very first house. It isn’t very easy to get this loan since everyone would want to not have to pay any money upfront, but at least this is an option you can take as well.
The fine print (late charges, lock-in period)
Taking a loan has other fine prints as well, so make sure you get down to the gist of things such as late charges and lock-in period.
Late charges is usually incurred should you make your monthly repayment past its due date. Make sure you keep this in mind so that you will not have to pay more than you need to for your home.
As for lock-in period, this refers to the additional interest you have to pay if you decide to pay off your entire home loan, or cancel the loan before the end of its tenure. You will need to ask your bank about this period and what is the amount of interest you will have to bear.