Are you taking a home loan for the first time in your life? Not just the interest rate, you should also consider these 4 things..

Buying your own house is the biggest dream of everyone's life. And the biggest way to fulfill this dream is a home loan. But a home loan is a long commitment of 20-30 years. In this long journey, even a small mistake can cost you lakhs of rupees.

Most people look at only one thing while taking a home loan - 'Which bank has the lowest interest rate?' Whereas the truth is that the lowest interest rate is not always the most beneficial. Today, we are going to tell you 4 experienced things, keeping in mind that while taking a home loan, you can really save lakhs of rupees.

1. Understand the 'spread' of the interest rate; do not just look at the advertisement

This is the most important and least understood thing. Nowadays, most home loans are 'repo rate-linked'. This means that your interest rate is made up of two things:

Final interest rate = RBI's repo rate + bank's spread

Repo rate: This is the rate at which the RBI gives loans to banks. It is the same for all, and the RBI changes it from time to time.

Spread: This is the bank's own profit margin, which it earns from you by applying it on top of the repo rate. This is the real thing that you have to pay attention to.

Understand with an example.

Suppose the RBI's repo rate is 5.5%.

Bank A's spread is 2.0%. So your interest rate is 5.5% + 2.0% = 7.5%.

Bank B's spread is 2.2%. So your interest rate is 5.5% + 2.2% = 7.7%.

You always have to choose the bank that has the lowest 'spread'. Why? Because in the future, when RBI reduces or increases the repo rate, it will increase or decrease for both the banks, but your spread usually does not change during the entire period of the loan, i.e., it will always remain fixed. In such a situation, your interest rate will always remain lower than that of other banks.

2. Keep the loan tenure short, see the magic
The bank will always encourage you to take a loan of long tenure (like 30 years), because it reduces your EMI, and you feel that the burden of EMI is less. But this is a trap. The longer the tenure, the more interest you will have to pay.

Understand from the calculation (loan of Rs 50 lakh, at 8.5% interest rate):

Loan tenure, Monthly EMI, Total interest paid, Savings
30 years ₹38,446 ₹88,40,697 -
20 years ₹43,391 ₹54,13,881 ₹34,26,816
Did you see? By reducing the tenure by just 10 years, your EMI increased by about Rs 5,000, but you saved more than Rs 34 lakh in interest. Try to choose a loan with the shortest tenure according to your capacity.

3. Don't underestimate the power of prepayment
Prepayment means paying some extra money in addition to your EMI every year directly into the principal amount. Even a small extra amount can do wonders for your loan.

Let's take an example (50 lakh loan, for 20 years, at 8.5% interest)

Your EMI is ₹43,391.

If you pay an amount equal to just one EMI (₹43,391) every year as prepayment, then:

Your 20-year loan will be over in just 16 years and 3 months.

You will save around ₹10.80 lakh in interest.

Imagine, by saving a little extra just once a year, you can finish your loan around 4 years early and save more than 10 lakh.

4. Don't forget to negotiate 'hidden charges'

A home loan is not just about the interest rate. There are other charges attached to it, such as:

Processing fee: This can range from 0.5% to 1% of the loan amount.

Legal fees

Technical valuation fees

Stamp duty and registration charges

Of these, the processing fee is often negotiable. If you have a very good credit score, a strong job profile or you are taking a loan during the festive season, you can ask the bank to reduce or waive it. A discount of 0.5% on a loan of Rs 50 lakh means a direct saving of Rs 25,000.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.