Are you overpaying on your mortgage?

If you have taken a mortgage, it is important to know if you are paying more on it than you should. We present a checklist to help you decide.

Deciding to take a mortgage loan is the easy part – what’s tough is getting the best loan! We present a 5-step guide to determining if you are taking the best loan available.

1. Analyse your needs.

If you are buying property, you may be left with no option but to take a mortgage loan. You may have to furnish about 25 to 30% of the property’s value in lieu of down payment. Undertake a thorough analysis of your finances. Are you likely to make a good amount of money in the near future (through business contracts or orders, for example)? Is it possible for you to raise some more money from private sources such as relatives and friends? The lower the amount of money you borrow from the lending institution, the lower will be your monthly EMI payment.

2. Wait for interest rates to fall.

Depending on whether the RBI decides to cut repo rates, the interest on home loans availed from banks and NBFCs may fall slightly. Even a drop of 0.25% can have an appreciable effect on your monthly interest outgoing. Scan the financial papers for news of any potential interest rate cuts on mortgage loans in the near future. If such a cut is in the offing and you can afford to wait, you must.

3. Get the best loans.

The loan you eventually choose must be selected basis the interest rate charged, processing and foreclosure fees, application processing fees, time taken by the lending institution to process the application, time taken for verification of documents and property, etc. Most people are fixated only on the loan disbursal process, and they fail to notice if the lending institution is charging them higher fees than others. Do your research before zeroing in on the best loans in the market.

4. Type of interest being charged.

You might avail of mortgage loans at a fixed rate of interest because it is lower than the floating rate of interest being offered. However, comparing fixed rates of interest with floating rates is wrong. Both vary in composition and belong to two different categories. The comparison must be made between different rates among the same interest category. Normally, a floating rate of interest results in a lower repayment amount. Understand the interest calculation process well before proceeding to select the interest category.

5. Negotiate well.

Though most lending institutions will not dither on reducing interest rate or extending discounts to you, they are open to negotiation on the payment terms. Sit down with the approving officer or manager and discuss your options freely. Ask if there is any margin at all that may be extended to you, as far as reducing interest rates, or waiving off pre-closure charges or application processing fees goes. Make it clear that you will take the loan immediately if your terms are met, or that you can get the lender additional business from friends and relatives.