Loans provide no great mystery. A borrower requests a certain amount of money and agrees to make payments over a set period. The bank or lender charges interest for the service. However, a home loan creates some stress you can reduce with four important considerations.


1. What is your need? Home mortgage loans are popular in India, but there are many reasons to borrow money. You can also borrow to grow your business, invest in new technology, build inventory, underwrite a wedding, finance an education, or buy a car. You can estimate the short- and long-term impact with an emi calculator (Estimated Monthly Instalment).

A loan is a debt, so it should not be entered lightly. Citizens must understand the implications of borrowing and repayment as well as the failure to honour the loan agreement. You do not want to injure your credit record or incur civil penalties. So, borrowers should have a significant reason to borrow and the accountability to repay as promised.


2. Why borrow from a bank? Personal lending is popular in India. People borrow from friends and family. They may pay no interest and may structure repayment the way they want. But, Chandralekha Mukerji, writing for Business Today, warns, “A loan to a family member or a friend is usually unsecured. The terms and conditions are undefined or hazy and demanding payback is difficult. And if the loan goes bad, the relationship also sours. Moreover, such a loan is usually interest-free. This means you lose money.”

Banks, however, are in the business of lending. Borrowing and lending is the backbone of the banking industry. For example, they can make the home loan process easy, convenient, and legally sound. Banks are traditionally secure, have the forms on hand, and provide the services you need.


3. What kind of loan? Different types of loans serve different needs. Banks offer Simple Mortgages, a loan against property which permits the lender to mortgage the property if the availed does not honour the terms of the agreement. The English Mortgage is a variation permitting the lender to sell the property if you do not repay the loan by a specified date.

In an Usufructuary Mortgage, borrowers give possession of the property to the bank. If the property makes a profit, the bank takes the profits until the loan is paid off. And, a Reverse Mortgage sees the lender pay the client monthly payments.


4. What’s the interest? Borrowers can shop for mortgages by comparing interest rates as well as other services. As The Times of India Times reports, “The interest rates for home loans can be fixed or floating, or partly fixed and or partly floating, suiting the needs of the borrower.”


Partly fixed and party floating loans offer low payments when national interest rates are low. However, the monthly payments may increase significantly when rates increase. Those increased payments can prove difficult for some to handle when they occur.


One final consideration

Your loan and agreement are only as secure as the bank and its services. Prospective borrowers should look for low EMIs, a longer time span, favourable interest rate, doorstep service, and easy borrowing process.