It has been specifically designed so that you do not miss the opportunity to realize such dreams without having to pay all the money up front. However, getting a home insurance may seem like a complicated process. There are many factors associated with a home insurance that you need to know before taking out a insurance. The most prominent ones are mentioned below:-
1. Factors that may affect the eligibility criteria: The best way to calculate your eligibility for a home insurance is by calculating the monthly monthly installment. In general, banks set the amount at 40 and 50% of the borrower’s income – including basic salary and expensive allowance. It also takes into account the credit history of the borrower. So if you have any existing insurance or have poor credit score, the insurance amount will be reduced further or you may have to pay an increased interest rate on the home insurance. People with stable income, strong repayment ability, and good credit score find it relatively easier to get a insurance compared to those with irregular earnings and poor credit history. Also, having a co-applicant allows you to get a home purchase insurance easily.
2. Understand your insurance type: Banks offer home purchase insurances in two types of interest – a fixed-rate insurance and a variable-rate insurance. A fixed interest insurance is a type of mortgage insurance where the interest rates remain the same and the borrower has to pay fixed monthly installments (EMI) for the life of the insurance. On the contrary, in the case of a floating rate of interest, it varies according to market conditions which lead to fluctuations in the amount of EMI quite often. This is why fixed-rate mortgages have an interest rate of 1 to 2.5% higher than floating-rate insurances.
3. Interest rate: Whatever type of home insurance you choose, don’t forget to negotiate the rate. Although the banks will always have an advantage, you will have to bargain in this matter, especially if you are a loyal customer of the bank and have a savings account with the same bank. Negotiating will be a lot easier if you have a clear credit history. Besides, you may also benefit if you apply for the insurance at the end of the month. Since banks have business objectives, they can be more flexible at this time if they want to operate.
4. Fine print: A home insurance agreement is a legal document that contains all the details of the insurance. If you think that not paying the equal monthly installments on time will only lead to problems, you are wrong! There are many items hidden in lowercase letters. It is therefore advisable to read the final paperwork of the insurance agreement carefully before signing on the dotted line. Be careful about insurance processing fees, penalty fees, hidden items, service fees, prepayment penalty, etc. Any neglect in this context would lead to even greater problems in the future.
5. Longer insurance term means more expensive insurances: As a general rule, the longer the insurance term, the more interest you are likely to pay over a period of time. Many can afford this height but not everyone can do it. So it is wise to apply for a insurance amount that you can easily repay in a shorter period. This way, you may have to pay huge monthly installments but for a shorter period and without increasing the interest rate.
These are some of the things you should keep in mind while applying for a home purchase insurance. Note that if you take out a insurance from a bank, it does not mean that you are stuck there until it is time to pay off your insurance in full. You always have the option to switch. You only need to pay the processing fee for this transfer and also the prepayment penalty (if imposed by your current bank).