A home is one’s priceless possession. Having a home of one’s own is everybody’s dream. Fortunately, achieving this dream is nowadays very much possible with the help of various finance options by lenders including banks, non banking finance companies. This type of finance is better known by the name of home loan. A home loan is a lifelong commitment. Nonetheless the most important factor that is looked while making a selection regarding it is the interest rate. But it is not the only one. Here is what you need to keep in mind while zero in on a home loan.
Table of Contents
- 1 Understand the Difference Between a Fixed and truly Fixed Interest Rate
- 2 Look for Hidden Charges
- 3 Pay attention to Repayment Terms
- 4 Check Processing and Disbursal Speed of the Loan Amount
- 5 Look for Lenders that Offer Solutions in Case of Possibility of Default
- 6 Look for Special Schemes
- 7 Check the percentage of Loan Offered
Understand the Difference Between a Fixed and truly Fixed Interest Rate
When it comes to interest rate, there is always a confusion to go either with a fixed interest rate or a floating rate. If you are the one who wants a fixed EMI and are wary of the fluctuations in the interest rate, fixed interest rate is the one you should go for. Though they are 1-2% higher than the floating rate of interest, you know well in advance your EMI amount and can plan your monthly budget well in advance. But remember that a true ‘fixed’ interest rate is one that remains constant during the entire tenure of the loan. While opting for fixed interest rate for your home loan, check the number of years for which your interest rate would remain fixed. This is because in the past few years many lenders have come out with options like semi fixed rate, wherein your interest rate remains fixed only for few years (2-5) and for the rest of the year it gets converted into a floating rate. Surprisingly very few lenders nowadays offer truly fixed interest rates. The later is offered for as long as for 20 years by the likes of Axis Bank, ICICI Bank and LIC Housing Finance etc.
Also keep in mind that some lenders insert a “Money Market” clause while doling out home loans under fixed rate interest regime. The clause lets the lender alter the interest rate in case of any adverse market conditions. Keep this clause in mind before committing towards long term financial commitments.
Look for Hidden Charges
There are host of hidden charges that are imposed by the lender that you should look for while going in for finance option of your home. Actually these are the very charges that prick your pocket the most. These mainly include processing fee and valuation fees. Let’s take a look at processing fees charged by various lenders on home loans. ICICI bank charges 0.5 to 1 per cent of the amount of loan or Rs 1500 whichever is higher. Similarly, HDFC bank charges 0.5 per cent of the loan amount. In case of State bank of India, this stands at 0.25 per cent of the loan up to Rs 25 lakh. While it is Rs 6500 for the loan amount between Rs 25 lakh and 75 lakh. Thereafter, the processing fee is Rs 10,000
Pay attention to Repayment Terms
It’s always important to clarify with your lender conditions relating to the prepayment of the outstanding home loan amount or transferring the remaining balance to another lender’s account. The Reserve bank of India (RBI) had asked banks to take off prepayment penalty on floating rate home loans. So it is wise to check with the banks regarding this before choosing them as your official finance partner.
Check Processing and Disbursal Speed of the Loan Amount
Going with a lender that has speedy processing and disbursal process in place is every borrower’s dream. This is an important factor to take into consideration by you as a borrower. Check with the old customers regarding their experience on this front with the lender you are considering to apply for home loan. Usually if all documents are in place, it takes approximately 10-15 working days for banks to process an application. After this process is done with, it takes another 3-5 days for disbursing the sanctioned loan. However, some responsibility rests with the borrower too. As a potential borrower you should inform about your application for the loan to your stay at home parents, security guard and relatives. This will aid in the verification work of the lender and the later would be able to process your application much faster and speedier. Also make sure to fill the right residential address in the application form. Sometimes the potential borrowers make a mistake in giving their address and their loan application gets rejected on account of this.
Look for Lenders that Offer Solutions in Case of Possibility of Default
While going in for a home loan from a particular lender, check if the same offers possible solutions should you miss your EMI due to rise in interest rates. One of the practical solutions offered by lenders is increasing the tenure of the loan. This reduces or lets your EMI amount remains the same and escapes you from defaulting. Such an arrangement also works in favour of the lenders as this leads to lower Net Performing Assets (NPA) on their balance sheets. But keep in mind that what might seem as a relief would actually add up to your total cost in long run as now you have to pay the EMIs for a longer period than earlier.
Look for Special Schemes
There are special concession schemes run by the lenders from time to time that you must check out. These schemes are especially tailored for senior citizens and women. However, you have to meet certain conditions of the lenders. In case you are a woman, the first condition is that you need to be sole owner of the property to be financed or at least the first owner in case of joint ownership. Second condition is that you need to be the sole applicant or first co-applicant of the home loan. Also there are schemes that reward you for making timely EMIs of the loan by waiving off last 12 EMIs of the same. At present, such a scheme is being offered by Axis bank.
Check the percentage of Loan Offered
You must factor in the percentage of total amount being offered by the bank as the loan. If the bank you have chosen offers only 80% of the amount required for buying the house, then look for a bank that offers 85% of the total amount. This helps in taking some burden off for down payment amount.