Home Loan

Till a few years ago, people used to buy homes when they retired or were about to retire. The purchase used to be funded by PF or gratuity money received on their retirement. However time have changed considerably, nowadays after getting a job, buying a house becomes the first and foremost priority. This has been made possible by the keenness of the banks to disburse Home Loans. Banks are ready to give the Home Loan customers a Red carpet welcome. They float all sorts of offers, promotional packages, etc to lure new borrowers. However before one opts for a home loan from a particular bank, he needs to do a good homework. Some main points to consider are as below :

• Type of Interest

One is always confused whether to go for fixed rate of interest or floating one. The fixed rate is always higher (by about 1.5-2%) than the prevailing floating rate of interest. Also the fixed rate is not exactly fixed for the tenure of the loan. It is fixed only for a few years. After that it normally converts into floating rate of interest. If the existing rate of RBI is in upward trend, then you should go for fixed rate, as this protects you form fluctuations of change in ROI. However if the RBI rates are already on the higher end and are expected to go down, then the wise decision would be to go for floating ROI.

•  Credibility of the Bank/Financial Institute

While going for a Home Loan do not only think about the rate of interest, but also look into the credibility of the bank/financial institute. There may be banks which are offering lower rate of interest than the existing market rates, but check the credibility of these banks. They may be notorious for not lowering the ROI quickly after a rate cut by RBI. Also these banks may be charging additional fees for processing, inspection of property, etc. Normally these charges are not told initially, and you come to know about them only after applying the loan.

• Insure your property

Make sure to ensure your property against natural calamities, like earthquake, floods, etc. This is very important to protect you against unforeseen events. In the event of any calamity though the property is lost but then you do not have to repay the loan, as it is insured. This insurance amount is normally quite small and people in their ignorance do not go for the insurance of the home loan.

• Switch the Loan

If  in spite of all your research, you get stuck in a bad loan, where either the bank is not reducing the rates as quickly as they should, or there are other issues with the service of the bank, then do not hesitate in switching the loan to another bank. These days RBI has abolished the pre payment penalties which banks used to charge while closing the loans due to pre payment. So switching the loan to another bank which is offering lower rate of interest is now a good option. However do consider other charges/fees while switching loans. These charges should not be so high as to nullify the advantages of switch over.

•  Paperwork

Before applying for a loan, make sure that you get your paperwork in place. Before issuing the loan, bank asks for huge number of papers. This is mandatory as banks have to ensure that they know everything about you before giving you a high value loan. So ensure that all your papers are ready, else there may be a delay in approval of your loan. Also in case if your loan gets rejected due to lack of papers, then you would lose the processing fees that you may have had paid.