Have the recent cuts in home loan rates by leading financial institutions in the country spurred you on to apply for a home loan? Go ahead, but before you finalise a deal, here are some points you should take into consideration:
1. Speak to your bank about home finance only after you have identified the property you want to buy. Note that some banks do not readily finance a self-constructed property. “Also, if the property is very old or is being developed by a relatively unknown builder, the bank might have an issue with providing a home loan,” says Harsh Vardhan Roongta, Chief Executive Officer, Apnaloan.com.
2. For loan eligibility, talk to several banks to find out which one can give you the maximum amount. Try to seek a bank that allows you to club the incomes of your other close relatives (parents, siblings, children etc.) to increase your loan eligibility.
3. Once you finalise your dream home, the bank will get the cost of the property evaluated by its own experts. Usually, the evaluation throws up a price different (in most cases, lower) from the actual price you are paying for the property. “In such cases, you will need to shell out the difference between the actual price and the bank's valuation as additional down payment. It makes sense to ask the bank to value the property (on payment of a small fee), especially if it is an old re-sale property,” says Roongta.
4. Shortlist four to five banks and get them to compete for your loan. The cost of your loan also depends a lot on your ability to negotiate.
5. Apart from interest rates, also check various charges like processing fees, pre-payment charges, legal fees, valuation fees and other hidden costs. Take all these factors into account before choosing your bank.
6. The processing fee varies from bank to bank, but is usually around 0.50 to 1.00 per cent of the total housing loan amount. It is non-refundable. Don’t believe the agents who tell you otherwise.
7. When opting for a 'fixed interest loan,’ remember that in some cases, it may remain fixed only for a certain period of time, as the bank may have the right to arbitrarily change even the so-called ‘fixed rate’. So, probe further and read the fine print before you sign on the dotted line.
8. If you have signed a floating rate loan, check whether the rates of your chosen lender had moved down in the years when interest rates were dropping. “This is a fair indicator of what you can expect as (not if) and when the interest rates start moving down and the time comes for the bank to pass on the benefit to you,” advises Roongta.
9. It is advisable to take a life insurance and critical illness policy along with a home loan. Life insurance policies provide monetary benefit in case of an unfortunate incident like death and ensure that your family members inherit your home — not your home loan.