7 Golden Rules of choosing the Home Loan Lender

Statistics claim that on a daily basis around 1 lakh people migrate from one country to another and around thousands of people migrate within the country. To be more specific what I have heard is that over 300 people migrate daily to and from Mumbai alone.

“Food, cloth and shelter” are the three necessities of a man for living. Every corner of the road today has a small shop selling the everyday eat food at a cheap price. Cloths are something that everybody packs with themselves when they migrate. So that takes care of food and clothes part. Now shelter is not something that people carry with themselves. They have to get one in that place when they shift. But how to get the best deal for a home loan without getting cheated in a new place?

So to be safe than sorry... here are 7 GOLDEN RULES of home loan which will ensure that you do not repent in future.

Rule 1: First finalize the property then go in for the loan.

Go for a home loan only after you have decided on the property. Without it the banks themselves would not be ready to give in a home loan. This is so because some banks do not readily finance a property that is being self constructed or under construction or on a very old building. They would not have any problem with a ready-to-move-in property. So it is better to look and finalize your home first then go in for the loan.

Rule 2: Be clear about the loan amount you are eligible for

It is always advisable to talk to multiple banks before choosing the bank for getting loan as all the banks have got different ways of calculating loan eligibility. Loans are given basically based on your and your spouse’s income. There are banks which consider your close relative’s income as well (like parents, children etc) to increase your loan eligibility. So choose this option as well before taking up loan.

Rule 3: Restore minimum 10-15% of the house cost with you for future use

Let us understand this rule through an example: If the house costs Rs 5 lakh, the bank expects you to pay at least Rs.50, 000 to Rs.75, 000 from your own sources while the remaining amount Rs 4, 25,000 – Rs 4, 50,000 will is provided as loan subject to your income based eligibility. With time it is might be so that the value of the property might decrease. Hence to ensure that the bank’s interest is protected it becomes important to ensure that the outstanding loan amount is less than the realizable value of the property. So, again it makes sense to ask the bank to value the property (on payment of a small fee), especially if it is an old resale property. The small fee will be worth the while to avoid future hassles.

Rule 4: Research well and Get the best Deal

Get information about all the banks: their eligibility and ROI. After all this then short list 4-5 banks and, get the short-listed banks to compete for your loan. The more banks you have in your list the more bargaining power you have on your side. Point to Remember: All terms and conditions are negotiable. Apart from interest rates, also check various hidden or on-top fees like processing fee, pre-payment charges, legal fees, valuation fees and other hidden costs. Take all these things into account before choosing your bank.

Rule 5: Be prepared to shell out processing fee from your pocket

Nothing comes free in today’s world. So is the case with the loans as well. For taking loans even you have to pay your lender a fee known as “Processing fee”. This differs from banks to banks, but is usually around 0.50% to 1.00% of the total loan amount. But paying the fee doesn’t mean that you will get the loan, this is the fee to get them to just the ‘take a look’ at your loan application. No matter what the bank representative informs you; the processing fee is ‘NOT REFUNDABLE’.

Keep all the promises made by the bank in writing. This will ensure that if your loan application is rejected or is sanctioned for a lower amount or at a higher rate than promised, atleast you claim your processing fee.

Rule 6: Fixed or floating ROI?

Majority of people go in for floating ROI as they find it more suitable even when you opting for “Fixed ROI” it always does not remain fixed as it might change with the drastic increase in the finance market. Hence always read the fine prints carefully before signing. Also for floating it is advised to keep checking the market after every 6 months so that you don’t get duped by the banks.

Rule 7: Give your loved ones a Home to stay and not home loan

Home loan is a long-term commitment and with life being so unpredictable don’t let your family members suffer after you. Provide them with a home and not your home loan. Income is something which does not remain stable with time. It might increase or even decrease. So to ensure the continuous payment of your home loan always go in for some continuous income payment source such as accident insurance or life insurance. The banks with which you have the tie-up for loan will be happy to give you a insurance policy as well.

Fixed and Floating ROI for Home Loan

As the word suggests: Fixed ROI is the one which remains fixed for the entire loan amount period and in floating the ROI will keep waving up and down depending on the market and the benchmark set up by the banks in the contract.

Which one to go for???

Frankly there is nothing like which one is better and for which one to go for? If there would existed such a thing like which is better then the market would not have existed as people would have gone for the better one, of course.

This decision depends on person to person choice and more importantly on the current market scenario. Depending on the rate by which the market is going up or down fix the type of ROI you would like to pay the banks with regards to your loan principal amount. However to understand the market and ROI type better it is always advisable to keep a track of the market and to review your decision after every 6 months, at the least.

How much interest is charged for House Loan???

Hello and welcome everyone...

The current rates for a floating rate home loan is around 11% for a 20 year loan. But actual rates applicable to a specific person will depend on your profile and your income and the documents you where able to show up and also on your own negotiation power.