How To Choose The Best Home Loan
In recent times, even as India's real estate market was hit by a slump, authorities, financial institutions and developers all came together and made their best efforts to bring buyers back to the property market. A shift from the earlier base rate system to the marginal cost of funds-based lending rate (MCLR) regime and multiple rate cuts by the Reserve Bank of India were some measures that have helped banks provide home loans at attractive interest rates. And that has made many leave the fence and invest in real estate.
However, what kind of loan suits an individual is a tough question to answer. You are the best judge of your requirements and limitations. So, it is advised that you consider all the options available before deciding on which kind of home loan suits you the best.
MakaaniQ lists some aspects whose thorough study may help you grab the best deal for yourself:
Holiday period on equal monthly instalments (EMIs)
Mostly provided on the purchase of under-construction properties, a moratorium — also known as a holiday period — is a phase during which you do not have to start your repayment towards your home loan. In simple terms, it is the wait time before your repayment EMIs start. However, though you do not have to make any payment, the interest on the outstanding loan amount starts incurring. The objective of a moratorium is to provide you some time that you can use to build capital.
Most lenders in India provide a moratorium period of up to two years. You can always pre-check with your lender about this grace period, especially if you have cash flow issues. This time lag in loan repayment can be valuable for you in working towards constructing and enhancing your financial plans for your home loan.
Online account access
The digital world has made it possible for borrowers to conduct their borrowing activities without ever having to visit a brick-and-mortar bank location. Everything is just a click away — applying for a home loan, tracking the repayment accounts, evaluating home loan options in terms of interest rates and product facilities, and finding the details of EMI payments, etc. These days, banks also provide several services at your doorstep. When you decide on your lender, you must consider the quality and scope of the online services it provides.
Time taken for credit appraisal
The basic guidelines and credit-risk measures taken into account to sanction a home loan remain almost the same across banks. But, the bank that takes the shortest time to complete the procedures and formalities of sanctioning and disbursing the loan, should be on top of your list. In most cases, buyers have a pre-set time frame in their mind when they want to buy a property. The faster the things are done, the better. So, the swiftness with which a lender processes the loan should be an important criterion while choosing the right lender.
Easy pre-payment facility & nil foreclosure charges
Taking a home loan is a 20-30-year commitment. In this long duration, interest rates tend to move up and down. If you do not plan to switch your home loan to some other lender that offers better rates in the future, you must choose your home loan on the foundation of the pre-payment facilities being provided by a bank. In such a case, choose the bank that does not charge a penalty on loan pre-payment. The removal of foreclosure charge or pre-payment penalty ensures fair pricing of home loans with floating rates, and less discrimination between existing and new borrowers.
Flexi or hybrid home loans
If you are confused about which way to go -- fixed or floating -- consider going the flexi way. Opt for flexi or hybrid loans. A hybrid home loan is the fusion of fixed and floating rates of interest. There are many lenders in the market that are offering this type of loan. Under this product type, the lender charges a fixed lending rate during the initial years, where the amount of EMI remains the same. The floating rate of interest is charged on the outstanding loan amount for the remaining tenure.
Customised insurance schemes
Home loan insurance is a plan that covers the outstanding loan liability to hedge the risk of loss in case the borrower dies during the loan re-payment term. These policies offer a cover that reduces every year, as the loan amount comes down. A home loan insurance product can turn out to be very beneficial if you do not have ample funds for the home loan down payment (also known as margin money). But, you must also know that it is an added burden on your home loan EMI payments. So, choose the insurance scheme that meets your loan requirements, is friendly on your pocket and isn't just the risk hedging tool for the lender.
No hidden charges
Though it is quite difficult to estimate the hidden charges involved in a home loan product, a detailed study of the loan product you are opting for may be quite helpful in finding out. Make sure that you read your loan contract carefully; you may have to read between the lines to find out the hidden costs you will incur on opting for a particular product. Do not sign the contract till the time you find that these costs are justifiable. If your income is steady and you have a high credit score, you can always bargain on these hidden charges.
Click here to know about these hidden costs.