Stay Alert On Your Home Loan Hunt Around Festival Season
Many potential homebuyers wait for Diwali hoping that they will get limited period festival offers on home loans. It is at that time of the year banks and financial institutions offer attractive home loan deals to lure borrowers.
This is why it becomes important to not get carried away by festival promotional offers, and do as much research as you can to dig out the truth. Do not fall prey to these offers that are not in your best interests.
What kind of home loan schemes should I be cautious of?
There are certain kind of offers that should ring bells in your head. You must cross check with your lender if a scheme has any of these features.
• Low rate of interest
• Low or zero processing fees
• No hidden costs or administrative costs
• No pre-payment penalty
• NIL foreclosure charges
• Zero documentation involved in the appraisal process
What should home loan borrowers keep in mind during the festival season?
• Choosing the right lender
Home loan agreement is a 30-year-old contract. So, choose your lender prudently. The flexibility of the festival offer during the home loan tenure is an important parameter that you should look at. You will require your lender's services even after the home loan is sanctioned and disbursed.
• Terms and Conditions of the home loan festival offer
It is very important to understand the terms and conditions of the home loan festival schemes. You must read between the lines of the home loan agreement carefully if you are buying it under some festival scheme. The areas you must check precisely are various fee and charges, processing fee, foreclosure and pre-payment charges, home loan insurance, equated monthly instalments (EMIs) and tenure.
• Home loan EMIs during the initial period
Your EMI consists of two components- Principal and the Interest. During the initial period of repaying the home loan, you pay more towards the interest part of EMI than the principal portion. Read the clauses relating to the EMI payment carefully, especially in the period when the installment payment begins. The festival schemes that provide some comfort in the form of holiday period (i.e. the period in which the repayment does not start) or lock period (i.e. the number of days during which the interest rate promised on a pending mortgage loan cannot be changed). This time can be used in building the financial corpus.
BEWARE of Teaser Rates on home loans during the festival season
• Teaser home loans are when the bank offers a slightly low rate in the initial years, and a high rate in later years
• Beware of teaser rates during festival season, as they can land you in financial trouble
• Home loan borrowers opt for teaser rates in search of low interest rates, but start feeling the burden once the rate rises after a few years
• Teaser interest rates are mostly used to attract customers for refinancing (i.e. Balance transfer) home loans
• Most home loan borrowers who fall prey to teaser rates end up being disqualified for standard home loans and mortgages
• This is so, because such borrowers land up paying increased monthly instalments and the chances of defaults are quite high
You can ask the following questions to your lender to find out if there are any hidden costs in festival home loan schemes
• What is the total cost of my loan?
• Can I get the copy of amortisation (i.e. a complete table of periodic loan payments) schedule?
• If there are any interest reset clause in my home loan agreement?
• When will the actual transfer of ownership take place?
• Is there any charge if I want to shift to a lower home loan interest rate bracket when market rates fall?
• Will I be charged separately for legal and technical verification and other such checks involved in the bank's appraisal processes?
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