WHAT TO KNOW BEFORE SIGNING ON THE DOTTED FILE(HOUSING LOAN)

Have you recently decided to apply for a home loan? Be sure to consider the following frequently asked questions before signing on the dotted line?

1. WHAT IS RATE OF INTEREST?

This is the cost that the bank/home finance company charges you for the money it lends to you. It is one of the most important factor to evaluate as the rate of interest will determine the equated monthly installment (EMI) that you will be expected to pay. There are two types of interest calculation for a home loan fixed and floating rates. Under the fixed rate, your rate or interest ( ROI) will be fixed for a particular period as mentioned in the home loan agreement. Under the floating rate, your ROI may change depending upon the cost of funds for the lending institution and measures adopted by the Reserve Bank of India (RBI)

2. HOW DO I GET THE BEST RATE?

First, you should ideally check the prevailing rates across home lending institutions/banks. Next, compare and contrast the various benefits that each institution provides to ensure it meets with your needs. Keep in mind, the lending institution/bank offering the lowest rate will not necessarily offer the best speaking with a representative at a bank with which you have an existing relationship. If your credit is in good standing, you can use it to get a better rate and facilities from the institution with which you have a banking relationship.

3. WHAT OTHER COSTS SHOULD I CONSIDER?

Always enquire about processing and administration costs. As the names suggest, these are the costs that the lending institution charges for processing your loan proposal. These costs typically vary between 0.35 per cent and 1.5 percent of the loan amount, and have an upper limit as well.

Also remember to factor in the cost of registering your new property! You will have to pay the applicable stamp duty rate in the State to get the property registered in your name. While stamp duty rates have come down, they can vary between 4 and 10 per cent across states.

4. WHAT IS MAXIMUM TENURE OFFERED?

Depending on a customer’s profile, age and financial strength, loan tenure may be offered even up to 25 years by a lending institution.

5. WHAT ARE THE PAYMENT OPTIONS?

You can pay your Equated Monthly Installment ( EMI) either thought post-dated cheques ( PDC) or through the Electronic Clearing System(ECS)

6. CAN I PRE-PAY?

This depends on terms and conditions on your loan. Some lending institutions do not allow you to prepay for a specific period. Also, you should inquire with the lending institution’s representative about any charges incurred for partially per-paying or foreclosing your loan.

7. WHAT IF I DEFAULT?

If you foresee a situation where you may default towards servicing your loan, be upfront with the lending institution and clearly explain the reasons/situation. Lending institutions will look into such matters and could take measures to help you. if you do not inform the lending institution, you may be placing your credit standing at risk.

8. HOW SOON WILL THE PROPOSAL BE APPROVED?

Once you have submitted all of the required paperwork for your loan, the lending institution/bank will verify whether or not falls under their list of approved projects/area. Therefore, when you are selecting a property, it is important to choose a builder who has a good track record and an independent house constructed as per an approved sanction plan. Then, the loan process can normally be completed with in seven working days. Be aware, if any of the documentation is out of place or missing, it could take longer.



NOTE: REMEMBER, THE MONTHLY INSTALMENT IS LOWER FOR LONGER-TENURE LOANS, AND YOUR LOAN ELIGIBILITY IS GREATER WHEN YOUR LOAN TENURE INCREASES.