It is often said that buying a dream home requires huge expenditure for most of the investors. Some people spend a long period of time, garnering their savings to fulfil this dream, while others opt to take a loan (credit) to fulfill this dream.
Having done your self assessment about the repayment capacity, location of your dream home, amenities and other fancies that you would like your dream home to have. It’s time for some serious exercise of selecting your HFC.
Selecting a HFC requires extreme care and proper consideration, and therefore following the under-mentioned pointer will make this exercise easier. Past record of such institutions should be properly checked as it will be a long term relationship between you and institution. Ensure that the whole task does not end up becoming a whole day headache or nightmare for you, thus prudent steps while deciding upon the financer.
1. Rate of interest
This is where it all begins. Although the rate of interest offered by most HFCs is more or less the same on paper, some degree of bargaining in most cases, leads to a lowering of rates by as much as 0.25 to 0.50 percentage points. More so if your profile happens to match the requirement of the HFC. The lowering of interest rate has a significant impact over the long term although the difference is not so noticeable over the near term. For instance, a 0.50% interest rate ‘concession’ on an Rs 1,000, 000 loans over 20-year tenure will reduce your liability by upto Rs 72,000. But care needs to be taken to ensure that the difference is not being offset elsewhere by the HFC under the guise of other ‘charges’.
One must also be careful about teaser rate offer, as they are sometimes really teasing. They benefit you for a short-term – say couple of years (till the fixed interest rate tenure), but later as floating rate starts applying they dig a bigger hole on your wallet.
2. Calculation of the exact home loan amount
Here, HFCs differ in their calculation of the loan amount to be disbursed. Some HFCs calculate the amount to be disbursed on the basis of, say, the gross salary while some HFCs calculate it on the net salary. This might make a difference to individuals as the loan amount and the EMI will vary across HFCs. One needs to look into this and get a comparative analysis done across HFCs, to understand which HFC offers the best deal. Also one should check whether the HFC is offering pre-EMI and tranche based EMI repayment option. This will help one whilst taking loan for an under construction property, as this gives them an option to pay interest only on the portion of the loan disbursed or to choose the instalments they wish to pay, till the time the property is ready for possession.
3. After-sales service
And you thought after-sales service was synonymous only with consumer durables! No – it applies to practically everything, and so also applies to HFCs. In fact, it is very crucial while choosing an HFC. An HFC can differentiate itself with excellent after sales. Take the example of post-dated cheques (PDCs). It is general practice to give 36 PDCs during the time the loan is disbursed. It is after 36 months are over that after-sales will play a role. How diligent are the HFC’s follow-ups? Are they prompt? Are reminders timely? Moreover, during the financial year-end, the HFC should be punctual in giving the borrower interest paid certificate (components of interest and principal amount paid in the financial year) so that he can file the necessary documents for availing tax benefits (under section 24b and 80C of the Income Tax Act) on home loans.
4. National presence
The HFC should be present across the country or at least have branches in all major metros and towns. This provides an individual an easier accessibility. This assumes importance if the current job of an individual is of a transferable nature (e.g. bank job, defence personnel) or if he needs to make long and frequent outstation visits (e.g. consultants, businessmen). The individual shouldn’t be put through the hassle of couriering his cheques to the home branch every time or contacting the home branch, each time he has a difficulty or a query. So it helps if the HFC is well networked across the country.
5. Prepayment / Foreclosure benefits
For many individuals, this plays a significant role in their decision to go in for a particular HFC. For example, many salaried individuals know for a fact that their salaries would be revised every year. This means that they can pay a higher EMI going forward. Some of these individuals also know that they would be getting a bonus, which they can utilise to pay off their home loan (either fully or partly). Some banks do not charge individuals for making a prepayment / foreclosing their account. Obviously such HFCs should get preference over other HFCs that do levy a prepayment charge.
6. Do your homework
Many people have a tendency to buy into ‘brands’ rather than going for what suits them best. It’s not about how big the brand is; it is more about whether that brand suits your requirements and satisfies your criteria. Make a list of your requirements first and then home in on an HFC. Talk to people who have already taken a loan from a particular HFC and get their feedback.
Other factors like documentation, processing fees, document storage facilities and time taken for processing the loan should also be considered. For example, individuals do not like it if the documentation is an irksome process; or if the processing fees are exorbitant.
Apart from this, read all the terms and conditions carefully and do not forget to take an expert advice. Therefore, instead of reading on the lucrative offers of the company, it is important to read and understand the technical aspects of the offers. So if you want to be in a win-win proposition while dealing with the Housing Finance Company, the onus is on reading the fine print in the loan document and seeing through the maze of exciting offers.