In the devastation caused by the Covid pandemic, the housing sector was one of those that felt the impact the most. There were thousands of properties left unsold and unfinished. Along with the retreat of the virus, much of the economy has bounced back. Yet, important questions remain and potential buyers are still hesitant about taking the plunge about purchasing property or a home.
Loans are available with banks and the non-banking sector such as HFCs (housing finance companies) for both home purchase loans and property loans.
The property or home is mortgaged to the lender till such time as the entire loan amount is repaid. The lender will hold the title deeds as a surety until you repay the loan amount plus the required interest.
Before you commit yourself to the idea, it’s wise to do some of your own homework. Analyze whether
- You’re buying the property: to live in, rent out, or as a gift
- You want more liquidity while you acquire the asset
- You want a tax saving instrument
- You prefer to invest available funds elsewhere
This analysis will help you to understand your own goals and how you plan to achieve them.
Benefits of Taking A Home Loan
Tax Saving: The government offers several schemes to save tax on the principal and interest. You can avail of deductions under Section 80C and Section 24B of the Income Tax Act. Tax benefits are available for the second house as well. Check with your auditor for more information.
Easy To Purchase High Value property: Your dream home may be out of your reach given your present financial status, but a home loan helps to transform it into reality.
Long Tenure: Availing of a loan at a younger age gives you a long period to repay it.
Balance Transfer: If you find a more attractive rate of interest elsewhere, you can transfer your loan to another lender, provided you can meet the terms and conditions.
Liquidity: You can use your personal funds for liquidity, investments, making other big-ticket purchases and more when you take on a home loan.
Safe: Banks and HFCs generally vet a property thoroughly before granting a loan. You can rely on their due diligence when you opt for a bank or HFC approved project.
Which Type of Home Loan is the Best?
This is a question that can be best answered by the lender herself/himself. You are the only person who has all the information about your own financial status, goals and capacity to take the load of repayment.
Banks and HFCs offer a bouquet of home loans to suit different needs, preferences and budgets. These include home construction, property purchase, home extension or improvement, NRI home loans and more.
Choose a loan that offers:
- Customized EMIs
- EMI holidays
- Pre-payment and transfer facility
- Zero foreclosure
- Balloon payment
- Online customer services
- Zero hidden charges
- Early payment possible without penalty
While shopping for the best home loan rates, keep a few pointers in mind:
- Reliability and Reputation of Lender: With a dazzling array of lenders to choose from, it’s important to check the trustworthiness, reputation and track record of the bank or HFC before you avail of a loan. They may promise a particular amount but at the approval stage, the actual loan may be reduced significantly.
- Interest Rate: Generally, you may be offered either a fixed or floating rate of interest. You can choose one that best suits your appetite for risk, ability to pay, and market conditions.
- Exact Loan Amount: Cross check whether you will receive the correct amount that you signed up for.
- Processing Time: Choose a bank that offers a swift turnaround time to process your loan. It should also offer good customer service throughout the loan tenure. You can check with other clients, get advice from financial experts, friends and family who have opted for a similar loan.
- Consider the Effective Cost: Home loans are one of the biggest commitments you may have to make. The tenure may be spread over 15-20 years and your predictions about your financial stability have to be reasonably accurate. Choose a lender who has linked their rates to the RBI’s repo rate as its external benchmark. This is a more stable rate, rather than market driven rates.
- Hidden charges: Choose a lender who is upfront and transparent about all the charges involved in availing of a loan. There are different charges that get loaded on the loan, both before and after disbursement. These include processing and administrative fees, GST, credit score report fees, project/legal evaluation and incidental charges before disbursement. Post-disbursement, you will have to pay as applicable: check bounce penalty, late EMI payment, loan conversion, loan account statement charge, documentation, registration charge, and charges for any changes in tenure.
- Tenure: Choose a loan that syncs with your own financial status and goals. Longer tenures are most suitable when you’re at a younger age and have a co-borrower such as a working spouse. The interest outgo may be higher but the EMIs are lower. You can also choose an overdraft facility where the loan account functions as an overdraft.
Keeping these factors in mind, you can compare and contrast different lenders and select the best offering available.
