“There are 350 types of sharks, not counting housing & housing related loans”
“When you can’t buy it, loan it” seems to be the mantra of the modern-day ambitious professional who wishes to book his/her first house by the age of 30. With the trend of ‘saving’ waning by the day, many of us wish to ‘own’ assets by extending their liabilities for the next 20-odd years. Though this may sound aggressive & cool, one has to notice that no matter what, YOU & only YOU are responsible for the massive loans you take from banks which play ‘carrot & stick’ game with you throughout the loan period
With the economy opening up in the early 90’s, availing housing loans have become as easy as hiring a cab at the time of your desire (well, no that easy though). With interest rates being fairly stable in the last 20 years & India increasingly becoming the land of aspiring middle class, there has been a massive surge in professionals fast-tracking their real estate buying decisions. With apartments available aplenty, it’s a buyers’ market that has YOU, the buyer in the centre with banks, realtors & allied economy built around you
Generally speaking, housing loan rates are tagged to the ‘base rate’ that RBI fixes. Loan rates always fluctuate above base rate depending on multiple macro & micro economic factors. Though most banks would have fairly similar rates, their repayment terms, processing fees, clauses may vary
Here are some tips we at MIMS could offer for first time home buyers in choosing the best bank to finance your dream home
- Interest rates: Fixed/floating?
This is the first & foremost factor to consider before taking a loan. This gives the borrower(as in the home-buyer) an idea of how much (S)he would be paying every month towards Equated monthly installments(EMIs).
Some banks may try to convince you for the ‘fixed’ loan stating you would have more predictability in terms of planning your EMIs. But what they wont tell you is that even fixed interest schemes have a reset clause that would adjust the rate to market rates after a few years.
Floating rates are typically tagged to the market & vary according to market rate fluctuations. Over a period of time, they tend to be more favourable for the buyer
Pro-tip : Go for fixed rate loans for short term (up to 5 years) & floating rate for long term(up to 20 years).
- Fees, charges & penalty
The first interaction you have in the bank is the salesperson that’s keen to achieve his sales targets than tell you all fees involved with the loan. It would be wise to talk to senior officials to get a clearer picture of terms associated with the loan. These include legal charges, pre-payment charges, franking charges. valuation fees, processing fee and other hidden costs before even signing the agreement with the bank.
Pro-tip: Go with the bank that’s most forthcoming in explaining penalties & charges. They care about you, seriously
- Loan process and time
Next would be to check robustness of their internal processes. For a loan to be approved, the bank has to verify the project & ascertain if it meets its internal checks & balances. It’s a wise move to go with reputed builders as its easy for the bank to verify credentials & sanction the loan. Also, notice how liberal is the bank in ascertaining your loan eligibility. If the bank is willing to stretch its limits to enable you borrow more, you should be warned because this puts a strain on their books as well. Don’t be surprised if they knock your doors tomorrow asking you to pre-pay a part of the loan
If all documents are well in place, loan disbursal should not take more than 10 working days(in case of private banks). Though state-owned banks take longer time, they could be good in terms of customer service
Pro-tip : Go with the bank that does an exhaustive review. If they’re careless, you’ll pay in the future
- Asset quality – NPAs
Its also worthwhile noting what % of a bank’s loans is ‘bad’. These filings are available on their websites & it would be prudent to spend a few hours noting pain points they have. If the bank has a higher NPA(non-performing asset), it shows that it didn’t choose the right customer to disburse loans.
Pro-tip: Go for banks that have <2% of their loans in NPAs