Thursday, August 24, 2017

How to Select an appropriate Lender/Loan amount for a Housing Loan

The dream of owning a house is very close to every person’s heart who does not own a house. Buying a house is besieged with many problems; the most bothering is raising the fund. When we consider various options, loan from banks and housing companies will be our first choice. Utmost care and proper planning with lot of foresight are required before taking the decision as it has a lot of implications on your financial position for many years.

While deciding the lender, type of housing loan and amount of loan, one should bear the following factors in mind:

1. Rate of Interest.

2. Type of variability in Rate of Interest (Interest Fixed for the entire tenure (Fixed), Floating Interest rate (Floating), Variable after certain number of years (Reset)).

3. Conversion Fee (Fee for converting your loan a/c from any of the option of Fixed, Floating, Reset  to any one of them)

4. Method of Calculation of interest (a. Flat – on entire loan amt till the loan is repaid, b. Reducing Balance on daily balance, c. Reducing Balance on Monthly Opening balance. This affects the amt of EMI).

5. Margin Money (the applicant’s contribution in purchase price of the house, also called Loan to Value Ratio or Down payment, stated in percentage - %).

6. Borrowing Cost - Fees/Charges/Cost payable upfront (before the loan is sanctioned) in the form of Processing Fee, Inspection Fee, etc.

7. Fees/Charges/Cost payable during the tenure of loan.

8. Penal Interest and other penalty and the occasions/events when the  penalty will be levied.

9. Foreclosure Fee (Charges payable if you want to repay all the loan amt before the due date of repaying/settling  the entire loan)

10. Balance Transfer Fee (fee if you want to transfer your loan a/c from present lender to another lender)

11. Length of  Tenure (The numbers of years within which you have to repay the entire loan). Longer the tenure, smaller the EMI. This will help obtain higher loan amt.

12. Availability of  Top – up Loan Facility (which entitles you to avail more loan on the same property after certain years  for approved purposes)

13. Availability of Interest Subsidy/Subvention, if any

14. Reduction in Income Tax Liability, thereby increasing your income and capacity to repay the loan. 

15. Moratorium period (the period after which the repayment will start after release [disbursement]of the loan).

16. Availability of “Telescopic Repayment Schedule” (wherein EMI will  gradually increase as the years pass by which facilitates sanction of higher loan – more suitable to young applicants)

17. Cost of Insurance (Insurance of the property and insurance, if insisted by the bank, of the applicant.

18. Whether your good  Credit Score/ CIBIL (Credit Information Bureau India  Limited) Report will help you to reduce your requirement of documents/ interest rate/ negotiate with the banker.

19. Bank’s past record in passing on the benefit of reduction in interest rate to the borrowers (warranted by market conditions or RBI instructions)

20. The above factors consider “loaning” or “financial aspects” only. Non-financial aspects are also equally important.
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