How to chose the right home loan & lender ?

Choose the right Home Loan

The rate of interest that a bank offers on its home loan should not be the only factor while choosing a home loan for your dream property.

One needs to understand all aspects of cheap home loan rate schemes of different banks and financial institutions to derive the best advantage of the home loan offering.

On the surface cheaper home loan rates are good because they result in lower EMI payments. However the fact is that  over a period of time these rates re-adjust upwards and could result in higher EMIs.

As per official data, during the sub-prime crisis in the US, those who took low teaser rates to buy homes, tempted by cheap rates were largely the ones who ended up in financial trouble a few years down the line.

The reason being when the rates adjusted upwards, they could not cope up with the higher EMI payments.

Definitely lower rate of interest is a fantastic thing but do consider a few other factors before signing on the dotted line.

Long term Commitment & Responsibility:

Home loans are long-term borrowings, generally with a tenure of 10-20 years. Thus while borrowing, you should consider the entire tenure rather than just the first year or two. Can you afford all the payments during the entire duration of the loan? There could be other home loan options that look expensive for the first few years but their average rate across the tenure of the loan might be as cheap or cheaper.

Understand the Prime Lending Rate (PLR):

Every bank has an internal interest rate according to which all other loan rates are offered. The bank has full discretion to set the Prime Lending Rate. Clarify with your bank about its PLR and how fluctuations in the same could affect your home loan interest.

Balance Transfer Penalty:

Generally when you get a home loan with a low rate of interest, your flexibility is likely to suffer. This can be a stumbling block if you need to refinance your loan with another bank that might offer you better terms in the future. Before availing a home loan check if there will be a penalty for a balance transfer and whether you will be allowed to transfer your balance at all. Ensure that the penalty fees is not so that it nullifies any benefit of taking a home loan with a cheap teaser rate? Understand how flexible your bank is going to be.

Customer Service:

Check the track record of your bank/lender while disbursing home loans. It is critical because it might result in a lot of heartache later on. If the verification, sanction and disbursal processes are slow you might lose the entire deal in the bargain. Customer service and follow ups are the key elements in the home loan industry.