Selecting a
house to suit one's needs and taste is a difficult task. After moving into
newly constructed or purchased house,residents complain of various
shortcomings, and often feel that previous house was more convenient.
Choosing a suitable home financier is even more difficult,it requires lot of study of
various schemes, interaction with the present borrowers.Market is flooded with
financiers, offering different schemes supposed to suit borrowers' needs,
glossy advertisement proclaiming to save a lot of interest as though financial
institutions are charitable institutions doling out money for acquisition of
house.The borrower needs to be very selective and careful while choosing the
financier.
Your Banker
Generally every
individual will have a bank account: and have personal relations with the bank.The bank having dealt with the account for many years will have adequate knowledge of financial position of its client and many a times will be a family
friend.
Housing finance
is of a long duration, generally with a minimum of 15 years and a maximum of 25
years.It is but natural to have ups and downs during their long period with
fluctuation in income, may be owing to illness, expenditure on marriages,mishaps in the family leading to temporary cessation of payment of equated
monthly installments.Your banker should be able to understand your
difficulties and co-operate with you during those difficult days.With the
enactment of SRAFESI Act, the banker may take possession of your house with a
notice of 60 days and thereafter may sell it. So it is always preferable to choose your long time banker,for financing of acquisition of house, who will
not resort to aggressive measures in the event of default/delay in repayment of
loan.
Amount of loan
Many new era
bankers sell their products, home loans by adopting aggressive methods and also
lure you to borrow big loans, which in future may become difficult to service.
Borrower's failure to repay the loan as agreed would be a boon to such bankers,
who may take possession of the property and sell it and add various expenses to
borrower's liability.
One should
not always anticipate that income will regularly increase until retirement.
Inflation frequently erodes savings. Prepare cash flow statements by taking
into consideration the probable expenditure on providing education of children,
marriages, illness and unforeseen expenditure. Correctly arrive at your wise
surplus funds, portion of which may be directed towards equated monthly installments,based on which the loan amount may be arrived.Please avoid directing entire
surplus to repayment. It is advisable to seek the help of financial
consultants.
Repayment period
Though the
loans are available within repayment period of 25 years or more it is viable to
repay the loan in 10 to 15 years so that interest burden is not too much.
Repayments in five years or less may be feasible for small loans for a couple
of lakhs. EMI for one lakh of rupees alone at 7.5% will be Rs. 2000/-. Do not stretch the repayment until retirement, but ensure that loan is closed at least
a couple years before retirement.One should not expect that his terminal
benefits to take care of repayment.Terminal benefits are meant for future
unencumbered happy living.Choose step-up or step-down repayment depending upon
your needs.
Interest rates
There are
two different types of interest rates viz., floating and fixed. Some
institutions offer different types of fixed rates, semi fixed, fixed for
certain period, a combination of fixed and floating.
Floating
rates are related to market condition and may increase or decrease. Fixed rates
are supposed to be fixed for entire period of loans, but loan agreements of
many financial institutions have conditions where fixed rates are also revised
under certain circumstances.Floating rates are preferable where the interest rates are going down and the repayment period is small.Fixed rates
have to be opted where interest rates are going up and repayment period is
long. At present interest rates are at lowest, fixed rates are preferable.
Card Rates
Though
financial institutions advertise their lending rates, the advertised rates are
called card rates. But actual lending rates depend on the income of the
borrower and his negotiating skills.This also is related to risk involved,
higher the risk, lower the income, interest rates will be more.Many banks
reduce their card rates in case of borrowers with good income and lower risk.
Documentation
Borrowers
have very little choice in documentation. Each financier has his own set of
documents and will be made available to the borrower at the last minute.They are predominantly one sided in favor of financiers.But borrowers should study
each and every clause, conditions, and seek clarification wherever required.
They should obtain a copy of all documents executed.
Uninvited Borrowers
Every
financial institution has its own list of category of people to whom finance is
advanced.It is based on the experience of the institution, and category of
people whose income is not assured, litigant minded people and the people who
may influence the repayment.Politicians, advocates, film and TV,artists,
Journalists, Police, are among a few who are on negative list. Such borrowers
may approach their regular bankers.
Direct Selling Agents
Of recent
times, direct selling agents are very active in the field. They are just agents
of the financial institution to procure business.They have a sweet tongue,
work for commission and will be in touch with you, until the loan is disbursed.You cannot get any service from them once your loan is sanctioned by the bank.
The borrower should develop personal rapport with manager of the financial
institution to have better after sales service.
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