THE festive season is a good time for the property market – buyers suddenly emerge on the scene, so do lenders and developers with attractive offers. Sure, you can keep your housewarming on an auspicious day, but make sure you avoid the common mistakes that most people make while taking a home loan.
Choosing The Lender First
Most people want to know how much loan they will be eligible for before they finalize the property. Nothing wrong with that. But you don't have to go to your lender just to get the eligible loan figure from him. If you are below 40 years, just multiply your (and your spouse's) yearly gross income by four and that should be a rough and ready amount of loan that you should be able to get. The best way is to select your property and then find out if any other lender has funded for another flat in the same building. Also, if you approach lenders now, you are likely to get slightly better rates, as lenders reserve their best rates for immediate disbursement cases.
Miscalculating Down Payment
A lot of people buy property under construction, assuming they can pay the down payment amount proportionately while the bank disburses the rest. All lenders without exception insist on your bringing in the entire amount of the down payment before they will make the first disbursement on the property.
No Window-Shopping
The mantra here is to bargain and bargain some more. You should shortlist four or five banks and get the short-listed banks to compete for your loan. The cost of your loan depends a lot on your ability to negotiate. Remember that all terms and conditions of a housing loan are negotiable. Interest rates offered by banks take your income and repayment profile into consideration, apart from, of course, your negotiation skills. Apart from interest rates, also check various charges like processing fees, prepayment charges, legal fees, valuation fees and other hidden costs.
Falling For Teaser Loans
The State Bank home loan scheme (popularly called the 8% scheme) is an excellent scheme but definitely costs more than 8% — except in the first year. These days many lenders offer lower fixed rates of interest in the initial few years and shift to regular floating rate after the period. It is important to understand the impact on overall cost of such changes.
Not Insuring Your Home Loan
Do you want to pass on the home loan to your family? If the answer is no, then buy a life insurance and critical illness policy when you take a home loan. Life insurance policies provide monetary benefit on death of the borrower and ensure that the family members inherit the home, not the home loan. Critical illness policy will take care of the home loan liability if your income gets interrupted due to any major illnesses such as a stroke or organ failure.
