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Home loan! What to look at when you go for one

The sole reason behind all the shopping around is to make sure that you get the most cost-effective loan. So, it is necessary to find out more about the banks and the way they deal with their customers. You would want to look at certain facts before finalising on taking on a loan.

June 26, 2015 8:59 IST | India Infoline News Service
Most banks and home finance institutions try lure you into taking their loans by saying that they offer lower interest rates compared with other banks. But is it the only criteria that we should focus on?
 
The sole reason behind all the shopping around is to make sure that you get the most cost-effective loan. So, it is necessary to find out more about the banks and the way they deal with their customers. You would want to look at certain facts before finalising on taking on a loan.
 
One important thing to look at is other charges.  Banks have allied charges, in addition to interest rates. You should look at each one of them while deciding on the bank to take the loan from. In some cases, if you bargain well, banks will also waive off certain charges. So, you need to check with the bank on what it can do and decide. 

The charges would include processing fee, documentation fee, penalty on loan transfer, valuation charges, legal fees, equated monthly instalment (EMI) bounce charge, late payment penalty, pre-payment charge, insurance charge, mortgage charge and stamp duty.

The next thing to look at is services and flexibility. Check whether the bank of your choice gives you the required services and flexibility. You need a smooth sanction and repayment of loan. For instance, if you have a shifting job, make sure that bank gives you the liberty of loan repayment from other cities and states as well. 

In some cases, banks accept loan repayment through cheque sent by courier. You can find out the softer aspects of flexibility by visiting consumer forums and reading about the services of the bank. The comments there are generally made by the existing customers of the bank.
 
Keep a watch on the margins. Different banks have different loan amount margins, which is the percentage of the property value for which you can take a loan. This is called ‘loan-to-value’ (LTV), which is negotiable. LTV depends on various factors, such as income stability, value and nature of collaterals offered and net worth of the guarantor, to name a few. You can negotiate for LTV in great detail.

Remember, a ‘default’ to the layman would mean non-payment of EMI during the loan tenure; but it can have a different meaning for the bank. For instance, for some banks ‘default’ is also when borrower expires, borrower divorces (in case of more than a one borrower), or the borrower is involved in any civil litigation or criminal offence. In case of multiple borrowers, conditions are applicable to all the borrowers. Therefore, it is important for you to be clear on what your lender means by the term ‘default’.

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