Thursday, June 9, 2011

Housing Loan: Important steps to keep in mind to ensure you get the best deal

There is a lot of news about the state of several real estate companies in India. Some are embroiled in telecom scams whilst some have huge debts on their books & projects which have not kept their schedules. All these notwithstanding there is no doubt that at the time of writing this blog, there was definitely a lot of construction going on in India and in spite of rising interest rates, residential demand was still strong. This article is the first of a series on Home Loans and on investing in ‘homes’. This article specifically tries to highlight the key steps a potential home loan candidate should keep in mind while taking a home loan.

There are various lenders for housing loans and to get the best deal and to have a smooth process, one should spend time and put effort into researching to arrive at the right lender. To have a hassle free housing loan process, look into the following details:

1. Check the Lenders Reputation:

Housing loans are a long process and finding the right lender could make the process easier. Loan seekers should check for the reputation of the lenders in order to finalise on the source for borrowing. A lender with a good reputation is sure to make the loan process a pleasant one.

2. The Experience of the Lender:

Following the construction boom in India, several lenders have sprung up all over the country. Numerous NBFCs (Non banking Financial Companies) have started offering housing loan products. It would be prudent to go with a lender who has been operating the housing loan markets for at least 5 years. A lender with more experience could also help in solving problems that arise easily.

3. Features of a Loan:

The features of a loan are an important factor in choosing a lender. There are numerous lenders offering various features on a loan. An individual needs to figure out his/ her wants from a loan in order choose the right kind of loan. The features of a loan that are to sought for are the structure of the loan, interest calculation, provision for pre-closure and other benefits that arise from a loan.

4. Rate of Interest:

Different financial institutions provide different rates of interest. People always go in for lower rate of interest that is beneficial. But a proper analysis needs to be made while distinguishing the rates of interest offered by the various lenders. Some financial companies which may offer an initial lower rate may have several clauses in the fine print which may finally make the loan pretty expensive.

5. Rests in the Rate of Interest:

The rate of interest is the factor that determines the cost of a loan. There are annual rests and monthly rests in the calculation of interest. The annual rest brings about a change in the interest rate on an annual basis. With the payment for the loan being made on a monthly basis, it will be beneficial for the borrower if the rests are calculated on a monthly basis as it will bring down the interest on a reducing capital and one can enjoy the immediate benefits.

6. Options in Repayment:

The repayment option provided by the lender is a crucial factor in clearing off the loan. If there is an option for pre-closure or premature clearance of the loan, it will benefit the borrower in terms of paying at his or her convenience. In most cases there is a penalty in the form of pre-closure charges to be paid mostly in the case of fixed rate loans because of the mismatch of asset liability for the lender.

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