10 Tips to get the Right Home Loan Offers

6 minsMarch 01, 2018

With a home loan, the dream home you always wanted to possess can become reality. However, availing a home loan can be a daunting task with so many options to choose from and several facets to evaluate before zeroing down on the right home loan offer.

So, here are 10 tips to get the right home loan offer:

• Check interest rates
  • The interest rate on a home loan is one of the vital deciding factors. Higher the interest rate, higher will be your Equated Monthly Instalment (EMI) and vice-versa. The EMI you pay also has a bearing on your budget and long-term financial wellbeing.
  • Hence, pay close attention to the interest rate you are getting.
  • But remember that just getting the cheapest interest rate on home loan does not necessarily mean that you are getting the best deal. There are many more aspects to be studied.
  • Select between floating rate interest and fixed rate by sensibly taking cognisance of the interest rate cycle and what suits you. 

• Choose your home loan tenure thoughtfully
  • Much as the interest rate, the tenure of the home loan also decides your EMI. A shorter tenure increases your EMI, while a longer one reduces it.
  • Make it a point to sensibly choose your loan tenure in order to avoid the EMI becoming a burden and jeopardising your financial wellbeing.

• Make use of home loan EMI calculator
  • To get an estimate of how much your Equated Monthly Instalment (EMI) will be which consists of the principal and interest amount you can use our  efficient home loan EMI calculator.
  • The benefits of using an EMI calculator are:
    • Saves time and energy instead of performing calculations manually
    • Provides error free results in no time
    • Aids your financial planning

• Processing fee
  • This is the fee charged to process your home loan application. In the market, it is around 0.5% - 1% of your home loan amount.
  • Evaluate the hidden costs:

    Typically, following are the hidden costs associated with a home loan:

    • Legal fee – This is a cost you pay when a bank or HFC scrutinises the legal documents of the property. Some lenders include this cost into the processing fee.
    • Technical Valuation Charges - An expert, who could be a bank employee or an architect or an engineer, will visit the site to ensure legality and fair value of the property you wish to buy. Their evaluation is on criteria such as age of the building, quality of construction, etc. The technical valuation charge is an upfront payment, before sanctioning the loan.
    • Franking fee – Franking is the process of confirming the payment of stamp duty. So, when you pay stamp duty for the sale of agreement or when availing a loan, an authorised bank or a franking agency stamp your document to certify that you’ve paid the stamp duty. Franking charges differ from state to state and can be in the range of 0.1% – 0.2% of your home loan amount.
    • Documentation Fee – This charge is to maintain your documents such as Home Loan agreement, ECS mandate, etc. Even for issuance of photo copies of the documents, the bank levies a charge on a per set basis.
    • Notary free – If you are an NRI, then you and your Power of Attorney’s (POA) KYC details need to be notarised by the Indian Embassy or a local notary available abroad.
    • Adjudication fee – If you are the POA-holder of a NRI, to start the process for a home loan application, the notarised POA needs to be adjudicated in India before submission to the lender.
    • Cheque/ ECS/ Repayment Dishonour Charges – If at any point of time you dishonour your EMI, the bank will charge you for it, a sum of Rs 500 per instance. Now, this not only adds to the expenses, but it also affects your credit score.
    • Switch fee – To switch a floating rate home loan to fixed rate and vice versa, the bank levies switching fees usually in the range of 1-2% of the outstanding principal amount.
    • CERSAI charges – Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a government company with the object of maintaining and operating a ‘Registration System’ for the purpose of registration of transactions of securitisation, asset reconstruction of financial assets, and creation of security interest over property an online mortgage registry levies certain fees which vary depending on the loan amount.
    • Loan Pre-payment Fee – Pre-payment charges are still applicable on fixed rate loan or loans availed under special schemes and if the payment is sourced through a third party. This charge may vary from bank to bank and the type of loan.
    • Document Retrieval Charges – Document retrieval charges are charges levied at the time of Home Loan closure/ pre-closure of Home Loan. This is a cost for transferring your original documents from central repository to the borrower.
    • Duplicate statement issuance charges – One annual account statement of your home loan account is free. However, in case you need another statement, the bank might charge you upto Rs 500 to generate a duplicate one.
    • Insurance premium – Although a home loan is secured loan, the bank will insist that you purchase an indemnity cover, particularly when the loan amount is high, and your personal life insurance is inadequate.

• Maintain a healthy credit score
  • A credit score reflects your credit behaviour and credit worthiness. Higher your credit score (of 750 and above), the better it is for you, the home loan applicant.

• Maintain good financial health
  • In addition to your credit score, a bank or HFC also conducts a thorough due diligence regarding your financial health.
  • Typically, they will assess:
    • Your income
    • The company you work for: whether private limited or public limited
    • Nature of job/work
    • Your residual working span
    • Your average monthly bank balance
    • Your investments
  • Hence, make sure you maintain good financial health to get the best home loan offer.
  • And start saving for the down payment: A recurring deposit, flexi-deposits, and /or Systematic Investment Plans (SIPs) can be a good way to do so.

• Keep the key documents in order
  • When you apply for a loan, a host of documents are required, which include:
    • Income statements
    • Salary slips and Form 16 (in case of salaried) (For Self Employed: balance-sheet and profit &loss statement for 2 years)
    • Bank statements
    • Latest Income-Tax Returns
    • Age proof (Aadhaar, Passport, PAN card, Driving License, etc.)
    • Address proof (Aadhaar, Passport, Driving License, electricity bill, telephone bill, ration card, etc.)
    • Photo identification proof (Aadhaar, Passport, PAN card, Voter id, Driving license, etc.)
  • The following property documents are needed post sanction:
    • The Sale deed
    • Agreement of sale with the builder
    • Land and building tax paid receipts
    • Certified copy of the sanctioned plan of the property
    • Possession certificate
    • Original receipts of the advance paid for purchase
    • A detail of estimate cost of construction
    • No Objection Certificate (NOC) from the housing society or builder
    • Letter from the builder/society/housing board stating their bank account details for remittances.
  • These documents need to be submitted with the home loan application form with photographs of the applicants. Hence, make sure you keep these vital documents in order, as the bank will thoroughly scrutinize them before sanctioning the home loan.
  • Once you submit these documents and the bank has a query or needs additional information, make sure you respond on-time to avoid delay.

• Be objective in your approach
  • Do not let emotions override your decision when you avail a home loan. Assess your home loan eligibility and borrow only within means so that repayments do not prove to be a burden.
  • Further, avoid going by what friends, relatives, and colleagues say. Recognise your needs, conduct a thorough research, and keep your family in the loop.

• Read the Terms & Conditions carefully
  • Before you sign on the dotted lines, read the terms & conditions of the home loan agreement very carefully to avoid an unpleasant experience later. Understand everything you need to know when availing a home loan.
  • When availing a home loan, compare the vital aspects –––interest rate, tenure, processing fee, hidden costs, terms & conditions, loan processing time–––prudently across banks. If you need guidance, speak to your wealth manager, relationship manager, Chartered Accountant (CA) to suitably select among a number of home loan offers.
  • A home loan is actually one of the best ways to build up your assets, if you handle the liability sensibly. You are effectively putting down some of your own money (the down payment) and gearing the rest from a bank or HFC (to be repaid in EMIs).

• A home loan even provides a tax benefit…
  • The principal portion of the home loan EMI is eligible for a deduction under Section 80C of the Income-tax Act, 1961, subject to a maximum limit of Rs 1.50 lakh.
  • The interest portion on the other hand is tax deductible under Section 24(b) of the Income Tax Act. If the property is self-occupied (SOP) deduction under Section 24(b) is limited to Rs 2.00 lakh per annum. While in the case of a property let-out on rent, i.e. Let-Out Property (LOP), the actual interest payable is eligible for deduction under Section 24(b), thereby not being subject to any maximum limit. This applies even in the case of where you have two home loans for two different properties, where one is self-occupied and the other is let out on rent.
  • Similarly, if you have taken a loan for the purpose of reconstructing, repairing, or renewing the property, the amount of deduction under Section 24(b), you are eligible for will be restricted to Rs 30,000, irrespective whether you want to stay in it or let it out on rent.
  • Remember, a home loan can help you accomplish your dream of buying a dream home or even renovating it, if you follow a judicious process.
  • Make sure you get the best home loan deal.

Happy Banking!

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.