These are some of the questions a client must ask the bank before signing on the dotted line.
Checklist for Home loan buyers:
1. What is the rate of interest for various tenures, which will help you decide which tenure is best suitable depending on your cash flows and interest outflow. 2. What is the interest option: floating or fixed. If interest rate regime is low, and expected to reduce further, floating option is best. If interest rate regime is high, and expected to increase, then fixed rate option is best.(Pl check terms and conditions on fixed rates. Sometimes, even though interest option choosen by borrower is fixed, when interest rate changes are announced by RBI, like, bank rate and CRR rate changes, banks have said to increase the fixed rate also. Sometimes there is a ladder rate applied, which is a combination of fixed and floating for specific periods. Best to check with your financial planner on the option with flexibilities to change the option, depending on the economic environment in which you are investing. 3. What is the processing charge and can it be reduced.(Should not exceed 0.50%) Flat fee better. 4. What is the documentation? Too much probing hassles? 5. What are pre payment rules? Some banks have a charge if more than 25% of the home loan is pre paid in one year. This should not happen. 6. What is the frequency at which interest rate is reset? Daily, fortnightly, monthly, annual rest. Daily reducing balance is best, based on EMIs paid. 7. Is their a sweep-in account, which acts as a current bank account and also sweeps any balance from this account towards interest repayment as and when a balance is available. 8. When EMI can be increased from current EMI by the borrower, is higher pre payment possible: If yes, what reduces? Interest/ principal/ tenure. Principal must reduce and therefore interest, which automatically reduces tenure. 9. Is loan portability possible with other banks easily. If so, what are foreclosure charges with current bank. Is portability within the same bank at new interest rates possible, if so, find out what the charges are? Sometimes, cost involved in foreclosing loan from one bank and transferring to another bank is higher, than the balance amount to be paid. Hence a calculation is to be done by your financial planner before the switch is made. 10. If pre EMI is an option(where only simple interest payment is made proportionate to level of construction) in under construction projects, one can switch to EMI option(where principal and interest payment is made) and claim tax exemptions in later years. 11. Pre EMI interest ca be written off at 1/5 every year after possession of property us taken. 12. Can an add-on loan be taken at the same terms for interiors at a later date? 13. Are registration costs included in loan sanction?
Dilshad Billimroia Founder and Certified Financial Planner Dilzer Consultants (An ISO 9001 (2008) certified company.
21 August, 2013
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