The home loan puzzle
Home loans have become a common financial tool today to live the dream of owning a property. If you do your research you will understand there is more to the larger picture than what meets the eye at first glance! Here are five home loan truths that you may not to be exposed to during your initial research!
All fixed rates are not always fixed: So now that you have taken a home loan with a fixed rate of interest you may think that you would be paying a fixed EMI each month for your entire tenure of your loan; Right? But the fact is that almost all fixed rate home loans have a clause that allows the bank or NBFC to re-fix the interest rate after certain period of time. The interval period ranges from two to three years depending on the bank or the non banking financial company. Such a clause makes the fixed interest rate more a semi-fixed interest rate home loan.
So the next time you are requesting for a home loan, make sure to check that your fixed rate is fixed for the entire tenure and not for a limited period of time.
Pre EMIs can cost you dearly: In case you are buying a property which is under construction, you would have to pay the bank a pre EMI till the time the builder finishes construction of your property. In case the builder takes two years to finish construction of your property, you would be paying pre EMIs which is interest on partial payment released by the bank to the builder. This money does not reduce your principal loan amount and is in addition to your home loan EMIs which start once your property is completed. Suppose your builder delays the project for a few years, you would be paying pre EMIs as interest towards the payment you received from the bank without reducing a single rupee from your home loan obligation.
Banks offer loans for 30 years: If you are thinking of increasing your budget for the property purchase on the basis of increasing your loan tenure, stop right away. Most home loans are offered for 30 years tenure, but when you approach a bank for the first time, they might offer you only a 20 year tenure unless you specifically request for a longer tenure! Though it is wise to close out a loan early, (10 years is actually ideal with prepayments, 20 is the average tenure) for those who who cannot help it, up to 30 years is an option. It does not matter if you retire after 25 years, if you are likely to earn a good pension, you can still avail a loan for 30 years. Sigining up with a co-applicant also can help this cause.
Banks Seek Interim Security- In case you are planning to purchase a property, you may have to offer another property as collateral security for a limited period of time till the bank gets the new title deed in your name. Never heard of this one before right? This clause is applicable for some banks, especially the nationalized banks. Banks offer home loans only when their risk is secured by a security or collateral worth the total cost of the home loan. In case you are buying a property, and seeking loan for an outright purchase, it may take 10-20 days to get the new title deed in your name after registration. To offset any risk during that short tenure, you would need to offer another property as an interim security to the bank till you get the new title deed. Do check on this upfront with your bank to avoid surprises later!
Banks fix the property price as per their index: You may think that you could get a home loan up to 80% of the market value of the property and reach a figure in your mind. The fact is that banks have their own in-house evaluation process where they work out the market cost of the property based on their own yardsticks and calculations. Banks may evaluate your property far lower than what you think at times. Also, in case of an outright purchase, if they have assessed a good value for the property, but you are showing a lesser value in your title deed, you will get only 80% of the value you have showed.
YOU MAY ALSO WANT TO: Check out how much that EMI is actually costing you – Home Loan EMI Calculator