I had been in and out of the “Lets buy a Flat” syndrome. This was recently at a peak and I succumbed. I lack in the patience department, and hence, Speed (not the 93 octane kind!) has been my forte. We scouted all sites in our shortlisted area at Cochin, and at the end of the day, homed in on one particular property which we were sure would appreciate substantially. I was in no hurry to move in, so the fact that the foundation work was just starting wasn’t any deterrent! After some good bargaining, I managed a reduction of about 7.5% in the total cost, using the carrots of calling at closing time, weekend ahead, immediate finalisation etc, on the pre-quoted rock bottom rates!
Lock Kiya Jaye: That done, and the booking amount later, reality set in. The money I could cough up was about 22% of the total cost. Home loan time, I told myself. What better place to start, than our very own MS. Hoping to find a Daya or a Harsh take on the issue, I was disappointed! But I digested all 10 of the reviews there, and concluded that there wasn’t ONE that I found to contain what every aspiring home loan taker would love to see at one place! That’s when I decided to document my journey in this direction as a journal, and maybe, post it on MS if I didn’t end up making a fool of myself by the end! I am a Central Govt employee (safe customer, high credit rating) and hence, loan options were many. While parental wisdom and builder advice led me to CorpBank, CanBank and SBI, the ‘wisdom’ on MS led me to HDFC Ltd (not the Bank!) and ICICI! Now, I had certain fixations, notwithstanding the income! No prepayment and lump sum payment penalties, fixed rates (don’t ask me why!), zero or low Admin and processing fees, no DSAs, straight talk, quick dealings and no jhanjhats during disbursement or later! Whether someone would lend me despite all the above remained to be seen! I had 2-3 weeks, to cough up the 40% amount required to be paid on signing of the Agreement. So here is how it went!
Le Lo: Taking a Home Loan has become even more of a nightmare today, with most private banks hiking their rates yet again. In this backdrop of uncertainty, in my opinion, it is better to go in for a fixed rate loan for that ‘dream home’. But what you need to remember is that even a fixed rate loan is not really fixed! It is reviewed at regular intervals, varying from 3-5 years, generally.
Mera Choice: I went in for a 20-year fixed rate loan from Corporation Bank. (SBI came close, but I refused that as they needed a Guarantor, while here, the wife could be a co-applicant and you could do away with the guarantor!)The reasons behind my choice are many! Firstly, it is owned by the GOI. So, invariably, it is among the last to ‘hit’ the customers. Next, it gave me the lowest rate. The drawback is that their Retail Assets Hub is not like your private player whose smart execs go all out to lure you. But the Govt guys will give you the facts true and bare! Go to them after your R&D is done. You’ll be lucky to get a maximum of 0.5% reduction on the rate! I did! The loan finally (10-20 lakhs) came to 10% fixed rate of interest, to be next reviewed in Sep 2011. That was fine by me; I intended to repay the whole thing by then. Else, I would make a private bank take over the outstanding loan amount, at a lower rate (fixed/floating)! Private banks are always willing for these ‘take-overs’. Try it! If you talk well, they will even pay any prepayment charges on your existing loan, while ‘taking you over’ to their side! That means, when your rate goes too high, you can automatically go over to another Pvt bank, and pay lesser or the same EMIs as you do now!
Points to Ponder: When you take a loan, decide on the loan amount first. While it is fine to dream of buying a Merc, it also makes sense to think of who will pay for the fuel! Remember that including the effects of tax breaks you will derive, the effective loan rate is about 1% lower than what you will pay actually. So, compare the options of breaking any FDs/ EPF etc to pay part of your home cost, rather than increase the loan amount! Bankers will, of course, prod you to borrow the maximum! So, once the amount is fixed (+/- 0.5 lakhs), check out on phone with different banks. Next, check out the additional EMIs you can pay every year (thanx to any bonuses etc!). Also check out the full prepayment (closing the loan) charges. In my case, if after 2.5 years, it is 0! And, it lets me pay 10 EMIs extra a year. Next, check if the reducing balance is monthly/daily etc. Daily reducing is the best, of course. If you need a small duration after the loan to commence repayment, check the terms. This is called a ‘holiday’. You need to pay the interest component of the EMI, but, for only the amount already disbursed by the Bank. This is handy when you opt for a house which is not yet totally completed, where your full payment is made only after you have possession of the house. Again, the loophole here is that your tax break on EMIs can commence only after you have possession of the house! So, invariably, if you are a ‘fixed loan’ chooser, you will land up at either SBI, Corp Bank or a cousin, in today’s scenario! All these banks show you the rates and options on their websites, private banks never do! Get the picture?! So, while I don’t hold a single account with a Govt Bank, if I were to take another loan, it still would be from one of them! The Govt is always the best person to borrow from! If in doubt still, ask the ‘millionaire’ farmers of Kinu, Mangoes, Rubber and Wheat!
Kya Karoon.. Kuch Kuch Hota Hai: So, when you take a Home Loan, prepare a month in advance. Spend a week on fixing the amount, as that is the starting point! Don’t hurry and fall for “1 Day offers”, they will be available the next day too ‘for 1 day’!
And, when all is done, don’t forget the weekend mantra! Tempt the builder at the end of day on the last weekday with your affordable price! Everyone likes to close a week with a deal! Press the point and you will surprise yourself with the reductions you can manage. The bottom-line is “Think Big on Discounts and Small on Loans!”
Now go out there and pick the best bet! May the best bank lose (to you)!