Buying a house is one of the most important decisions of life for most of the people and so is the decision of taking a HOME LOAN to make the dream house yours…It is seen that most of the residential properties in our country are purchased with the support of Home Loan.. In fact more than 80% of the home purchase transactions also involve a home loan. Home Loan is one product which consumes more than 30 – 35% of one’s lifetime income. The point is that ‘Home Loan’ purchase is a much bigger decision than buying a mutual fund or insurance or equity or even in that matter your car.
Inspite of it being such an important decision, the consumer buying behavior in case of a home loan is not that much evolved even as in case of buying a car or consumer durables or investments.
Most of the home buyers, while taking a home loan focus on only 4 aspects – 1. RATE OF INTEREST…2. TENURE OF LOAN REPAYMENT….3. LOAN AMOUNT…4. FEES…lets have a look at these ‘very obvious’ aspects that people look at, while taking a home loan.
1. RATE OF INTEREST – this is the first aspect / point taken into consideration…people ant to know that which bank / institution is offering lowest rate of interest. One also decides whether to take a floating rate loan or a fixed rate loan.
2. TENURE OF LOAN – this is one of the most initial aspect looked at…more than 90% customers want to have as long as possible tenure.. the reason is quite simple – the longer the tenure, the lower the monthly EMI…however most of the people are ignorant that the longer the tenure, the larger is the interest outflow in the repayment of the loan.
3. LOAN AMOUNT – most of the banks / institutions offer home loan upto 85% of the cost of purchase (or property value whichever is lower). However the loan amount also depends upon the monthly income of the applicant and the bank’s criteria (policy). It has been observed that private banks like ICICIBANK, HDFC , AXISBANK offers more loan amount as compared to PSU banks.
4. FEES – Banks / Institutions charges processing fees for processing the loan application and giving loan. These one time charges differ from bank to bank. Banks do charge the fees to take care of the expenses incurred in the legal and technical verification of the property as well as other operational costs.
For most of the home loan customers, the aspects which govern their purchase decision get over with these four aspects.
Lets look at the 7 things other than these 4 ‘ very obvious’ aspects , that every customer should look at while going for a home loan –
1. Expected Annual Income for the next 10 years – Home Buying is a long term decision…so should be the home loan decision… one should try to visualize one’s expected annual income for at least next 10 years and even the potential increment in the expenses in next 10 years…this is necessary to ensure that the home loan does not become a burden on you going ahead.
2. Income Tax Benefit planning for next 10 years – this is a major aspect that one should look at while taking a home loan as the home loan is the major tax saver in one’s life. Plan your home loan EMI in a manner such that you get the maximum income tax benefit.
3. Ownership of the property- The IT benefit that you get from a home loan is – 1. Deduction of upto 1.0 lac (u/s 80C) from the repayment of principal component and 2. Deduction of upto 1.5 lacs (u/s 24 i/b) from the repayment of interest component. If your EMI repayment in the entire year includes a repayment of more than 1.o lac p.a and repayment of more than 1.50 lacs towards interest component…and if both the spouses are tax payers, then one should have joint ownership of the house and both should take tax benefit out of the home loan repayment.
4. Prepayment Terms – check with the banks about the prepayment terms – both part prepayment and full prepayment. Many a times in life, you would have additional income incurring and then the thought of prepaying the loan (part or full) coming up. Most of the banks don’t have any charges on part prepayment of the loan while having 2% charges on full prepayment.
5. Documents storage– this is a very important aspect to check while taking loan…most of the banks do an oral equitable mortgage of the property through deposit of title deeds with them. i.e. banks keep your original property papers with them till you fully repay the loan. Hence it is very important for you to know that where and how the bank stores these documents. It has been found many a times that because of poor management / storage of these documents the customer is in problem in retrieving the documents when the loan is over after a couple of years and then he has to bear the cost and inconvenience in reproducing these documents.
6. Other benefits from the bank – Good repayment track record would surely benefit you in many ways. Many banks in a way to retain good clients and cross sell them other products, offer benefits like RTR based loans , special rates in other products, fees waivers, free insurance cover, credit card etc to existing home loan customers. Check whether such benefits are offered by your home loan providing bank or not.
7. Customer Service during the entire tenure – you will require IT certificate from your bank / institution every year. A home loan is a long term relationship with the bank and not merely a one time transaction. Please check about the customer service track record of the bank thoroughly.
Looking at these 7 aspects is equally important as of the 4 ‘ very obvious’ aspects., while taking a home loan.Remember , taking a HOME LOAN is one of the most important and impactful decision of your life.