Compare Home Loan quotes for your dream home
Choosing the dream home is a difficult and an important task in one’s life and an equally important one is choosing and comparing your home loan. There are many websites which offer this tool to compare home loan interest rates. But comparing home loan interest rates is not the only thing that a potential home loan borrower should look at. There are many other aspects of comparing a home loan and choosing the right one for you. In this article we cover what aspect of a home loan comparison should you look at, because ultimately it is really long term decision and the interest burden can jeopardize the financial planning. Sometimes the money saved on interest cost and other allied costs can make a huge difference in your well being at later stages in your life.
Why should you compare home loan online?
First step in home loan comparison would be to take the first cut rates and applicable charges. Most of these rates and processing fee displayed by these websites for comparison purposes is the applicable card rates. And most of the times the banks / housing finance companies offer a discount to the applicable card rates to good quality borrowers. Therefore the applicable home loan rate and processing fee could be much lower than the one displayed on the website.
What should you look beyond for home loan comparison?
Once you have the best home loan rate arrived after the comparison, the next step would be to look at the suitability of the bank to the transaction. E.g. banks like SBI, IDBI Bank and other PSU banks don’t fund the premium portion of the transaction in under construction properties. To take an example, suppose the original allottee booked an apartment with the final cost at Rs 75 lacs 4 years ago. His cost as per the builder buyer agreement would be Rs 75 lacs. Now during the last 4 years the price of this property appreciated and is now available for Rs 1.60 Crs in the resale market. A private bank like ICICI bank, HDFC Axis, PNBHFL etc can fund upto 75% of the market value of this property. Which means that to fund this purchase to a buyer in resale, a buyer if takes home loan from one of the above would have to pay Rs 40 lacs out of his pocket and the bank would be able to fund upto Rs 1.20 Crores. Whereas if the same customer approaches SBI or IDBI for home Loan, the SBI or IDBI would be able to fund only 80% of the original cost (as per the builder buyer agreement). Which means to buy this property in the resale market and taking a home loan from SBI would mean that the buyer would have to shell out Rs 1 Crores from his own pocket and the bank would only be able to fund upto Rs 60 lacs. Therefore even though the compared home loan quote from these banks could be lower, but these banks wouldn’t be able to fund this transaction. If a buyer would have approached any of these banks for a home loan then in that case he would have wasted a considerable amount of time chasing the home loan and would have less time to remedy this transaction.
Similarly in case of ready to move in property banks also fund Furniture and Fixture as a part of the transaction. The banks like ICICI Bank or HDFC would have a much higher flexibility compared to a PSU banks which have conservative yardsticks to fund additional costs. Therefore comparing home loan and getting the lowest quote is not the last solution, the funding arrangement should suit your type of transaction as well.
What are the features offered by the bank to look at while comparing your home loan?
One of the important features available these days is a linked current account with the home loan which can work as an overdraft account and save a borrower lot of interest. How this feature works is the bank opens a current account and whatever money is kept in that account, on a similar amount the interest is credited back to this account. Which means the interest is charged only on the net amount. I.e. the disbursed amount minus the amount available in the linked current account. The example below is for a home loan of Rs 1 Crores for 20 years at and ROI of 10.25%. In this case the borrower would keep only Rs 2 lacs in the linked current account and would end up saving Rs 8.66 lacs which is equal to approx 9 EMIs and this is easy for a regular borrower.
What are additional costs to consider while comparing home loans?
Other than the comparing the ROI and processing fee, the other important factor would be to look at the date on which bank debits the EMI and what is the adjustment for interest and principal. Some lenders charge the EMI in the immediate next monthly cycle and the interest is adjusted for the whole month in advance. The borrower ends up paying more even if the same ROI is charged as compared to a bank which does the adjustment for interest towards the end of the month. In addition to this lenders also have a list of charges E.g. document retrieval charges, cheque bouncing charges, reset clause etc are other important factor to compare in a home loan from two different lenders.
How to choose the best home loan for you?
How to compare and choose the best deal for you? Having done the above analysis, and some studies online you should approach a multy brand service provider. Even if you are approaching the bank branch directly, you should do this for at least 2-3 lenders. Because generally the salesperson from lender would want you to avail the facility from his institution and wouldn’t give you adequate information about others even if the transaction cannot go through this lender. And ultimately besides you got the best deal but got stuck ultimately. Therefore choose wisely choose the right one for you.
Disclaimer:The contents of this article aren’t intended to serve as professional advice or guidance and the publisher takes no responsibility or liability, express or implied, whatsoever for any investment decisions made or taken by the readers of this Article based on its contents thereof. You are advised to verify the contents before taking any investment or other decision based on the contents of this Article. The article is meant for general reading purposes only and is not meant to serve as a professional guide for investors.