Selecting a house to suit one's needs and taste is a difficult task. After moving into newly constructed or purchased house,
residents complain of various shortcomings, and often feel that previous house
was more convenient.
Choosing a suitable home financier is even more
difficult, it requires lot of study of various schemes, interaction with the
present borrowers. Market is flooded with financiers, offering different
schemes supposed to suit borrowers' needs, glossy advertisement proclaiming to
save a lot of interest as though financial institutions are charitable
institutions doling out money for acquisition of house. The borrower needs to
be very selective and careful while choosing the financier.
Generally every individual will have a bank account:
and have personal relations with the bank. The bank having dealt with the
account for many years will have adequate knowledge of financial position of
its client and many a times will be a family friend.
Housing finance is of a long duration, generally with a
minimum of 15 years and a maximum of 25 years. It is but natural to have ups
and downs during their long period with fluctuation in income, may be owing to
illness, expenditure on marriages, mishaps in the family leading to temporary
cessation of payment of equated monthly installments. Your banker should be
able to understand your difficulties and co-operate with you during those
difficult days. With the enactment of SRAFESI Act, the banker may take
possession of your house with a notice of 60 days and thereafter may sell it.
So it is always preferable to choose your long time banker, for financing of
acquisition of house, who will not resort to aggressive measures in the event of default/delay in repayment of loan.
Many new era bankers sell their products, home loans by
adopting aggressive methods and also lure you to borrow big loans, which in
future may become difficult to service. Borrower's failure to repay the loan as
agreed would be a boon to such bankers, who may take possession of the property
and sell it and add various expenses to borrower's liability.
One should not always anticipate that income will
regularly increase until retirement. Inflation frequently erodes savings.
Prepare cash flow statements by taking into consideration the probable
expenditure on providing education of children, marriages, illness and
unforeseen expenditure. Correctly arrive at your wise surplus funds, portion of
which may be directed towards equated monthly installments, based on which the
loan amount may be arrived. Please avoid directing entire surplus to repayment.
It is advisable to seek the help of financial consultants.
Though the loans are available within repayment period
of25 years or more it is viable to repay the loan in 10 to 15 years so that
interest burden is not too much. Repayments in five years or less may be
feasible for small loans for a couple of lakhs. EM! for one lakh of rupees
alone at 7.5% will be Rs. 2000/-. Do not stretch the repayment until
retirement, but ensure that loan is closed at least a couple years before
retirement. One should not expect that his terminal benefits to take care of
repayment. Terminal benefits are meant for future unencumbered happy living.
Choose step-up or step-down repayment depending upon your needs.
There are two different types of interest rates viz.,
floating and fixed. Some institutions offer different types of fixed rates,
semi fixed, fixed for certain period, a combination of fixed and floating.
Floating rates are related to market condition and may
increase or decrease. Fixed rates are supposed to be fixed for entire period of
loans, but loan agreements of many financial institutions have conditions where
fixed rates are also revised under certain circumstances.
Floating rates are preferable where the interest rates
are going down and the repayment period is small.
Fixed rates have to be opted where interest rates are
going up and repayment period is long. At present interest rates are at lowest,
fixed rates are preferable.
Though financial institutions advertise their lending
rates, the advertised rates are called card rates. But actual lending rates
depend on the income of the borrower and his negotiating skills. This also is
related to risk involved, higher the risk, lower the income, interest rates
will be more. Many banks reduce their card rates in case of borrowers with good
income and lower risk.
Borrowers have very little choice in documentation.
Each financier has his own set of documents and will be made available to the
borrower at the last minute. They are predominantly one sided in favour of
financiers. But borrowers should study each and every clause, conditions, and
seek clarification wherever required. They should obtain a copy of all
documents executed.
Every financial institution has its own list of
category of people to whom finance is advanced. It is based on the experience
of the institution, and category of people whose income is not assured,
litigant minded people and the people who may influence the repayment.
Politicians, advocates, film and TV. artists, Journalists, Police, are among a
few who are on negative list. Such borrowers may approach their regular bankers.
Of recent times, direct selling agents are very active
in the field. They are just agents of the financial institution to procure
business. They have a sweet tongue, work for commission and will be in touch
with you, until the loan is disbursed. You cannot get any service from them
once your loan is sanctioned by the bank. The borrower should develop personal rapport with manager of the financial institution to have better after sales service.
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