Do not be in a hurry to seal the deal quickly. Please do discuss and seek information on any waivers in terms and conditions provided by the commercial bank in this regard. For example some Banks insist on submission of Life Insurance Policies of the borrower/guarantor equal to the loan amount assigned in favour of the commercial bank. There are usually amount ceilings for this condition which can also be waived by appropriate authority. Please read the fine print of the bank’s scheme carefully and seek clarifications.

Yearly reducing EMI – In this system of calculating EMI the principal is reduced At the end of the year, thus you continue to pay interest on a certain portion of the Principal which you have actually paid back to the lender. Thus the EMI for the Monthly reducing system is effectively lesser than the yearly reducing system of Calculating the interest.

The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.

Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely).

Co-applicants are the Co-owners of the property in respect of whom the financial assistance has been sought. Usually joint applications are from: husband-wife, father-.son, or mother-son

Banks generally, offer either of the following loan options: Floating Rate Home Loans and Fixed Rate Home Loans. For a fixed rate loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. If a bank offers a Loan which is fixed only for a certain period of the tenure of the loan, please try to get information from the bank whether the rates may be raised after the period(reset clause). You may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period lock-in lasts.

Hence the EMI of a fixed rate loan is known in advance. This is the cash outflow that can be planned for at the outset of the loan. If the inflation and the interest rate in the economy move up over the years, a fixed EMI is attractively stagnant and is easier to plan for. However, if you have fixed EMI, any reduction in interest rate in the market will not benefit you.

The EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. The floating interest rate is made up of two parts: the index and spread. The index is a measure of interest rates generally (based on say, Government securities prices) and the spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc.The amount of the spread may differ from one lender to another, but it is usually constant over the life of the loan. If the index rates moves up, so does your interest rate in most circumstances and you will have to pay a higher EMI .Conversely, if the interest rate moves down, your EMI amount should be lower.

Also, sometimes banks some adjustments so that your EMI remains constant. In such cases, when a lender increases the floating interest rate, the tenure of the loan is increase (and EMI kept constant).

Some lenders also base their floating rates on their Benchmark Prime Lending Rates(BPLR). You should ask what index will be used for setting the floating rate, how it has generally fluctuated in the past, and where it is published/disclosed. However, the past fluctuation of any index is not a guarantee for future behavior.

Some banks also offer their customers flexible repayment options. Here the EMIs are unequal. In step-up loans, the EMI is low initially and increases as years roll by (balloon repayment). In step-down loans, EMI is high initially and decreases as years roll by.

Step-up option is convenient for the borrowers who are in the beginning of their careers. Step-down loan option is useful for borrowers who are close to their retirement years and currently make good money.

This is a table that gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time. It also shows the gradual decrease of the loan balance until it reaches zero.

Ensure that the documents being provided to you are not colour photocopies. Check the internet for other modus operandi to fraud and ensure clear title to the asset. Seek advice only from authentic sources such as your bank.

Get the no encumbrance certificate to find the true title holder and if it is mortgaged to any financier. Obtain all tax papers to ensure that all documents are up to date.

Give yourselves comfortable time. Do not hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees.Give yourselves comfortable time. Do not hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees.

Obtain information from several banks

Home loans are available from mainly two types of lenders- commercial banks and housing finance companies. Different lenders may quote you different rate of interest and other terms and conditions, so you should contact several lenders to make sure you’re getting the best value for money.

Find out how much of a down payment you required to pay, and find out all the costs involved in the loan (including processing fees, administrative charges and prepayment charges levied by banks). Knowing just the amount of the EMI or the interest rate is not good enough. Similarly, ask for information on loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and take an informed decision.


The following are some important information that you will require.

Rates

Ask your lender about its current home loan interest rates and whether the rate is fixed or floating. Remember that when interest rates in the economy go up so does the floating rates and hence the monthly re-payment.

If the rate quoted is a floating rate, ask how your rate and loan payment will vary, including the extend to which your loan payment will be reduced when rates go down by a certain percentage. Ask your lender to what index your floating home loan in referenced/linked and the periodicity of updation of that index. Also ask your bank whether the index in internal or external and how and where it is published. Ask about the loan’s annual percentage rates (APR). The APR takes into account not only the interest rate but also fees and other charges that you may be required to pay, expressed as a yearly rate. Banks are obliged to reveal the APR if requested for by the customer.

Reset Clause

Check the reset clause, especially in the case of fixed interest rate loan as the rates will not be fixed throughout the tenure of the loan.

Spread/Mark up

Check if the margin in the case of the floating rate is fixed or variable. The rate of interest you have to pay will vary accordingly.

Fees

A home loan often requires payment of various fees, such as loan origination or processing charges, administrative charges documentation, late payment, changing the loan tenure, switching to different loan package during the loan tenure, restructuring of loan, changing from fixed to floating interest rate loan and vice versa, legal fees, technical inspection fees, recurring annual service fee, document retrieval charges and pre-payment charges, if you want to prepay the loan. Every lender should be able to give you an estimate of its fees. Many of these fees are negotiable / can be waived also.

Ask what each fees includes. Sometimes several components are lumped into one fee. Ask for an explanation of any fee you do not understand. Also, remember that most of

These fees are perhaps negotiable!. Do negotiate with your bank before agreeing to a particular fee. See how the all inclusive rate compares with the all inclusive rates offered by other banks.While planning your finance, don’t forget to include the costs of stamp duty and registration.

Down Payments/Margin

Some lenders require 20/30 percent of the home’s purchase price as down payment from you. However, many lenders also offer loans that requires less than 20/30 percent down payment. Ask about the lender’s requirements for a down payment and also negotiate with him to reduce the down payment.

Obtain the best deal

Once you know what each bank has to offer in terms of rates, fees and down payments, negotiate for the best deal. Ask the lender to write down all the costs associated with the loan. Then ask if the bank will waive or reduce one or more of its fees or agree to a lower rate. Do make sure that the bank is not agreeing to lower one fee while raising another or to lower the rate while raising the fee. Ask for clarification in case you do not understand any particular term. All banks are obliged to explain the most important terms and conditions of home loan in detail.

Once you are satisfied with the terms you have negotiated, please do obtain a written offer letter from the lender and keep a copy with you. Read the offer letter carefully before signing.

Yes, most banks allow you to repay the loan ahead of schedule by making lump sum payments. However, many banks charge early repayment penalties up to 2-3% of the principal amount outstanding. Prepayment penalty may vary according to the reasons and source of funds – if you obtain a loan from another bank for pre-payment the charges are usually higher than when you pay from your own sources. However, you may credit more than your EMI amount into your loan account on a periodic basis and bring down your interest burden as and when funds are available with you. Most banks do not charge a pre-payment penalty if you deposit more than your EMI on a periodic basis. Please check such stipulations while availing the loan.

When other banks reduce interest rate, you may prefer to close your account with the bank with whom you are banking, to avail of the loan from the bank offering reduced rates of interest. You have to pay pre-payment charges for doing so. In order to ensure that their customers do not approach other banks for availing reduced interest rates, banks allow customers to switch over from a higher interest loan to a lower interest loan by paying a switch over fee which is lesser than the pre-payment charges. Generally switchover fee is taken as percentage of the outstanding loan amount. Keep up-dating yourselves on various changes in the home loan market. Visit the branch, discuss with the officials to get the best out of any changes in the home loan scenario.

Yes. Resident Indians are eligible for certain tax benefits on both principal and interest components of a loan under the Income Tax act, 1961. Under the current laws, you are entitled to an income tax rebate for interest repayment up to Rs.1,50,000/-per annum. More over, you can get added tax benefits under Section 80 C on repayment of principal amount up to Rs.1,00,000/ per annum

When other banks reduce interest rate, you may prefer to close your account with the bank with whom you are banking, to avail of the loan from the bank offering reduced rates of interest. You have to pay pre-payment charges for doing so. In order to ensure that their customers do not approach other banks for availing reduced interest rates, banks allow customers to switch over from a higher interest loan to a lower interest loan by paying a switch over fee which is lesser than the pre-payment charges. Generally switchover fee is taken as percentage of the outstanding loan amount. Keep up-dating yourselves on various changes in the home loan market. Visit the branch, discuss with the officials to get the best out of any changes in the home loan scenario.

Yes. Resident Indians are eligible for certain tax benefits on both principal and interest components of a loan under the Income Tax act, 1961. Under the current laws, you are entitled to an income tax rebate for interest repayment up to Rs.1,50,000/-per annum. More over, you can get added tax benefits under Section 80 C on repayment of principal amount up to Rs.1,00,000/ per annum

The area of an apartment or building, not inclusive of the area of the walls is known as carpet area. This is the area that is actually used and in which a carpet can be laid. When the area of the walls including the balcony is calculated along with the carpet area, it is known as built-up area. The built-up area along with the area under common spaces like lobby, lifts, stairs, garden and swimming pool is called super built-up area.