Taking a home loan is as big a decision as buying a home. It entails committing a part of your salary every month in paying the loan back, for a years to come. While people do put in a lot of research before making the decision, there are a few vital points that are still not being covered by customers as well as the banks, voluntarily.
Thus, if you are considering taking a home loan, here are the questions you should be asking before signing on the dotted line.
Floating or Fixed?
Nowadays, most banks and loan companies offer floating rate loans by default. If you are prepared to take the risk then go for it, if not then it is better to stick with fixed interest rate. In case of a floating rate, even the smallest rise in the interest rate can mean repaying a few lakh rupees more over the period of 10 to 15 years. On the other hand, you also end up paying less if the market goes down. So, make sure you know what you are signing up for. Also, even a fixed interest rate is open for bargain. All you have to do is ask.
Can I switch later?
Confused between fixed and floating rate? Ask the bank or the institution if they will allow you to switch between the two after taking the loan. Then you can go for a floating rate if the market is presently down and later switch to fixed rate when it goes up. However, there are very few such institutions that permit it and that too at a fee of 1.5% to 2% of the loan amount.
Is it truly fixed rate?
Do not assume that your fixed rate loan will stay fixed for the entire tenure of the loan. Ask the bank if it has a reset clause, under which a bank has the right to revise the interest rates once in three to five years, in correspondence with the market. Banks like HDFC and ICICI offer loans with interest rates that stay fixed till the end of the loan tenure.
What are the TnC’s for pre-payment?
What if you get a good appraisal or a new job with a great hike? You would surely like to repay the loan earlier than planned. However, many lenders have restrictions on the time when you can start making pre-payments or the number of pre-payments you can make in a year or throughout the tenure. Also, many banks charge you a penalty amount, some percentage of the outstanding loan amount, if you decide to pre-pay. Get all this information beforehand.
Is there a takeover charge?
While some loan companies do not charge for pre-payment of loans with your own funds, many charge a fee for takeover. A takeover is when you wish to shift your loan to another company for various reasons. If the new lender issues a cheque directly to your current lender then you are likely to attract a takeover fee on the outstanding loan amount.
Are there any other charges?
Processing fees, service fees, administrative charges are common knowledge. However, you also need to know about the charges you may incur in case of changing the size of your monthly installments, replacing the post-dated cheques, or making the full payment to the builder.
Even after having asked all possible questions, always ask to read the loan agreement thoroughly. Make sure whatever you have negotiated with the representative has been put down on paper and only then sign it.