If you are about to apply for a home loan, do not get swayed by high decibel advertising and brand names. Do your research and check out the best deals possible. The difference this could make to your EMI might astound you Home loans, both on fixed and floating interest rates are available on wide band of interest rates. And proper due diligence could end up saving you anywhere between Rs.2.2lakh (on a 15-year floating interest loan of Rs.20lakh) to Rs.7.7lakh (on a 15-year fixed interest loan of Rs.20lakh) over the tenure of the loan.
Financial consultant explains that in many cases, nationalized banks may take a few days more to process your application than foreign banks or some other players, but it would be worth while to wait for that time period, rather than jump onto a lender and go through the worry and hassles of hidden charges and unwarranted rate hikes on a long tenure loan. After all it is a long tenure loan of 20 years, of may be Rs.20-40lakh.
Experts say the Indian market and players do not give enough product information to the retail customer, hence borrowers need to exercise caution. Borrowers are ready to shop around in several places for several days for clothes, but want to finalize their loan and have it processed at the earliest. What suits you may not suit me, despite the fact that both of us may work in the same organization and may be drawing the same salary. Adding that it is thus necessary to study the market and tailor make your product.
Borrowers while taking the loan floating, fixed or semi-fixed-should consider the time period they are looking at to repay their loan. In today’s market one cannot predict the way interest rates would move, and each customer has to take his call. Broadly, one could say that if it is going to be a short-term loan with repayment in, say five years, they could opt for a floating rate. If it is a long term loan of 20years, they can look at semi-fixed rate or fixed rate loans. The quantum of loan and the loan tenure are important before you finalize the kind of loan you take. Other borrowings cost such as one percent or 0.5% processing fees should also be taken into consideration. Borrowers need to look at various lenders and not just go by brand names.
Things are relatively easy in today’s market where borrowers can go to the website of various players and study the details and depending on the market conditions, decide on the kind of loan and lender. They would have to of course, go by word of mouth to know about the kind of service they could get from lenders. There are lenders who rely on DSAs mostly for sourcing business but following that the entire procedure is take care of in-house and customer needs and queries attended to.
While Bank of Baroda offers the best deal for fixed interest rate loans of ten and 15 years-11.25 and 11.5% respectively-Punjab National Bank offers the best deal for a 20 year fixed interest rate loan at 11.75%. Similarly Punjab National Bank also offers the best deal for 10 year floating interest rate loan at 9.75% and 15 and 20 year tenure floating interest loans at 10 percent. Making another observation, many players today are discouraging customers from taking fixed interest rate loans on long tenures.
Lenders do not want to get into the hassles of managing such long tenure fixed loans where their margins would get reduced in the event of the market rates changing adversely at a future date. Their floating rates are however, on par or slightly above other players. There is also a practice amongst players to offer floating rate ax per the card rate and within six months hike these rates, irrespective of whether there have been changes across the country. There is also disparity in the way rate hike apply to existing customers and new customers.
Players like HDFC and ICICI defend their high fixed interest rates at 14 and 14.75% saying these are pure fixed rate home loans and do not have reset clauses which some other players in the market have. There are few takers for fixed rate home loans, they say. ICICI says their fixed rates are a function of what they believe is appropriate pricing and makes economic sense for a 15-20 year long term loan. The floating rates are more or less on par with leading players.
Observers point out that housing finance companies depend on borrowed funds, many times borrowed from banks and other institutions; hence they are affected by any rate hike on the part of RBI and the banks. There would be difference in the cost of funds for nationalized banks and private banks. Nationalized banks with their wide branch network have access to cheaper funds through deposits whereas private banks and HFCs have to borrow funds at higher interest rates. Thus there would be difference in costs for every player depending on his reserves, profitability, liquidity crunch and his balance sheet. Despite all this experts point out that it is up to the customer to shop around for the best deal.