What to look for when taking a Housing Loan?

To fulfill the dream to own a house, many people depend on housing loans.  The first question, when a loan is taken, is the rate of interest. However, this is not so in all circumstances … along with it, there are some more important points to be taken note of.

Banks frequently revise the terms and conditions in case of housing loans. A rate of interest for the first year … after that, another rate … is made applicable to the loans. However, currently the interest rates are almost the same in many of the banks.  It facilitates to assess the benefits available from each of the banks and take a prudent decision for selection of a bank.

History of interest rates on Housing Loan:

Examine carefully the mode of sanctioning of loans by a bank and the rates of interest it charges. Points like - How fast it reacts to changes in interest rates? Do they reduce it in tune with the trend? When interest rates increase, what facilities they provide? – are to be well-thought-out. When RBI reduces the PLR, it would be beneficial to the bank customers, if the effect of it is accordingly implemented by reducing the bank base rate as early as possible.

Opportunity for change:

Suppose, you have taken a loan with a fixed rate of interest for some years and then with application of variable rates. In such scheme, examine the conditions set by the bank. Will they definitely stick to application of agreed fixed rate of interest?  Or increase the rate of interest on the pretext of unavoidable circumstances? It is advisable to take loan, where fixed rate of interest is guaranteed at least for three years.

Do Banks extend the same attention to old (current) customers also?

Banks generally dash with attractively new schemes. Their main purpose is to attract new customers. Many of the banks don’t pay even the least attention to the old customers who have already taken housing loan. Will they invite the old customers to switch over to the new loan schemes, when such schemes are introduced? Will they provide for smooth change over? – These are the points to be enquired about.

In extra-ordinary circumstances:

Even though loan is taken with a fixed rate of interest, using their discretionary powers, sometimes, banks try to revise the interest rates in the name of ‘unavoidable circumstances’. Check-up whether there are past instances, when these banks have acted so.

Miscellaneous expenses:

Carefully study the different types of fees that banks charge on loans along with the interest rates. Enquire about the penal fees collected in case of default in payment of instalments for one or two months.

When loan agreement is finalized, many people just sign wherever they are asked to sign without reading what is in the text of the agreement. As far as possible, try to avoid it, read it thoroughly. Also have an idea before taking the loan as to how the bank reacts when a problem arises.