maanantai 15. marraskuuta 2010

Getting a good Home Loan Interest Rate

Here are some simple tips to help you negotiate a good home loan interest rate.

1) First finalize your property, then choose your lender

A common mistake many people make is to take a pre-approved loan before finalizing property. You don't need to take a pre-approved loan to know how much you are eligible for. (Simply use our home loan eligibility calculator if that's all you want to know). Besides, imagine falling in love with a property and then discovering that the lender you chose will not fund that property due to some legal/document issues.

You are better off finalizing your property first and then applying for a home loan. Banks are known to reserve the best deals for immediate disbursement cases as there are targets to be achieved.

2) Go window-shopping, then bargain and then bargain some more.

Not only from the perspective of interest rates, but also the eligibility amount it is advisable that you shop around and play one provider against another. A home loan is large purchase decision; 0.2% knocked off your interest rate over a 20 year home loan can typically save you half a lakh! Apart from interest rates, also look out for various fees and charges - processing fees, pre-payment charges, legal fees, valuation fees and other hidden costs. So haggling is worth the trouble. Summon up all your bargaining powers and let banks compete for your business! Enjoy the journey.

3) Teaser rates may be good but understand them before you sign

The State Bank of India Home Loan scheme (popularly called the 8% scheme) is very good scheme but surely costs much more than 8% except in the first year. The success of this scheme has ensured that other banks also offer what bankers call 'teaser rate schemes a low initial rate but a higher rate after the first couple of years. Please evaluate the impact on overall cost of such rate changes over the entire loan tenure (typically 20 years). Our interest rate comparison tool gives you the average rate as well as the initial rate to help you understand them better.

4) Fixed or Floating - be vigilant

In some cases, a "fixed rate loan" may remain fixed only for a certain period of time, as the bank may have the right to arbitrarily change even the so called 'fixed rate'. Do your due diligence before signing anywhere. Likewise, if you choose a floating rate loan, check if the rates of your chosen lender have actually floated down in the years when interest rates were dropping like a stone. There are a lot of not-so-transparent banks in the market who float the rate up when the industry rates are going up but fail to float the rate down when the industry rates go down. To know whether the bank you are talking to offers 'transparent floating rates', ask for the bank's track record - especially in the falling interest rate regime of 2009 or of 2002-2003. Past behaviour is a fair indicator of how the bank will behave in future - whether it will pass on the benefit to you if and when the interest rates start moving down.

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