Decoding Home Loans

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A home is the biggest investment of your lifetime and the home loan is the biggest financial burden you have to service. So why not ensure you do it right?

Reading the fine print of a home loan is important to secure yourself against additional financial burden. Ramji Subramanian, Managing Director, Sowparnika Projects and Infrastructure Pvt. Ltd. explains, “the fine print in an agreement includes the terms and conditions of the contract, disclosures and other essential information which are not incorporated in the document’s main body. The fine print usually comes as a supplement or in footnotes which people often overlook and might get into trouble in the future.” We list a few of the aspects that need your attention before you sign on the dotted line.

Allowing for amendments to the loan agreement is against the borrower’s interest, as the power to alter the terms of the agreement, in the event of a difficulty in the repayment of the loan/ mortgage of the property, lies with the bank.

Fluctuating interest rates empowers the financial institution to alter the payable interest rates, as per the fluctuations in the applicable base rates. “It enables them to increase the interest rate in the future, when the market rates increase. On account of such interest fluctuations, fixed rate loans are often converted to floating rate loans,” says Manoj Asrani, CEO of Viiking Infra and Realty. C.S. Sudheer, CEO and founder, Indianmoney.com, adds, “a clause in the home loan agreement, which allows the bank to increase the interest rates in the future, if market rates increase gives power to the bank to alter interest rates on home loans paid by the borrower, in case there’s a change in applicable base rates. A borrower must carefully go through the loan agreement, and make sure the interest rates which have been negotiated with the bank are safeguarded in the loan agreement.”

Fees are another aspect as this is charged to process the home loan. It differs from one bank to another. Few banks have no fees while some may charge 0.3 per cent to one per cent of loan amount. Rahul Shah, CEO, Sumer Group adds, “clauses like reset clause when applied, gives the authority to the bank to review the rates and reset them at the end of a specified period of time subject to the prevailing interest rates. The banks have also come up with “depreciation of security” which means that if the price of the security drops, then the bank has the right to ask for another security.” Again charges for pre-paying (paying the entire outstanding amount before the end of tenure) the loan amount needs consideration. Different banks charge different pre-payment amounts charges are in the range of 0.5 per cent to two per cent of the prepaid amount. Piyush Mehra – Principal Architect PS Design opines, “say no to loan insurance. It is the biggest sham in the market. The bank, while creating the mortgage on the property, basically owns the property and the complete rights to it – on top of that they want you to engage an insurance provider to pay them back in case of the consumer’s untimely demise. In case of the death of the consumer, the bank will anyway get the property in their name which they will sell off besides getting the money back from the insurer. The banks have no right to force the insurance on you.” Do remember – read right and stay informed.

This story first appeared in The Hindu property Plus here:

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