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How to save money while obtaining a Home Loan?

Buying one’s own home is a cherished wish that everyone has. Undoubtedly it is the costliest asset you will ever own and chances are you will spend a lifetime of savings to provide for the down payment of your house. When you are taking a home loan to pay for the rest of the property price, it is important that you choose a good lender and borrow in a manner so as to maximize your savings. Here are some ways you can save money while obtaining a loan:

  1. Use the influence of your company to get better interest rates

If you are an employee of some Super Cat A company in corporate India, chances are that your company will have working relationships with the top lenders in the country. Working with such companies definitely puts you in a vantage position and you can avail of the preferential rates of interest that such lenders are likely to offer. There are also special corporate rates that are applicable for such companies. Make sure you make best use of this negotiating power to obtain a loan at a cheaper rate of interest.

  1. Save on the processing fee

All lenders charge a certain amount for processing your loan documents. This fee can vary from 0.25% to 1% of the total loan amount being sanctioned. It’s worthwhile to compare this fee across banks and housing finance companies before you decide whom to get on board with.

  1. Beware of the hidden charges that your lender may charge you

Most borrowers fail to notice the “other charges” that lenders tend to bury in the fine print. In order to avoid nasty surprises later, beware of the following charges:

  • Evaluation fee- All lenders need to evaluate your property of your choice before they arrive at a figure of the loan amount you are eligible for. For this they hire the services of a legal counsel whose fees is passed on to the borrower
  • Conversion charge- If you decide to change your home loan from a fixed rate to a floating rate or vice versa your bank may charge you a “conversion fee” that may add up to 2% of your total outstanding amount plus service taxes as applicable
  • Miscellaneous fees- There are a lot of other miscellaneous fees that you as a borrower may not be aware of while taking the loan. These are:

i. Foreclosure charges- While most banks have waived off foreclosure charges for floating rate loans, for fixed rate loans, for a prepayment between 6 months to 10 years you may be asked to pay 0.75 % to 1.5% of the outstanding loan amount.

ii. For late payment- You can be charged up to 2% per month on the outstanding

iii. Cheque bounce charges- Can be upto Rs. 500

iv. Duplicate of interest certificate- If you lose the original you may be charged Rs. 250-300 for a duplicate.

  1. Be alert to RBI’s pro-consumer actions

With the best interest of borrowers in mind, the apex bank of India has over the past five years introduced measures such as introduction of base rate and abolishing pre-payment penalties. In a latest move to bring in more transparency in costs for home loan borrowers, RBI has introduced an Indian Banks Base Rate (IBBR) which is now used as a new benchmark for floating rate products. The data for this has to be collated and published in a periodic manner by the banks, so that there is better discipline and more transparency in the resetting of loans as per a floating rate of interest. Keep your eyes open for low interest rates as this can bring down the cost of servicing your loan.

  1. Take a joint home loan

It is always a better idea to take a joint loan with your spouse or other blood relatives such as parents, siblings or children. Not only does it save money upfront for the borrower, it is also beneficial from a taxation point, because both borrowers can avail deductions for interest payments under Section 24 of IT Act and under Section 80 C of IT Act for the principal being repaid.

  1. Keep a good CIBIL score

It is becoming increasingly important for banks to look at your credit history before giving you a loan. Therefore, if you intend to take a home loan, make all your payments on time on existing loans, credit cards and insurance payments. All of this will reflect positively on your credit report. A higher CIBIL score puts you in a better position to negotiate with your lender.

Keeping the above mentioned tips in mind, will help you keep your costs under check when you are opting for a home loan.