Friday, July 31, 2015

OPTING FOR THE RIGHT HOUSING LOAN FINANCIER

OPTING FOR THE RIGHT HOUSING LOAN FINANCIER

The dream of every person on this earth would be to own a house in his life time. With so many financial institutions around, getting a housing loan has become very easy and in fact the aspirant thinks it is a boon. His desire to construct a house drives him crazy to the extent that he may blindly sign any document to get the loan even without reading the loan document.

Seeing the present trend, it is quite clear that banks and Financial Institutions are ready and more interested to provide housing loans.A notable fact here is that there is no prescribed norm or procedure of either RBI or Indian Bankers Association as far as Housing loans are concerned except timely cautions to the banks in respect of over exposure to the housing loan and interest rates. Each bank has its own type of documents related to housing loan and many a times, the applicant is kept in dark about the documents required and the procedures followed for the purpose of housing loan. The Financial Institutions make the borrower to submit himself and gives him no choice other than to accede to its terms and conditions. On many occasions, the applicant is made to sign the documents on the blank papers and also on blank cheques which is highly irregular and it is also not advisable.

There is a meteoric growth in the housing and building construction sector and one of the main reasons is the easy availability of housing finance to all income groups.

Main Categories of housing Finance
Housing Finance Companies, old scheduled banks, and New Generation banks form the three main categories of the housing finance.Though housing finance companies are also in the fray, the competition between the Old Scheduled banks and new Generation banks are rather stiff and both of them have their own positive and negative aspects.

Old Scheduled Banks
All the nationalized banks and private scheduled commercial banks which are rather old can be categorized under the above head. The process to sanction the loan takes a lot of time. But the advantage in these banks is the transparency factor where the transactions are lucid.  Original documents need to be deposited in the bank once the loan is cleared. 

New Generation Banks
There is a radical change in the functioning of the New Generation Banks when compared with old scheduled commercial banks.  They are not very particular about the title or the valuation of the property, and the loan is released irrespective of the registration value of the property. The major disadvantage while dealing with these banks are it is next to impossible to get all the details and other charges imposed by the bank as in many cases they are handed over for outsourcing. There would be a long wait to get back the original documents despite clearing the complete loan amount as the documents will be preserved in some other metro city.

Direct Selling Agents or DSA act as a commission agent between the borrower and the new generation banks. They market the products of the financial institutions on a commission basis which will be charged on the loan of the borrower as service charges. Their job will be to get you the cheque of the loan and once they do that, they will forget the borrower all together as the business relationship with the borrower would come to an end. They are just agents who want to solicit business and make every attempt to satisfy their principle company and to get their commission. Once that is done, it is the transaction just between you and your financier.

Hidden Cost
The borrower should be more prudent and ensure that what other fees are to be paid apart from interest on the loan. In most cases, huge fees are charged other than the interest amount thereby nullifying the benefit of lower interest rates.The other fees may include processing fee, legal fee, administrative fee, inspection charges, notice charges, etc.  Each bank has got its own technique and methods to collect various other charges from the borrower. 

Selecting the financier
Even though there are plenty of home loan lenders, it is always difficult to select the right lender. The borrower should not get carried away by the attractive schemes and colorful advertisement which is just eyewash.  There are a set of parameters which plays a major role in deciding the proper and reliable home loan lender.

It is always advisable to choose the lender whom you know for sometime and also the antecedents of the lender. This is because in a long period of loan repayment of 10-20 years, there is a chance of getting EMI default due to various reasons viz. illness, social commitment, death, job shifting etc. If such a thing happens, the financier with whom you have borrowed the loan may take severe steps and slap hefty fines, interest, and legal notice and may even resort to intimidation. Further, the Securitization and Reconstruction of Financial Assets – Enforcement of Security Interest (SRAFESI) is very strict and if the default of the EMI continues for a period of three months, the account will be considered as a Non performance Account (NPA). The banker will send 60 days notice under the SRAFESI Act. After the expiry of 60 days, the possession of the property will be taken by the financial institution and the property will be auctioned. This may be avoided to a certain extent if the lender is a known person to the borrower and may take a bit lenient step by giving the borrower some breathing time to clear the loan.

Interest Rates
There are normally two types of Interest rates viz. Floating and fixed rates. It is advisable to opt for the floating rate as it goes down further from time to time and the bank will notify duly about the loan amount charged every month and the new EMI is less than the previous month.

Now even fixed rates have increased. Fixed rates are easy to calculate the EMI for entire period of loan.  When the rates are falling, it is advisable to go for floating interest rate but fixed rates are always better to make a commitment for your lender for entire loan period.These days, the Housing loan interest rates are getting increased by all the banks and Financial Institutions.

Negative list
Each home loan financiers have their own set of rules for providing housing loan.  There are some home loan financiers who do not encourage professionals like film artists, TV artists, police, journalists, politicians, Advocates, self employed who do not possess bank statements or who can influence their position and create trouble at the time of repayment. It is better to approach banks who do not ask for income proof or a guarantor.   

Track record of the financiers
It is quite common these days to hear about the confiscation of the property by the banks whenever there is any default of the EMI. Some of the banks employ Goondas and anti-socials elements to recover the property through illegal way. Even though the rate of interest may be a tad above the other financial institutions, it is advisable to opt for such an institution where there is a good policy and customers are treated with respect.

However, it is a good practice to receive acknowledgement of all the original documents you hand over to the lender.

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Bannerghatta Road 
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