If we apply for home loan, even a 5 paisa negotiation would thus make us feel happy. For instance, the joy of getting the home loan at the rate of 9.95% instead of 10% is immense. This article however tells us about the 13 things which the borrower should avoid against the cheap home loan rates .
1. Mandatory insurance: Though insuring yourself or a property is not considered as a bad idea, which can also be the case when of a home loan . The clients however like to buy insurance products which are beneficial to them along with the home loan .
2. Semi-fixed with pre-closure penalty: If the borrower is being offered a good rate along with a lock-in period and the exit penalty clause, then it is not a decision which the borrower should make now. The borrower would however end up losing if he compares the floating rates and then find in future that they have gone down.
3. Company to be co-applicant: Some banks purposely add the borrower’s company as co-applicant so that the loan comes under the non-individual category and then they can penalise the borrower during pre-closure.
4. Semi-fixed with larger margin after auto-switch to floating: The banks provide offers which are generally semi fixed with larger margin and they have clauses like extra margin upon an auto-conversion to the floating rate. This thus means that your rate would auto increase even if the base remains same.
5. Monthly reducing rate: A monthly reducing rate thus disallows the loan to re-amortise the principle-interest breakup the very next day when the borrower partially prepays . It generally waits till the standard EMI payment date comes and it hence takes additional interest from the date of the partial prepayment till the EMI date, which results in costing the borrower more.
6. Not tied down to base rate or similar: Having a sanctity of the fluctuation on the mortgage is absolutely considered as necessary. Base rates or the similar milestones with the fixed spread allows the borrower to determine the modality of his loan with the lender and either their increase or the decrease is the basis of one centric value, without which the loan rate can keep going upwards without any reason and it never gets reduced.
7. New lender with no track record: A new lender would always try to win the borrowers with cheaper offers, which is more like a pre-launch deal. Thus at a pre-launch stage, there are some of the approvals that are pending from the different government authorities and thus to dipstick the market sentiment on the property, the builder thus offers some stock at a cheaper rate, which thus howsoever has a risk-bearing quotient. A new lender is also thus of a similar nature and it is on his risk appetite whether borrower should go ahead with him/her or not.
8. Aggressive lender with no experience and probably less infra: Aggression always makes a lender to offer a very low rate. Without a proper vision of how they would manage their books or either manage their own manpower and the infrastructure, they just end up offering a cheap deal.
9. Guarantor/co-applicant mandatory : The obligation to get a person to be the borrower’s guarantor or making the borrower’s mother/housewife with no income a co-applicant for the loan isn’t thus a good decision to make. Sometimes the lenders would insist on such offerings at a cheaper rate.
10. Lender not doing so good in their business: A lender who is unable to carry his business successfully would try to sell their portfolio and thus in order to get a good pricing would want good profile borrowers in kitty. They would know that they won’t be in the game for a longer time and the other institute who purchases their portfolio would take decisions on the loan as per their new policy later.
11. Lesser loan to value ratio: If the borrower is buying a property worth Rs 20 million instead of Rs 15 million and the bank offers him Rs 10 million against a cheaper rate, it thus suggests that they are not willing to take exposure on the borrower’s property. Borrower should avoid such offers until and unless he has actually understood the reason for getting such kind low funding offer.
12. Lesser eligibility : Similarly, if he is offered lower rate for giving the borrower lesser amount of money, in spite of he having the income eligibility, they probably do not like the profession or profile, and they have some other interests in taking the borrower as a customer.
13. Higher processing fee: When the borrower receives his sanction letter, it would demand more fees to be paid at the time of loan disbursement. Borrower should take help of his adviser to do the math before accepting such clause, especially if it arrives unwarranted.
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