Housing Loan – 5 Weird Reasons to Finalize the Bank or HFC

Housing Loan is a long term commitment. Even if you go by an average tenure of 8 years, still housing loan can impact your finances if your choice is wrong. Let me be very honest and candid on reviews of home loan providers. You will not find consensus good reviews about any of the Housing Loan providers. At the same time, it is a personal experience and depends on a lot of factors. I shared pre home loan review of top 5. Now you must be wondering, how to finalize a housing loan provider. I suggest you go through the “Home Loan” section on this blog. Through various posts, i have shared the points to be considered by potential borrowers. All points are situational in nature and there is NO standard process. You always need to compromise on few points depending on case to case basis.

Based on my experience, i can say that time pressure plays an important role in the selection of housing loan provider. After the token money is paid or sale agreement is signed, the seller gives max 2-3 weeks’ time to the buyer to process housing loan. It is not a sufficient time to take the right decision. Therefore, the borrower is running against the time & may take a hasty decision. In my opinion, the buyer can try to close the deal as soon as possible. On papers, he should insist on at least 45 days to 60 days’ time to process housing loan.

I come across multiple reasons from my readers for availing a Housing Loan from a particular bank or HFC. My personal favourite reason is a reason given by the borrower who availed housing loan from LICHFL. The reason given by him was that since he had LIC Life insurance policy, therefore, he availed loan from LICHFL. It is not his mistake but the salesperson of LICHFL told him that loan is easily approved for borrowers with LIC policy :). Personally, i find some of the reasons very weird or illogical. Though the borrower may be right in his/her approach but personally i feel that every decision should be logical and well thought through. I am listing down five such reasons.

Housing Loan – 5 Weird Reasons to Finalize the Bank or HFC

1. Processing Fees is waived off: In my opinion, this is the biggest marketing gimmick. I always suggest looking at bigger picture. The processing fees are normally 0.5% – 1% of loan amount or Rs 10,000+taxes. Some banks charge Rs 5,000+taxes and balance in other heads. Therefore, including the entire home loan hidden charges total is between 20k to 25k.

As a marketing promotion, the bank will waive off processing fees. Trust me; waiver of processing fees has high perceived value in the mind of a borrower. Let me fix this misconception. Assuming, i am availing housing loan of 50L at 9.55% for 20 years. My EMI will be approx. Rs 46,750. You can do these calculations through EMI Calculator.  Assuming my home loan run for the entire tenure. On a housing loan of 50L, i will pay an interest of whooping Rs 62, 34,396 i.e. 62L. In other words, my interest payout will be more than the loan amount. As i am going to pay 62L interest, therefore, should i bother about the processing of Rs 10,000+ to finalize a home loan provider? The processing fee is not even a fraction of total interest. I should be concerned about more imp factors like markup, base rate, service, historical interest rate movement etc that will impact my interest outflow i.e. 62L.

Last but not least, always remember that there are NO FREE lunches in this world. If the bank has to charge Rs 20k from me then they will definitely charge. Processing fees will be Zero but there will be legal fees of 5k, Login fees of 4k, and valuation fees of 2k and so on. At the end of the day, total will match to 20k. Therefore, processing fees should not be a criterion to finalize the bank or HFC.

2. Balance Transfer in Future: You can term it as either a casual approach or a consoling factor to justify the decision. In many cases, a borrower is aware that he/she is not making the right choice but they always think that they will balance transfer in future. Always remember that balance transfer means cost, time and efforts. As i mentioned that decision is always situational in nature. Therefore, it might be easy for me to comment but only a borrower is in a right position to take a decision. I observed this reason in the case of a leading HFC that charges fixed interest for 2 years. After 2 years, the interest rate is between 11.5% – 12%. Though borrower is aware that after 2 years there is no choice but to balance transfers but due to current compulsions, they select particular HFC. A balance transfer in future is the highly illogical reason for the current decision.

3. Convenience: It is one of the imp considerations. Borrowers prefer the least documentation. Therefore, borrowers prefer housing loan from a bank or HFC that has pre-approved the project. In a recent case of one of the clients, the project was approved by the SBI but housing loan from PNBHFL was rejected. Quite surprising. When the client checked the reason, he came to know that builder interchanged few blocks with common area/children’s park as per approved plan. SBI was not aware of the same as the project was approved 2 years back. Always remember, a convenience at this stage may cost heavily in future. Therefore, if you are looking for a convenience factor and least documentation then it is better to postpone property purchase decision. The fact of the matter is that it is quite a hassle to buy property and avail housing loan.

4. Seller Recommendation: Normally seller prefers that buyer should avail housing loan from the same bank from which the seller availed or has a running housing loan. The housing loan is processed fast in this case. Seller has a selfish motive behind the same. It has its own pitfalls like the buyer will never get to see the original documents. In a similar case, i observed that banks lost two original documents. Now the person B who bought from person A had a loan from the same bank as person A. He was not able to prove at what stage the original documents were lost by the bank. Therefore, it is important to check all the original documents at the time of purchase. Personally, i will not suggest this arrangement.

5. No other option: Last but not the least, as i always highlight that you should buy in a project approved by at least couple of leading banks and HFC’s. Most of the projects on outskirts of the city or on panchayat land are approved by only one or two Loan for Home provider mostly a very small player. Trust me, no other bank or HFC is willing to lend in such cases. It is always advisable to avail housing loan from one of the top lenders. If they are not willing to lend then it’s a red flag that something is wrong. In such cases, you can altogether drop the idea of buying a property that particular project.

Source: http://www.nitinbhatia.in/home-loan/housing-loan/