This year's budget is touted as being a 'good' one for the common man. And not without reason. The tax benefits have been the main reason for this perception.
Without any doubt investors have benefited from the largesse of the finance minister. And home loan seekers are also not complaining. Which brings us to the all-important question from his perspective -- now that tax sops are at an all time high, how does he go about zeroing in on the right housing finance company (HFC)?
Here, we present a few guidelines on how to select an HFC, which is right for you.
1. Rate of interest
This is where it all begins. Although the rate of interest offered by most HFCs is more or less the same on paper, some degree of bargaining in most cases, leads to a lowering of rates by as much as 0.25 to 0.50 percentage points.
More so if your profile happens to match the requirement of the HFC. The lowering of interest rate has a significant impact over the long term although the difference is not so noticeable over the near term.
For instance, a 0.50% interest rate 'concession' on a Rs 1,000, 000 loan over a 20-year tenure will reduce your liability by upto Rs 72,000. But care needs to be taken to ensure that the difference is not being offset elsewhere by the HFC under the guise of other 'charges'.
2. After-sales service
And you thought after-sales service was synonymous only with consumer durables! After sales service plays an important role while choosing an HFC.
An HFC can differentiate itself with excellent after sales. Take the example of post-dated cheques (PDCs). It is general practice to give 36 PDCs during the time the loan is disbursed. It is after 36 months are over that after-sales will play a role.
How diligent are the HFC's follow-ups? Are they prompt? Are reminders timely? Also, during the financial year-end, the HFC should be punctual in giving the borrower income tax statements so that he can file the necessary documents for availing tax benefits on home loans.
3. National presence
The HFC should be present across the country or at least have branches in all major metros and towns. This assumes importance if the current job of an individual is of a transferable nature (e.g. bank jobs, defence personnel) or if he needs to make long and frequent outstation visits (e.g. consultants, businessmen).
The individual shouldn't be put through the hassle of couriering his cheques to the resident branch every time or contacting the resident branch each time he has a difficulty or a query. So it helps if the HFC is well networked across the country.
4. Prepayment/Foreclosure benefits
For many individuals, this plays a significant role in their decision to go in for a particular HFC. For example, many salaried individuals know for a fact that their salaries would be revised every year.
This means that they can pay a higher EMI going forward. Some of these individuals also know that they would be getting a bonus, which they can utilise to pay off their home loan (either fully or partly).
Some banks do not charge individuals for making a prepayment/foreclosing his account. Obviously such HFCs should get preference over other HFCs that do levy a prepayment charge.
5. Calculation of the exact home loan amount
Here, HFCs differ in their calculation of the loan amount to be disbursed. Some HFCs calculate the amount to be disbursed on the basis of, say, the gross salary while some HFCs calculate it on the net salary.
This might make a difference to individuals as the loan amount and the EMI will vary across HFCs. One needs to look into this and get a comparative analysis done across HFCs to understand which HFC offers him the best deal.
6. Do your homework
Many people have a tendency to buy into 'brands' rather than going for what suits them best. It's not about how big the brand is; it is more about whether that brand suits your requirements and satisfies your criteria.
Make a list of your requirements first and then home in on an HFC. Talk to people who have already taken a loan from a particular HFC and get their feedback.
Other factors like documentation, processing fees, document storage facilities and time taken for processing the loan should also be considered.
For example, individuals do not like it if the documentation is an irksome process, or if the processing fee is exorbitant.
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