“The interest rate is the only deciding factor for a home loan”: Myth Buster


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If you are planning to finalize your lender by just looking at the interest rate (ROI), it would be like choosing your life partner by looking at their WhatsApp DP! Even if this is partially true, it is never the complete picture. A very important question to ask here is: Does a lower interest rate imply a decrease in interest outflows? As the little star next to the Dream Interest Rate will tell you, there is more to this story!

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What does a lower return on investment imply?

A low interest rate simply implies that the interest per year charged by the lender will be lower. Although this seems to be ideal, the problem lies with the term “per year”. The number of years being quite long, the amount of interest paid over a horizon of 15 to 20 years may surprise you. See this example:

Consider two loan companies A and B. Now A offers a loan of 10 lakh INR at a rate of 9% per annum for 20 years while B charges 11% for the same amount for 15 years. The seemingly obvious choice would be to go with Company A as that would get you a lower EMI of INR 8,997 versus INR 11,366. However, it would cost you INR 11.59 lakh over time (in interest only) versus INR 10.45 lakh if ​​you had chosen Company B. So while a lower interest rate on a loan is a good thing It is necessary to understand all the terms and related fees and charges before choosing your lender. A lower interest rate may not always translate into lower interest outflows.

Now that you can read interest rates and what they really mean, let me take you through the big picture. It’s the little fees, charges, and facilities that can go a long way in determining not only your financial health but also your sanity for the next 15 to 20 years. Think of them as a checklist for finding your perfect financial partner:

Prepayment facilities

Yes! “Prepayment” is your superpower. It will help you get rid of your debt faster than you think. And, your interest outflow will be considerably lower. Any reduction in principal means zero interest incurred on the prepaid amount and it is an absolute gain for you.

However, some lenders may not be “prepayment friendly”. There may be certain obstacles with their existing processes, they may charge a fee on the prepayment or there may be restrictions on the number of such transactions made per fiscal year or their cumbersome prepayment process would require you to take a day off for complete the formalities (and a visit to the spa afterwards). Remember to clarify this before choosing your lender.

Pro tip: Even if you aren’t able to pay a lump sum for your prepayment, start small. Some HFCs allow amounts as low as INR 500 each month as a prepayment. You will be surprised at how much you can save by paying 500 INR every month.

Customer centric

Does your lender understand you? Often times, the quality of service is everything between a dream and owning a home. Always choose partners who pride themselves on faster processes and quick turnaround times. These lenders are also likely to be quick to answer any questions and concerns in the future.

The reputation of the lender

The right lender not only gives you the financial help, but also the right advice. The processes will be transparent and there will be no hidden costs. Make sure you understand the terms and conditions and the fine print.

Loan eligibility

Different lenders have different ways of measuring your loan eligibility. Most lenders would simply review your tax returns to assess your potential; a more qualified lender would gather more information to prepare a healthier profile. Understanding your family income better could help you have better loan eligibility.

Convenience or digital accessibility

If containment has taught us anything, it’s the importance of digital accessibility. While couples can maintain long-distance relationships during this time, there is no excuse for your lender not to be digitally available for account statement, principal overdue, partial payments, EMI reminders, and access. the documents necessary for filing the RTI, etc.

Closing costs

Suppose your bonus arrived all at once or the lottery you have always dreamed of comes true today and you get so much money that you decide to end your entire loan in one go. Will your lender allow you to get off the hook so easily or charge you for it? Find a lender who finds happiness in yours!

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