Which bank is right for me to take home loan : Tips on Home loan

Owing a Home is lifetime wish and dream for many. In order to fulfil our dream, we tend to stretch all our financial muscles.  And in this process, we take help of Home loan apart from our own savings. But, choosing a right bank for loan is not an easy task, as a loan has impact on your future financial health and livings.

Following are few things that you should keep in mind while making a choice.

1. Interest rate: Probably the most important aspect of deciding on a home loan provider and becomes all the more important if you are going for a variable/floating rate option. Generally, every bank will have a prime lending rate (PLR) of its own and the Rate of Interest (RoI) that you are offered will include a discount. Banks are legally obliged to keep this discount for the entire life of loan. For example, if published PLR of XYZ Banks Ltd. is 11.5% and you have been offered a discount of 2.25% then the effective RoI at the start of your loan would be 11.5-2.25= 9.25%. With a change in RBI rates, Bank will change its PLR but the discount will remain same and thus the variation is expected to be inline with RBI policies. I strongly recommend going for a bank who has published PLR which gives them very little room to change the variable rate at their discretion. Also,
   1. If you are going for some of the custom-built offers (like fixed 8% RoI for first two year then applicable floating rate), make sure that you understand very well as to what floating rate would be applicable once the honeymoon period of first two years is over. I know of people who would pay more than what they could have by going straight for good deal in floating rate.
   2. If you are going for Fixed Rate then it’s a simple question of finding out the lowest RoI at offer as you can be fairly sure that RoI will remain same for most of your loan tenure. [However, technically, bank can alter their Floating Rates as well]

2. Pre-payment: The ideal bank would be the one who does not charge you anything even if you pay back the full loan amount. But like most of the other ideal things, this does not exist as well. Where most of the banks will have no penalty for part pre-payment (provided you do not pay-back the full amount within one year of having made the part-payment), almost all of them will charge between 2 to 3% (plus applicable taxes) for a full closure of the loan. Also, few banks only allow certain % of remainder amount to be part-paid in a given calendar year which I personally found NOT BEING CUSTOMER FRIENDLY policy. It’s always a very good idea to get all these details sorted out and clarified.
3. Processing fee & time taken: Next in the list of important things would be to find out how much Bank will charge in total for the entire processing. I know of few sales people who would never tell you the total amount and will give you little surprises at different stages of the processing in the name of technical evaluation/property survey etc. Also, for most of us who are busy with their work-life, ease at which processing gets done matters as well. However, I would recommend doing a comparison between time you spend Vs benefits you get in long run. Never opt of a bank just because it sends an executive to your place to help you fill-in the form, collect documents from you etc.
4. Penalty clause for missing payments: You should again make sure that you understands how would missing a payment (or may be two) impact you financially and otherwise. Some banks will be lenient and charge you anywhere between nothing to a minimal amount where as few others will see this as an opportunity to get extra out of you.
5. Post disbursement customer care: Despite of tall claims of a smooth customer services post disbursement, I have found them to be no or of very little use. With most of the banks providing you an online account, you hardly have to speak to someone. And in the unfortunate event of something having gone wrong, Customer Care (?) of all the banks will be equally UNHELPFULJ. Summary is – this should NEVER be a contributing factor for you to decide on a bank to go with for your home loan.

Read the Terms & Conditions document carefully (if you canJ) before signing it and ask as many questions as you think are necessary to keep you at peace post-signing the contract.