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If one has to draw a parallel to a <keyword id="6354730" type="UNKNOWN" weightage="20" keywordseo="Home-loan">home loan</keyword>, marriage comes pretty close. There is a huge involvement of finances, emotions and a long time commitment. But don’t let this analogy send your thought trail into frenzy. Just like marriage, this can turn out to be the best decision of your life. 
 
Everybody has their own views on picking the right lender, tenure, interest rates, etc. It is not necessary that a home loan that is ideal for someone will work for you too. So what are the factors to be considered before you take the home loan leap? 
 
Read on to know more. 
 
1. Are you ready for a long time commitment? 
 
At least a decade long, if not more. Since EMIs will not leave your side for the years to come, this recurring expense must be provisioned for. Evaluate the current sources of income and their efficiency in fulfilling the EMI commitment. Now, consider how these sources will contribute a couple of years from now. Also, focus on making investments right now, the returns of which will contribute to EMI payments in the future. 
 
2. Have you considered the expenses to follow? 
 
Gaurav and Rita have been planning to invest in a house since last year. They took a stock of all their resources including savings, loan from family etc. Made their choice of house and went in for the home loan. Their liquidity was now restricted and cash flows tight. Rita now wanted to furnish the house and do it up according to their taste. She found an interior designer who understood her requirement completely. An action plan was made and budgets were discussed. Rita and Gaurav were now stressed due to shortage of funds and their unfulfilled dreams. Should they go in for an additional loan? Well, needless to say that will only add to their stress. Hence, it is important to access what matters most to you and factor in those expenses before making a loan application. 
 
3. Will this decision support other major responsibilities? 
 
Homes are only a part of other dreams. Each one of us has various responsibilities to fulfill, in order to live a satisfied and happy life. These are linked to our loved ones, healthcare, education, marriage, etc. These are large and important expenses. We need to consider these factors and estimate the amount required and the time available before incurring these expenses, to provision for them. It is important that planning for this is in place before planning for any additional loans. 
 
4. Is it an “attractive offer”? 
 
It is not hard to find loan offers, which appear lucrative to potential customers. The loan market is very competitive and doing this definitely helps the lenders product to stand out. However, prudent borrowers will dig deeper and not allow their decisions to be driven by the enticing numbers on the home loan advertisements. If something appears too good to be true then most definitely that will be the case. Question the numbers and offers, which vary largely from market offerings. Go in for the offer only after you know about all the associated charges and caveats. 
 
5. Is your decision backed by research and consulting? 
 
Often our decisions are influenced by the experiences of people around us or they come from our own past experiences. It is only natural to operate from a comfort zone, and there is nothing wrong in that. However, it is important to look at things from a fresh perspective in these competitive and dynamic times. Speak to the experts and evaluate the offer you have against the ones available in the market. Research can reveal facts which will enable you to make the right choice or at least negotiate better. Doing the homework pays off. 
 
 
(Rajiv Raj is the Director and Co-Founder of <a href="http://www.creditvidya.com/">www.creditvidya.com</a>) 
 
Image: Thinkstock

Want to take a home loan? Ask yourself these 5 questions before applying

For any salaried individual, <a href="http://www.businessinsider.in/searchresult.cms?query=home+loan">home loan</a> is a very important decision and a person takes each and every step cautiously while securing a <keyword id="6354730" type="UNKNOWN" weightage="20" keywordseo="Home-loan">home loan</keyword>. You look for best deals and offers to avail a home loan. 
 
In this search, people go on internet and search for various deals. In this bid, they also come across various imposters, promising lucrative offers and home loans. 
 
Many people, in the bid to get the best, get duped by the imposters and it can be devastating to state the least! 
 
On internet, the messages are even replete with all the coordinates of the contact person who is more often than not a super salesman! 
 
In a bid to “save” a few bucks, you realise that you have been taken for a ride in the name of an attractive home loan offer. Therefore, to save you from such traps, here are some pointers that should serve as red flags for you, if you are in the pursuit of a home loan. 
 
An unknown company with a flashy newspaper/ internet ad 
A home loan or a mortgage is a fairly sophisticated product that authorized lenders are supposed to dole out. These <a href="http://www.businessinsider.in/searchresult.cms?query=lenders">lenders</a> have a fool-proof mechanism in place and will assess your credit worthiness by checking your <a href="http://www.businessinsider.in/searchresult.cms?query=cibil+score">CIBIL score</a> and CIBIL report before it even approves your loan application. Even when your application is approved, many checks and balances are in place to ensure that there are no loopholes in the lending process. 
 
Sure, there is a lot of paperwork involved and some upfront processing fee, but a lender of repute is clear about such things and makes the time and effort to explain you every such clause. Rest assured, this is for your protection. Therefore, if you come across an ad, that promises you scanty paperwork or speedy disbursal, it should serve as the first sign of caution, no matter how attractive the terms of the loan seem in the advertisement. Here are some obvious traps that you must stay away from. 
 
Advance fees 
If any company is asking and insisting for a fee in advance to approve your loan while promising the moon, this should set the alarm bells ringing in your mind. An authorized lender can only ask for a loan processing fee after your loan application has been approved. 
 
Unwilling to answer tough questions 
If any company representative is unwilling to explain the terms of the so-called “attractive loan” or squirms the moment you start asking tough questions, you should not waste a moment in guiding him to the door. Any lender worth his salt, should have nothing to hide or be uncomfortable about when a prospective customer asks for details. In fact, he or she should be willing to explain things to you as many times as you may want. If there is no sign of that happening, you obviously have a problem in hand. 
 
Pressure tactics 
Some salesman of fraud companies are glib talkers and may even use pressure tactics to get you to sign documents without giving you an adequate chance to go through the documents. Do not succumb to any pressure and insist on reading all the documents carefully. Chances are you will discover the fraudulent terms and conditions right away, when you start reading these documents! 
 
Asking for personal or financial information online 
In this hyperconnected world, it does not take much time, money or effort to create an authentic looking webpage that is in a pursuit to extract sensitive financial or personal information. Any webpage that claims to be “approved” by the government or a reputed lender and is asking you for any such information should serve as a red alert to you. No authorized lender or even the government has the right to ask for any such information online that may cause you any monetary loss. 
 Such fraudulent loan companies target salaried individuals who are prone to accessing a lot of credit and do not have a great <keyword id="2054234" type="UNKNOWN" weightage="20" keywordseo="CIBIL-Score">CIBIL score</keyword> to boast of in the first place. That is the reason that such people walk willingly into the trap of such fraudsters. Do remember, that in order to get a home loan, you should work towards having a satisfactory CIBIL score. 
 
If you have a good <a href="http://www.businessinsider.in/searchresult.cms?query=credit+history">credit history</a> and your CIBIL score is well above 750, there is no dearth of reputed lenders who will vie for your attention and be more than willing to give you a home loan. 
 
(About the author: Rajiv Raj is the director and co-founder of<a href="http://www.creditvidya.com/">www.creditvidya.com</a>.) 
 
(Image: Thinkstock)

Here are five ways to spot a home loan scam

Accept it! Bargaining is in our DNA. If we are applying for home loan, even a 5 paisa negotiation would make us feel happy. For instance, the joy of getting 9.95% rate instead of 10% will be immense. But do you know you might lose on few things while bargaining? 
 
I read an interesting quote somewhere, which said: We offer three kinds of services- Good, Cheap and Fast. But you can choose only two. Good &amp; cheap won't be fast, cheap &amp; fast won't be good, and good &amp; fast won't be cheap." 
 
It felt just right. Cheap rate can't be both good and fast. So, if your lender is cheap as well as known for speedy processing, the 'goodness' in the whole transaction could be doubtful. 
 
Following could be the hidden agendas, if you are being offered the 'cheapest' deal. Weigh your options before you choose. 
 
1. Mandatory insurance: Though insuring yourself or property is not a bad idea, which can happen along with a home loan, I quite do not like someone keeping the insurance-purchase as a 'condition' for extending a good rate of interest to my clients. My client's credibility and the lender's willingness to offer him a good deal for acquiring his business should be a standalone cause. The client might like to buy insurance products beneficial to him along with his home loan and I will always encourage him to do so, but don’t force please. 
 
2. Semi-fixed with pre-closure penalty: If you are being offered a good rate along with a lock-in period and exit penalty clause, it is not a decision you should make now. The market is softening, and no wonder the lender is offering you a cheaper deal to keep you 'fixed' with them for a larger tenure. You will end up losing if you compare the floating rates and find in future that they have gone down. Don't let your fear of 'what if the rates increase after this' come in play, especially when you are dealing through an advisory firm. They will advise in time. 
 
3. Company to be co-applicant: Never agree to this clause if you are a businessman (self-employed). Some banks purposely add your company as co-applicant so that your loan comes under non-individual category and they can penalise you during pre-closure. Offering a cheap rate might just be a stunt to capture your business. 
 
4. Semi-fixed with larger margin after auto-switch to floating: Suppose a bank's base rate is 9.5% and they are offering you a semi-fixed loan for two years at 10% with a margin of 50bps. So, this will become floating at the expiry of 24 months. Sounds good? But do not forget to check whether the margin will remain 50bps after 24 months or will it increase. Mostly these offers will have clauses like extra margin upon auto-conversion to floating rate. It means your rate will auto increase even if the base remains same. 
 
5. Monthly reducing rate: A monthly reducing rate disallows your loan to re-amortise the principle-interest breakup the very next day you partially prepay. It waits till your standard EMI payment date comes and hence takes additional interest from the date of your partial prepayment till the EMI date, costing you more. Wherein, the daily reducing balance method adopted by banks allows you to consider your loan partially foreclosed from the very next day of your making the payment. It will make a lot of difference in future, as you are likely to do multiple part closures whenever you have excess liquidity. 
 
6. Not tied down to base rate or similar: Having sanctity of the fluctuation on your mortgage is absolutely necessary. How are you otherwise going to gaze the trend? Base rate or similar milestones with fixed spread allows you to determine the modality of your loan with the lender and their increase or decrease is basis one centric value, without which your loan rate can keep going upwards without any reason and never get reduced. The initial offer of a cheap deal is just a hoax. 
 
7. New lender with no track record: A new lender will always try to win borrowers with cheaper offers, more like a pre-launch deal. As we all know that at pre-launch stage, there are some approvals pending from different government authorities and to dipstick the market sentiment on the property, the builder offers some stock at a cheaper rate, which howsoever has a risk-bearing quotient. A new lender also is of similar nature and it is on your risk appetite whether you should go ahead with him/her or not. 
 
8. Aggressive lender with no experience and probably less infra: Aggression sometimes makes a lender offer a very low rate. Without a proper vision of how they will manage their books or manage their own manpower and infrastructure, they just offer a cheap deal. I have seen this in 2004-2006. Those lenders exited mortgage market immediately after building the portfolio and hiring and leaving their employees and borrowers in a lurch with no one to fall back on. 
 
9. Guarantor/co-applicant mandatory: Obligation to get a person to be your guarantor or making your mother/housewife with no income a co-applicant for the loan isn't a good decision to make. Sometimes lenders will insist on such offerings at a cheaper rate. You might feel like a winner then, but may not have the same feeling if something goes wrong later in the relationship or otherwise. 
 
10. Lender not doing so good in their business: A lender who is unable to do business will try to sell their portfolio and in order to get a good pricing will want good profile borrowers in kitty. They will know that they won't be in the game for a longer time and other institute who purchases their portfolio will take decisions on your loan as per their new policy later. Better to avoid such lenders for a cheaper rate clause. 
 
11. Lesser loan to value ratio: If you are buying a property worth Rs 20 million instead of Rs 15 million and the bank offers you Rs 10 million against a cheaper rate, it suggests that they are not willing to take exposure on you/your property. Better to avoid such offers unless you actually understand the reason for getting such low funding offer. 
 
12. Lesser eligibility: Similarly, if you are offered lower rate for giving you lesser amount of money, in spite of your having the income eligibility, they probably do not like your profession or profile, and have some other interests in taking you in as a customer. Don't be delighted and find out why. 
 
13. Higher processing fee: Last but most common hidden agenda that will blow your top off. When you receive your sanction letter, it will demand more fees to be paid at the time of loan disbursement. When you come out of your shock and call the sales manager demanding an explanation, the response would probably be the 'cheaper rate'. Please note that every Rs 16 you pay increases 0.25% of your rate per lakh per month and obviously paying a few thousand rupees may kill your rate advantage for next five years or more. Take help of your adviser to do the math before accepting such clause, especially if arrives unwarranted. 
 
Do check all 'conditions' before accepting such an offer and before you lose your initial application fee! 
 
Happy borrowing ! 
 
(This article has been contributed by Sukanya Kumar, Founder and Director of RetailLending.com.)

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Want to take a home loan? Ask yourself these 5 questions before applying

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