Need to be judicious while borrowing

The hike in the lending rates has made it far more difficult for a borrower to have a home of his own. In last couple of years the lending rates have gone up by 200 basis points or 2 percent; that is very much considering the time window. The rates are still not on hold and are expected to further go up in the time to come.

The basic reason behind the hike in the interest rates is inflation that has kept umbrella body of banking in the country, The Reserve Bank of India on its toes. It tried everything to rein it but with no luck, in the meanwhile the rates shot up and there is no hint that the pace is going to slow down in the time to come.

The effect of the hike in the interest rates has affected the middle class borrowers the most. The amount of their EMIs has gone up with their income being the same; further the hike has deterred people from borrowing loan, considering the present scenario.

But according to the experts of a person can work out for a favorable deal then he must not delay it as the rates are only going to soar there is no intelligence in waiting for them to fit them in to their pockets. If a person has to borrow then he must go for it right away. As a precautionary move a person must try to borrow as less as he can as then he would have a choice to go for another loan scheme if the rate falls in future.

The Managing Director of Marathon Group Mr. Mayur Shah said "Perhaps, if the inflation is tamed, there are chances that the rise in interest rates are likely to come down. In the last 10 years from 2000 to 2010, the interest rate on home loans has shuttled between 8-12 per cent. So, for any new home buyers, I would suggest to calculate EMIs keeping in mind a 1 per cent rise in interest rate. Also, a new home loan seeker should avoid opting for a maximum loan amount offered by a bank or any financial institution. Instead, they must look forward to a maximum of personal funding.”

Stuck with unfavorable deal, go for refinance

Many a times it is seen that a borrower is not happy from the loan scheme that he has borrowed, people who have not researched properly about their loan scheme are the one who generally fall in such a situation.

Such a situation can be avoided very easily by understanding each and every aspect of the loan scheme before the borrower finalizes a deal, but what if somehow a borrower has to face such a situation, is there anything else that he can opt for?

The best option out in these situations is to refinance the loan. Refinance can also be a solution for the people that are paying high interest rates on their loan and some other lender is ready to offer a loan to them at lower interest rate.

Under refinance, a borrower can shift his loan to another lender that is willing to offer loan scheme that the borrower finds more suitable for him than the present one or the loan scheme is cheaper then the one that he is stuck with.

In case of opting for refinancing a home loan a borrower must be ready to pay prepayment penalty to the present lender, although the Reserve Bank of India does not approves for such a penalty but still the lender do levy this penalty unless the borrower is prepaying by his own sources.

The conditions for the penalty can vary so a borrower must get an idea of about how much he will have to pay in case he opts for prepayment; if the profit out of such a deal is not substantial then there is no use of going for such a deal, in that condition a borrower can look for some other lender that can offer him even lower interest rates.

To get what you expect

A home loan deal comprises of various arcane terms but there are a few things that are a few things that a borrower must know and should be very sure about that. Regardless the complexity involved in home loans it is very necessary to have every detail about it, as it is the borrower himself that is going to bear the burden of the home loan. Even if a borrower takes care of at least a few details that can also help a lot.

A common mistake that most of the borrowers commit is that they do not take the loan agreement very seriously. Sometimes people tend to take care of each and every aspect of the loan but misses out to check the most important document, loan agreement.

The lenders try to lure customers through attractive advertisements and features but there are a few hidden terms and conditions associated with them that the lenders avoid disclosing; but they are very significant and sometimes the loan scheme turns out to be altogether a different one form the scheme that he has opted for.

All such conditions are mentioned in the loan agreement and that is the only tool by which he can actually determine the nature of the loan scheme. To avoid falling in the trap of the lender a borrower must reckon the loan agreement. There maybe a lot of loopholes in that agreement that a common person can find difficult to understand; in that case he can consult a professional broker, it can be of real help for the borrower.

The other thing about which the borrowers might be confused about is which interest rate scheme to opt for. There are basically two types of interest rate scheme available, floating and fixed rate scheme. Under fixed rate scheme ideally the interest rate remains the same during the whole loan tenure and under floating interest rate scheme it fluctuates with market rates.

Considering the present market scenario, a lot of people might prefer for fixed interest rate scheme but here there are a few things that are requires to be kept in mind. The first thing is that the interest rate under fixed interest rate scheme is quite high as compared to the other interest scheme. Secondly even though interest rate under fixed rate scheme ought to be the same during the whole loan duration but the lenders tend to increase the loan rates after a certain time period and that makes it really very expensive.

The other disadvantage that the borrower has if he chooses for a fixed interest rate scheme that even if the market rate falls, the borrower will be charged according to the inflated interest rates. In other words, a borrower in such case can never enjoy fall in interest rates. the overall cost if the loan is primarily governed by the interest rate and so a borrower must be very judicious while choosing for the interest rate scheme.

Apart from that there are also several hidden costs that the lender charges and all that is mentioned in the loan agreement and if the borrower have not read that properly then his loan will cost him far more that what he would have ever imagined. So it is very important form a borrower’s point of view to at least take care of these basic things to get what he expects from his home loan.

Lender’s confidence is all what a borrower requires

Borrowing a loan is one of the decisions that has a long lasting affect on the lifestyle of a person as generally dwelling loans for along term are quite big in amount. A person has to share a chunk of his monthly income to pay the monthly installments for the home loan.

A person can fulfill his desire to have home of his own through home loans but he might have to keep most if his other plans on hold for a considerable time period, so while borrowing a home loan a customer must be very cautions, whether the loan scheme that he is opting will be fruitful for him or not; basically a borrower must be aware of the pros and cons of his loan scheme, it’ll help him to manage his loan well.

It is of prime importance to research the home loan schemes available and then to decide which one will be the most suitable. Before finalizing a deal a borrower must try to discuss each and every aspect of the loan with the lender, confusion at any of the stage can lead to serious consequences so it is better to be sure of everything.

One must be sue of his requirements before he approaches a lender, it helps to negotiate well and also then the borrower can plan his loan well and also a borrower must have a proper idea about his borrowing capacity as sometimes a lender must be willing to lend but the loan amount may fall short to what is required. It is better to anticipate these things in advance because then one can go prepared; there are several ways in which one can enhance his loan eligibility like he can club his income with his wife or any family member.

As there is great amount of risk involved in lending money to a borrower from the lenders point of view; so he will try to make sure that the borrower will be able to repay his debts on time. For that reason the lender will evaluate the borrower according to the norms set by the lender, so a borrower must be ready to tackle those questions and to satisfy the lender that he is a trustworthy customer.

Housing finance very much responsible for real estate boom

The Real estate sector in the country has set milestones the way it has evolved and developed, but it would not be fair to sideline the contribution that home loan and housing finance has made.

The property rates have soared in past few years and it is becoming increasingly difficult for the people to own a property entirely through their own funds that is where home loans acts as a bridge between the buyers and the developers; not only a common man but the developers are also very much dependent on the banks and the Housing Finance Companies (HFCs) to finance their projects.

With the growth of real estate sector the competition in the housing finance sector has also increase, a lot of new HFCs have surfaced during past few years resulting in more options of lenders and lending schemes for a borrower.

It is now not a very difficult task to borrow a home loan provided that a borrower meets the prerequisites set by the lender and has a good credit history as the lenders follow stern procedure while sanctioning loan.

Along with the home loan, home insurance has also gained much popularity; as a home is a long term asset and home insurance ensures protection from all kind of damages. Still home insurance is in early stages but it is definitely gaining popularity.