Our group which normally discusses about Investments and financial planning, had an interesting question last week. Are there any tips while taking a home loan? This WhatsApp discussion in our group generated lots of ideas.
Overall the different points we discussed could be classified into four categories. 1) Insurance 2) Negotiation 3) Resetting of interest 4) Pre closure charges. Let us look at each of these points in detail.
Insurance
Home Loan insurance (HLI) is made mandatory. One of the members pointed out that he was able to waive off this clause by showing his term insurance. HLI makes sense – because you do get cover for disability and some even offer unemployment EMI waiver benefits. Obviously we should read up the offer document in our particular case. In short, I preferred to have Term Insurance untouched along with HLI. Because HLI is only coverage upto the Loan Outstanding. There were people who knew folks who canceled the Home Loan Insurance within a month 🙂
Negotiation
Everything in loans these days is based on what’s your credit score and how well you negotiate. Negotiate on the 1) Interest rates 2) Home Loan insurance costs 3) If the property is already built then Home Insurance 4) A one time fee which reduces over interest costs. All of these can be negotiated.
Resetting of interest
When the RBI increases rates, the Home Loan rates are increased automatically. But when RBI cuts rates, our Home Loan rates are not always reduced automatically. Negotiate and understand this process of resetting the rates well. This can prove extremely costly. Go for automatic reset as much as possible.
Pre closure charges
This is very important. Whenever you want to close loans, you should be able to do so without incurring penalty. How frequently can you prepay your loans? What are the pre closure charges? Can pre payments be done online? Offset interest against deposits in the bank? All these can be negotiated and understood well.
Remember negotiate negotiate negotiate. There are many banks and HFCs and you are not stuck. You can easily take a home loan these days and remember these tips. And please do read up some blogs here around the home loans.
