THE LOAN THEORY

AMIT SETHI
TIMESPROPERTY

Availing a home loan is not a difficult task anymore. However, ensuring due-diligence and choosing a scheme, which would be beneficial in the long run are not easy. Hence, here our experts guide you through and seek an answer to the quintessential question - which type of home loan would best suit me?

THINGS TO KEEP IN MIND :

Home loan borrowers should also check the down-payment required for the loan. Amitava Mehra, CEO, India Mortgage Guarantee Corporation suggests, “A consumer needs to be clear about the kind of house he is looking to purchase and the budget he wishes to spend on the same. Additionally, it is important that as a home-buyer, you are aware of how much of your savings you wish to spend as your down-payment and the amount you wish to borrow from the bank.” Choosing the best home loan scheme would mean that you would save money in the long run.

PROS AND CONS OF DIFFERENT TYPES OF HOME LOAN :

Navin Chandani, chief business development office, BankBazaar, explains the advantages and disadvantages of different types of home loan -

FLOATING RATE BASED HOME LOAN: Merit: The interest rate keeps fluctuating depending on the market situation. This means that if there is a fall in the interest rate, it gets transferred the next time the rate is reset. It is also less expensive compared to the fixed or semi-fixed loans.

Demerit : When the interest rates are on the rise, the effects of the rise transmit equally fast.

SEMI-FIXED RATE HOME LOAN: Merit: The interest rate remains fixed, regardless of the market conditions. This brings a sense of certainty in the repayment schedule and structure.

Demerit: In case the interest rates fall, you may not be able to avail the drop in rates. Also, if you wish to prepay your loan earlier, there may be some prepayment charges involved.

WHICH HOME LOAN WILL FIT YOU THE BEST?

The home loan interest rate is approximately eight per cent p.a. across major banks and it would bottom out anytime in the near future. “Home loans can be structured and customised to suit the need and requirement of the individual customer. And it has indeed become a bespoke service for the customer as well,” says Rajaram Manian, risk head - Aspire Home Finance Corporation Ltd.

Manian further adds, “There are three types of interest rate schemes that you can choose from, subject to the offering of the financial institution - fixed rate, semi-fixed rate and floating rate. All of them may or may not be offered by all the financial institutions and are regulated by RBI guidelines.”

The choice of interest rate depends on factors such as the age of the borrower, repayment period of the loan and most importantly, the prevailing market condition. Every choice has its own merits and de-merits.

Are you finding it difficult to

choose the right kind of home loan? If yes, we list down the merits and demerits of different types of home loan, in an endeavour to make your decision a lot seamless depending on the market conditions.