There’s no shortage of home loan providers these days. Banks, housing finance companies and NBFCs are constantly trying to pitch their home loans services, often confusing customers for choice. Given the many options available, it can be tempting to choose between home loan providers based on a single metric — the interest rate that’s being charged. Choosing based on the interest rate has its advantages: it’s comparable across providers, which enables customers to judge financial institutions on an even pedestal, and it’s useful as well; the interest rate determines how much money you’ll ultimately pay back.
But simply choosing the home loan provider with the lowest interest rate might not be the smartest move. Home loans are typically large financial commitments, running into lakhs of rupees, and going on years and years. Hence, customers should do well to look at other factors while they decide on the home loan partner. Here are some pointers to keep in mind while taking a home loan:
Loan tenure: The loan tenure, or the amount over which you repay a loan, can vary significantly across financial institutions. A shorter tenure means a lower overall cost, but also higher monthly EMIs. In general, it is advisable to choose a financial institution which offers a longer tenure as this lowers the monthly burden leaving you with a higher disposal income for your other needs.
Fixed rate or floating rate: Home loans can either have a fixed rate that’s determined before the loan is disbursed, or a floating rate that changes when the interest rates change. It’s possible that a floating rate loan that appears cheap while taking the loan becomes more expensive by the time the loan is fully paid off. Customers would do well to study interest rate changes before deciding on a fixed rate loan or a floating rate loan.
Eligibility and loan amount: There can be variations on maximum eligibility amount amongst different home loan providers. It would be wise to pick a loan that meets your financial needs. It can also help to raise more money upfront and pick a cheaper loan, than borrowing from different entities. Even, having a co-applicant like your wife, parent or son can increase your eligibility substantially.
Prepayment policies: The regulatory body broadly regulates these policies. Some home loans providers don’t allow borrowers to prepay their loan amounts, or charge a penalty if borrowers choose to prepay their loans before their due date. This can hurt borrowers if they do encounter an unexpected inflow of cash during the term of the loan — they won’t be able to prepay their loans, and will have to continue paying interest for the entire duration of the loan. But some loan providers let borrowers repay their loans whenever they wish — PNB Housing Finance, for instance, lets borrowers prepay their loans whenever they wish, subject to certain conditions.
Customer friendly features: There’s now a great variation between companies with the features they provide with their loans. Some financial institutions have mobile apps and dedicated customer representatives; others have loan processes that haven’t changed in decades. Contemporary service providers provide doorstep services, multiple physical and digital touchpoints for customers, loan account related information, IT certificates and other critical documents at a click of a button. Your relationship with your home loan provider will last for years and years — it’d be wise to check how different companies rate on these other features.
Product features: There are financial institutions that focus largely on salaried customers as they are considered in the low risk bracket. However, there are institutions, such as PNB Housing Finance, which have product offerings for both salaried and self-employed with different specifications. They have developed the expertise to assess the true income of self-employed customers and appraise them accordingly. Along with this, financial institutions offer top up facility on the existing loans, if the customer has not availed the complete eligibility of loan amount.
Pan-India network: This is another reason why it could be a good choice to go with an institution that has a pan-India network. Repaying a home loan can take as long as 30 years, and it’s possible that borrowers will change cities during this period. Being with a financial institution with a pan-India presence can help you access your loan company no matter wherever life ends up taking you. You should check with your financial partner if they have inter branch access to loan account, i.e. if you would be allowed to shift your home branch or access your account from another location without any restrictions.
Trust and Reliability: And a home loan is a long-term relationship — it can take as long as 30 years to repay a loan. It is thus best to go with a company you would trust, and a brand that is reliable. This ensures that not only do you get your home documents back without any hassle once you had paid off your loan, but also your dealings with respect to interest rates and payments are fair. PNB Housing Finance has been disbursing housing loans for 30 years now, and the company was listed on the BSE and NSE in 2016. You can know more about their home loans here.