'Do exhaustive research and then select the one that best fits your budget and requirements.'
Banks and housing finance companies (HFCs) have rolled out special festival offers on home loans. Borrowers, however, should weigh these carefully before committing.
What's on offer
Banks and HFCs have rolled out a range of festival offers.
"These include reduced interest rates, discounted or waived processing fees, longer repayment tenures, and easy topup loan options," said Ratan Chaudhary, head of home loans at Paisabazaar.
Some lenders have also cut legal and valuation charges.
While the schemes primarily target new borrowers, existing customers can also benefit through balance transfers.
What to prioritise
Borrowers should prioritise offers that translate into direct savings.
"Focus on benefits that cut long-term costs, such as lower interest rates and waived processing fees," says Atul Monga, CEO and cofounder of BASIC Home Loan.
Prioritise reduction in interest rate and a recurring benefit over a waiver in processing fee, which is a one-time gain.
Existing borrowers should refinance to a lower rate, but only if the drop is substantial.
"Refinancing for a reduction of 10 to 20 basis points may not be worthwhile, even if processing fees are waived. Real benefits from refinancing typically occur when the reduction is around 50 basis points," says Adhil Shetty, CEO, BankBazaar.com.
Avoid offers that bring benefits for a limited period.
"Be cautious about offers with spreads valid only for a limited time, as rates may reset higher after one or two years," says Shetty.
Monga suggests that add-ons like cashback, gift vouchers or free credit cards should be ignored, as these have a minimal impact.
Chaudhary advises against going for offers that impose prepayment or foreclosure fees.
Other factors to weigh
Borrowers' evaluation of offers must go beyond the headline interest rate.
"Customers must evaluate all costs to arrive at the total cost of the loan. Processing fees, legal and documentation charges together can increase costs significantly and, hence, need to be evaluated," says Shetty.
The loan-to-value ratio (LTV) affects both eligibility and pricing. A lower LTV of 60-65 per cent may bring down rates more compared to an LTV of 80 per cent.
Tenure matters too. A shorter tenure cuts total interest but raises monthly outgo.
Bundled insurance and its cost should also be scrutinised. The Reserve Bank of India (RBI) has clarified that banks cannot make it compulsory for buyers to purchase.
A separate term policy covering the loan amount is preferable.
The catch
The best deals go to applicants with strong credit scores.
"Applicants with a low score or damaged credit profile may not get the loan at the advertised rates," says Chaudhary.
He adds that lenders also consider factors like property type, value, location, income stability, and the ratio of equated monthly instalment (EMI) to net monthly income before offering the best rates.
Some schemes are limited to employees of select companies or government departments. Time restrictions also exist.
"If disbursement does not happen within the set timeframe, the benefits are lost," says Shetty.
Precautions for borrowers
Comparing multiple offers is essential. "Do exhaustive research and then select the one that best fits your budget and requirements," says Chaudhary.
Avoid taking on excessive debt.
"Assess debt-to-income ratio and repayment capacity to prevent future strain," says Monga. Chaudhary also warns that fraudulent loan offers are rife, making it vital to stick to reputable lenders.
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Feature Presentation: Aslam Hunani/Rediff
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