How to get the best home loan deal right now?

SUNITA MISHRA

There could not have been a more appropriate time to take a home loan, with rates currently touching a 15-year low. Most large banks in India are currently offering housing loans at an interest rate priced below 7% per annum. If borrowers exercise due caution, they will be able to get the most out of a home loan product.

Opt for a fixed rate home loan

Even though there are certain limitations involved with this product, it would be a financially wise move to opt for a fixed rate of interest in the present circumstances. In spite of the fact that these loans are priced higher than floating interest rate home loans, this could be an ideal choice, considering that rates are likely to increase, once normalcy returns, making floating home loans costlier.

Note here that fixed rate loans are fixed only for a certain period, as mentioned in the loan agreement. At the end of this period, it would be the bank’s discretion to charge an interest as prevalent in the market.

Approach a bank or a trusted HFC

Non-banking housing finance companies could have been a borrower’s go-to option for loans, before the crisis broke out, exposing the vulnerabilities of the lenders in this segment. It is, thus, advisable that borrowers only approach banks or large housing finance companies, for their borrowing needs currently.

It is worth mentioning here that since banks are under the direct supervision of the RBI, transmission of policy rates is much faster here. The same is not true of most NBFC and some HFCs.

Build a better credit score

Since banks lay great emphasis on the borrowers’ risk profile, they may also incentivize those with an impressive credit score, by offering them lower interest rates. At a time when loan default rates are expected to rise, amid the Coronavirus pandemic, homebuyers have an opportunity to improve their credit score. This could be done by avoiding delinquencies in repayments. For example, buyers who are in a position to pay their loans, without applying for the moratorium schemes that banks are launching amid the economic slowdown, should not opt for such schemes. This would reflect positively in your credit report.

Avoid adding a co-borrower

Banks would almost always tell you to take a joint home loan, in order to avail of a higher home loan amount. This could be a monetary blunder, at a time when job security is uncertain, amid the COVID-19 crisis.

There are two reasons to avoid a co-borrower. Firstly, there should be no need to increase a loan amount. Any debt is liability and you will be required to repay every rupee in future, irrespective of your circumstances. Just because the bank thinks you are eligible for a loan of, say, Rs 1 crore, it does not mean that you should take that much loan even if you could do with only Rs 80 lakhs.

Secondly, by adding a joint applicant, the co-borrower would become equally responsible for the loan’s repayment. In these uncertain times, it would be in your best interest not to involve other family members in borrowing arrangements, if it could be helped.