Taking a home loan? Get the best deal

Get hold of a good DSA
There are all sorts of direct selling agents (DSA) trawling the streets looking for business. Ask those around you who have already taken home loans for their agents and talk to at least two people from each bank. Service and commitment levels differ across agents from the same bank. A good agent will not just get you the loan, but will advise you how to structure the deal to get the maximum benefit, whether you need insurance or not and advise you in the tax implications of your decisions. An incompetent agent will only spoil the deal.

Bargain hard
The home loan business is still profitable to the banks and the low default rates sweeten the deal for them. Their cost of funds is as low as 4.5 to 5 per cent and even if you are paying a 7.5 per cent fixed rate, their margins are good. The competition in the market makes banks willing to drop rates and give add-ons as the loan size increases. Bargain hard to bring the rates and processing fees down. Ask for free add-ons like property and accident insurance. Ask for daily rests if you have an option to pay more frequently than once a month.

Read the fine print
Some customers found that their ‘fixed’ rates were not really fixed but could be changed by the bank. Get a lawyer to go through the loan agreement and ask for explanations when you don’t understand the logic. For example, somebody may get upset on seeing the clause that says that the person must inform the bank before going abroad. The logic for this is that home loans are only given to Resident Indians and not NRIs, and if a person stays out of the country for more 182 days in a year, he is categorised as a NRI. The banks need to comply with RBI guidelines and hence this clause.

Get the deal in writing
Once you have identified two or three banks that you want to go ahead with, ask the agents to give you in writing the offer that they are making. Do this before you give any money. Most banks will take it up with the agencies if you have written proof of the offer, else you have no way to prove what was promised.

Don’t believe “We don’t have hidden costs”
They all tell you that but on asking what these costs are and where they might kick in, they have little substantiation to offer. It has become a marketing line to get you to pay a higher processing fee when some banks do it for free.

Get a sanction from at least two banks
DSAs will promise anything to get the deal. They make between 0.75 to 1.25 per cent of the loan amount that you take. So, for a Rs 40 lakh loan, the DSA makes between Rs 30,000 to Rs 50,000, amounts big enough for them to promise the moon. What happens is this: you go along with one bank believing the promises of the DSA. At the time of sanction you run up against the Bank that tones down the deal, some freebies go out the window, the loan amount may get reduced, the rate may increase. By this time the property deal must go through and you are running out of time. So you take what you get. But if you have two or three banks ready with the loan, you can still negotiate and use the one that offers the best deal. It may cost a bit extra in processing fees but it may be worth it in the long run to make this extra expense initially.