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Why is the cheapest home loan not necessarily the best home loan?

As consumers, we have all seen advertising about cheap home loans. These are designed to invite the customer into believing that this is the best offer in the market. However, cheapest home loans don't necessarily mean the best home loans.

The following is a guide to recognizing why cheapest loans might not be the best option for you.

• Interest rate and EMI is just one aspect of the loan: Recognize that cheap home loans make for attractive headlines, but the interest rate is only one aspect of a housing loan. Be extra cautious and understand if there are other strings attached or not. For instance, the sub-prime crisis in the US is partly the result of the aggressive advertising of cheap loans to customers who ignored analyzing other important aspects of the home loan.
• Check for hidden costs:It will be impossible for a lender to charge a rate which is dramatically lower than other lenders. So, if a lender is charging below market rates, chances are that this will be made up for in some charges, which sometimes are not obvious at the time of the loan. Charges might often include:
  • Application fees
  • Appraisal fees
  • Administration charges
  • Pre-payment penalties and foreclosure charges
  • Late penalty fees
  • Technical fees
  Often the sum total of these charges might end up making you worse off by taking a cheap loan, compared to taking a market-rate loan where the lender waives some of these charges for you. Remember to always calculate the fully-loaded costs of the loan.
• Understand what terms yous are signing up for: Always understand the various terms, conditions and clauses of your loan. Ask for explanations if something is unclear. Specifically, clarify whether your cheap loan might get re-priced during the life of the loan without your consent. You don't want to be surprised to see your interest rate and EMI shoot up without any notice.
• Compare service levels and costs across the life of the loan: Don’t compare only the interest rates. Also consider the overall cost of the loan including all processing fees. Service levels can vary significantly. Check with your family/friends/colleagues about their experiences of dealing with the cheap home loan lender. Are you confident that your loan will be disbursed on time and that their will be no new obstacles that can make the loan unattractive.
• Flexibility: Some loans may genuinely have cheaper rates and offer low processing fees. However, they might come with the inconvenience of offering absolutely no flexibility. For instance, if you want to pre-pay or to refinance the loan, you might not be given that flexibility at all.

As always, look closely before you jump in to get the cheapest loan. Don't get too swayed by the low rates. You can compare home loans in India at iTrust and find the best home loan for yourself.

Things to remember

• Interest costs are only component of a home loan cost – don't ignore all the other costs like associated charges and fees.
• Understand all the terms and conditions, especially whether any term can be modified without your consent or knowledge.
• If something is too good to be true, it probably isn’t. So don’t believe in the hype about cheap home loans. Analyze, compare and then make a decision.

Comments

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Ramlakhan soni said : 07/04/2010	sir I m serving in defence my date of birth is 20 aug 1967, monthly gross salery 25,000 pm. i want to take a home from sbi easy home loan , can I get