Taking a Home Loan-Tips to Save Money
|After deciding on a property,the next big thing one does is to look for a good home loan. While people think that there is no big deal in getting a home loan with Bank waiting in queue to offer home loans, there are few things which you can do to save some more money.|
This article comes out of my own experience dealing with ICICI Home Finance Corporations (HFC) and my builders.Here are the few tips
Tip 1: Advance Direct Funding
If you are booking a brand new house/apartment for which construction is about to begin or just started then builder’s expect you to pay stage wise payments based on the construction stages.This is good for builder and Bank but not for you. The reason being PRE-EMI.
Imagine for a loan of around 20 Lakhs for a project which runs for 2 years you would pay anywhere between 1 Lakh to 1.3 Lakhs as PRE-EMI. Hope you must know that PRE-EMI payment does not go into in PRINCIPAL component but just the interest for the amount Bank disburses to the builder time to time.
So the first thing i ask my bank is ADVANCE FULL FUNDING. If i want 20 Lakhs, i ask them to release 20 Lakhs at one stretch irrespective of project’s current stage. A lots of Projects are pre-approved by major HFC’s (i.e Banks have completed legally verifying the project documents, patta etc) so demand for full funding. The idea behind this is, you are going to anyway pay the EMI after full disbursement, so start now itself instead of starting your repayment after 2 years.
The builders would be more than happy to receive the entire money. I negotiated with my builder in such a way that they agreed to Pay me 18% interest rate for the money i paid in advance. So i got back around Rs 75000 when the project was completed. If you are wondering which builder does these things, mail me i can give you details. If builder does not agree for this then try negotiating on per sq ft rate or some additional work to be done for you apartment like Tiles, Wood work, False ceiling, Grill Work etc, free open car park,free registration etc . ASK and You Should get Something.
Tip 2: Don’t put all your eggs in one basket.
Nothing complicated here. The basic rule when you go for home loan,you have to pay 10% -15% of the project cost and 85%-90% is funded by HFC’s. This depends on your Salary, take home and other factors.
So if you are buying a apartment for Rs 30 Lakhs , you should shell out around Rs 3 -4 Lakhs. Assume that you had more money in hand say Rs 6 Lakhs. You would obviously go for less loan amount and pay out the rest from your Hand. PLEASE DON’T DO THIS.
The golden rule is try to take maximum loan from bank, say up to 90% and keep as much money as possible in Hand. What do i gain?. Save the additional money for HOME LOAN REPAYMENT. I hope you know that Banks have a 6 months lock in period from the start of first EMI till which you can’t do any part payment. Not sure if this is relaxed now.
So wait for 6 months and do a part payment with the money you had. Do you know, you would pay around 50 Lakhs in total for a 21 Lakh/15 years loan. And just by paying 1.25 Lakh towards part payment you can save up to Rs 15 Lakhs in Loan Interest. NO JOKE, just check your Amortization Schedule and you should see how many month’s you are by-passing for a 1.25 lakh part payment.
A loan prepayment helps in preserving the capital appreciation your apartment had and also its always advisable to finish loan earlier. Don’t waste money on costly wood work or additional work which would eat your finances, rather spend sensibly on loan repayment. Remember the earlier you prepay, the less interest you pay.
Tip 3: Money spinning Ideas for prepayment
If you are short of cash here are some ways you can to get additional money for home loan repayment. Of course Remember the golden words ‘NO PAIN NO GAIN’.
a) Go for Personal Loan: More loans, more headaches, but when you have a big headache in the form of Home Loan , this should be fine. Take a personal loan for say Rs 1 lakh and prepay your home loan. You can do this if you have a cushion of around Rs 3000 in your monthly budget. Oh!. Did you say you got a good appraisal HIKE this year,then its a right time
b) You Car: Not sure how it works in India, if you are in US, then you can contact your bank and take a loan on your CAR. Interest rates are as low as 5% for a 3 year Loan period. If you take $5000 loan then you would pay an interest of only $300 max in total. Thats works Rs 12000 for a Rs 2 Lakh loan ( 5000 * Rs 40). Thats cheap when compared to personal loans in India. I am very sure Personal loans are costlier in India.
c)Encash Other Saving Instruments: See if you can encash PF, Pension funds, Stocks, Dad’s money ( ASK HIM AFTER ALL, YOU ARE NOT GOING TO SPEND IT ON YOUR GIRL / BOYFRIEND)
The chennai property market has fallen a bit with prices down 15% . Not sure how much more it can fall, but Builders are desperate for new customers, So negotiate.
If nothing works out, CHILL OUT with a glass of cool Beer. Good Luck
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