Every individual is unique, so is every loan application. Many factors and variables influence the final cost of the loan, including processing fees, legal fees, administrative fees etc.
As so many variables are in play, the sheer complexity of terms and conditions and the incomprehensibility of fee calculation make home loan calculations look like a difficult task. The negotiation process is often too arduous that even seasoned finance professionals struggle with the complexity of paperwork and banking norms.
In this article, we attempt to layout some key focus areas that home loan applicants should focus on while negotiating favorable terms, and save substantially on the cost of the home loan.
There are easy and often convenient ways to get a home loan at an attractive rate of interest. We have listed some tips that will tilt negotiation in your favor. Put them in to practice at least 3-6 months before you wish to file your home loan application.
Contact as many banks as possible
Reach out to as many banks as possible, asking them about home loans----or alternately, ask them to come to you. Many telemarketers will be quite willing to do this. Just call on the common platform of all lenders, and tell them that you need a home loan. Freeze a relatively free Saturday to hear out the best deals from bank sales representatives or direct sales agents (DSAs).
Time your home loan discussions
If you have ever been into sales, you will know what monthly/quarterly/yearly target pressures mean. Eight out of ten times, we are falling to meet the targets, and are ready to offer you more amenable terms (i.e. terms you want) when compared to others. Do quote offers from other banks while discussing such terms. This can help you get a better deal.
Stretch your locking period
You should always try to negotiate to stretch the lock period (i.e. the number of days during which the interest rate promised on a pending mortgage loan cannot be changed). You will not read this in bank advertisements or sales calls, but the period after which a bank resets the rate of interest or converts your fixed rate loan to floating rate can be stretched.
Often, a single minded focus on EMI and interest rates makes us oblivious of the other hidden charges and fees such as legal fees, processing fees, administration fees. Banks tend to quote lower EMIs and interest rates and compensate for it by raising other charges. While you are tracking interest rates and EMI quotes of the banks, make sure that you are also tracking all costs and fees quoted by the banks for comparison. Do not be fooled by the teaser rates of banks and financial institutions.
Keep other loans at bay
If you are applying for a big loan then ensure you have prepaid your other smaller loans. If you are planning to take another loan, ensure that you do so after applying for your home loan. It's important because while calculating your monthly disposable income, EMIs on other loans such as personal, auto and education loans are deducted directly from your monthly income. This directly affects the amount of home loan that would be sanctioned to you.
Did you negotiate well? Get it in writing
Last but not the least, get all promises and future benefits from the bank, in a documented form. Sales representatives under target pressure may mislead you by inflating benefits and promising future benefits even when they do not have the authority to grant you such benefits. Do not be fooled by false promises and big words.
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