The challenge of choosing your lender
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Besides interest rates, check out the services offered by your banker, says SRIKALA BHASHYAM
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If deciding a property for purchase is a tough decision, choosing the lender is even more challenging for property buyers. Often, the challenge is to choose between a housing finance company and bank and even among banks, borrowers are confused whether they should stick to their own bank or shop around for a new bank.
The task gets even tougher when the interest rate offered by many banks falls in the same category.
Old or new bank?
When you have a relationship with a bank, the natural tendency is to scout for funding from your bank rather than go to a fresh bank. Ideally, I would recommend you to stick to your existing bank because this has a few advantages. When you have a relationship with a bank or have your salary coming to an account, the processing takes lesser time.
For instance, when a borrower approaches for a loan, the bank in turn does credit rating and the loan amount is disbursed depending on the credit score of the borrower.
On the other hand, the bank tends to be little more liberal when the borrower has a relationship with the bank. If your employer has a relationship with your bank, this will give the added advantage of slightly lower interest charges. So, your first choice of bank for loan should be your existing bank and even if the bank charges a slightly higher interest rate, convince your banker to offer a competitive rate.
In certain cases, your builder might be enjoying a relationship with a particular bank and might suggest you to go with the same bank for loan. Even this can be a good option since the bank would also have appraised the project and to some extent, assures quality for borrowers. The biggest advantage with such banks is the fact that you need not worry about the disbursement schedule.
HFC or bank?
Around 7-8 years ago, this question would not have come up as banks were not aggressive in lending home loans. Housing finance companies were the natural choice for many property buyers.
In the last 5-6 years, banks have stepped up their focus on home loans and often have managed to lend at a slightly lower rate than housing finance companies. However, the housing finance companies offer certain advantages particularly for those looking at long-term loans. Some companies offer up to 25 years which is not the case with banks.
For an apartment purchase, housing finance companies may make a better choice if you are unable to make a decision regarding the quality of builders.
HFCs also offer other value added services such as availability of properties and they insist that their project appraisals are much more stringent when compared with banks.
In terms of home loan rates, there is not much difference between the two but the product features tend to vary.
New products
For instance, many banks don’t offer fixed rate option like housing finance companies. Many also don’t offer new products such as flexi products which allow the borrower to have a combination of fixed and floating rate.
In the current interest scenario, this can prove to be an important differentiator.
Finally, it is not the interest rate which should dictate your choice of lender. Though rate of interest is important, you need to keep an eye on value added services such as easy processing, flexibility in terms of pre-payment, etc.
At the time of purchase of property, it is common to focus only on rate of interest but over a period of time, other features tend to gain importance.
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