How to Choose a Lender for your Home Loan

RetailLending.com

There are multiple lenders in the market competing for your business. Private, MNC and PSU lenders have understood long ago that in retail banking, mortgage is the safest bet as exactly the name suggests- 'secured lending'. Funds are much more secure than other products they sell, e.g., credit cards, personal or vehicle loans etc. Though the margin is less, but the sheer volume makes it up for almost all of them. More and more players in this industry are entering and there's no reason to believe that the business doesn't earn for them, isn't it?

Your home is an immovable asset and your top priority is to save your shelter and thus not to bounce your cheque/ECS while repaying this particular loan, especially if it is self-occupied. Lenders identify this prioritisation and banks on it.

With improvement in salary structure for IT, FMCG and telecom companies in the last couple of decades, the salaried class, unlike earlier, have taken fancy in buying multiple properties across the country and the fact that lenders offer quite low rate of interest have enticed them to borrow while buying real estate.

Now, to answer 'How do I choose the best borrower?'

My first question to you will be, 'If there was only one who is the best, then will the others survive?' Obviously, the answer is 'no', so..... there is no formula to derive who is the best, but you can of course find out which lender suits you the best!

I am using 4 case studies here. Hope you find familiarity with one of them. If not, you can ask me here, specifying your case and I will answer.

Case study 1: Sachin Mhatre

Sachin has a stable job for the past 4 years in an administrative position in Pune. He draws a salary of 95,000/- per month and his number of dependents are nil as his wife Nilu is working too and earns about the same. They are buying an under-construction house which will be ready in next 12 months. The booking has to be done immediately and 80% of the payment is already due in next 30 days. They have no special requirement on the loan. They just need to be happy with the rate of interest offered and they are quite sure that they will not foreclose the loan partly or fully in next 5 years. They are planning to extend the family and Nilu may not continue with her job for some time now. Obviously they won't have excess funds in hand other than the matter that their rental outflow will stop and the EMI will start.

Suggestion: Go for a fixed term loan for 3-5 years post which it automatically gets into a floating rate. Preferably go for a private lender who will process your loan fast as your requirement of the funds is time-specific and may be with a delay penalty clause. Definitely choose a lender who has already approved this builder's property where other buyers have taken loan from.

Case study 2: Achintya Bandyopadhyay

He is buying an resale house in suburbs of Kolkata from a known person. The payment timeline is flexible as Achintya only needs a 20 Lac loan on the 50 Lac worth home. He has already paid the 30 lac sum to the seller and now wants to get a peaceful deal after scrutinising all aspects. He will retire in ten years and may have to take a loan for a tenure where his pension income can also be considered and given an extended tenure of 15 years. He prefers a lender having a branch near his home. His job allows him flexi-hours as he is the defacto branch head in absence of his boss who keeps traveling and he can visit the bank branch, if required, for the loan processing.

Suggestion: Achintya can visit the nearby branch of a PSU lender who will structure the loan repayment for him to suit his specific need of extension of tenure by including his pension income. Private and MNC banks may not be able to structure it for him so well. Since he has a co-operating seller and timeline is not an issue, he will be comfortable with a neighbouring branch and a known face a 'branch manager.' Sometimes, PSU banks offer better deals and nil fees too which can be an added bonanza for him.

Case study 3: Aryan Bansal

Aryan is high-flying jet-setter gentleman. His company keeps him on his toes all the time and he hardly has time to look at his own finances. He can not do away with his secretary who fulfills all his servicing requirement online for him. Starting from booking a movie ticket to getting his credit card statements online, Rishab(his secretary) does it all. Most of his pay package is unused at the end of the month and keeps getting accumulated in his savings account! The sum accrued till date will definitely put his wealth manager in shame as he made almost no investment in last couple of years as he could not find time to invest and his secretary definitely could not decide this one for him! He is buying a plush under-construction villa in Bangalore which he plans to make his retirement home. He wants to foreclose his loan in less than one year.

Suggestion: Best suited for an overdraft loan from an MNC bank, where idle money parked in the bank account gives him a virtual foreclosure effect. Whatever money he has in the bank account is considered a credit against the loan amount drawn and the interest is payable only on the differential amount. He may not even require to close the loan in a hurry as his money lying at his bank account to nullify his interest liability even without closure.

Case study 4: Adil K.

NRI based out of San Jose, USA buying a property in South Delhi. Ready property chosen by his in-laws, where son Irshad will stay with them. Adil has no plans to return to India in next few years as his career is really shaping up well there. Irshad's schooling is really important as he turns 15 this year and he isn't moving to US for the next 4 years for sure. Adil and his wife will have to bite that bullet till Irshad is ready for higher education abroad. Buying a property was easy, but getting a loan, especially finding out Power of Attorney in blood relative etc. who is of similar age, income etc. is a little uncomfortable for Adil. He can not approach anyone in India; some due to uneasiness of disclosing the sum he is spending to buy this house and some due to fear that there could be unwillingness from others to oblige him.

Suggestion: Opt for banks who do not seek Power of Attorney from NRI-s for doing their loans. There are a couple of MNC banks who have different policy than most others. Take help of an advisory firm here to be guided correctly for a  smooth effortless transaction. Getting a loan is not so difficult for NRI borrowers as it is perceived. It is so only because of the lack of knowledge on how to proceed and the underlying discomfort of asking your relative to look after it.

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