While banks are currently going all out to offer home loans around the 8% range — for a limited period of two to three years — consumers are advised to not sign up hurriedly for any without first hunting for the best bargain.This suggestion comes from a senior banker, who further asks prospective home buyers to look up the FAQs (frequently asked questions) recently put up on the Reserve Bank of India website (www.rbi.org.in) for a comprehensive ‘to-do’ vis-a-vis home loans. Sample an advice on the site: “Once
you know what each bank has to offer in terms of rates, fees and down payments, negotiate for the best deal.”
Senior bankers second that both loan rates and terms and conditions are up for negotiation. “Ask the bank to reduce the processing fees, waive other charges… There is nothing like a bank syndication in loans. There will always be variation,” says a banker.
The FAQs make another point which is relevant in the context of the current rate war — you may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts.
The banker says that although banks do not admit to this, the lock-in period during which banks do not reset the rate of interest or convert a loan to floating can be stretched. “But get the assurance from the bank in writing.” This is especially common in loans to high networth individuals or in group bookings.
K Unnikrishnan, deputy chief executive at the Indian Banks’ Association, insists that negotiations are not seen in low-value loans, but “in specific cases, in large-value transactions, banks can go back to the treasury and customise the
loan. They can measure the risk and do it accordingly”. The banker says home loan applicants must consider the external benchmarks to which the reset rate of interest will be pegged to. “If you’re taking a fixed loan, and it is reset after five or nine years, you must look at the reset peg and compare the loans on offer accordingly.”
The RBI website suggests, “Ask the lender to write down all the costs associated with the loan. Then ask if the bank will waive or reduce one or more of its fees or agree to a lower rate. Do make sure the bank is not agreeing to lower one fee while raising another or to lower the rate while raising the fees.”
Consumers must make it a point to go through the terms and conditions to look for any hidden charges and clauses, especially reset clauses, if any. If a consumer has blindly signed up on such a document with a clause, the banking ombudsman - the grievance redressal authority for banks - can do little to help. A banking ombudsman official, though, points to a recent case where a customer who had opted for a 7.5% fixed home loan three years ago, suddenly found that his loan was converted to floating at 12% rate. “The bank is at fault here, as there was no mention of any such clause in the loan agreement,” says the official. Consumers must watch out for such malpractice.