5 steps to a cheaper home loan

By Ketul Shah

Bhuvan Sharma, an IT specialist, works with a multinational company in Hyderabad. Within a few months of moving there, he decided to buy an apartment and settle there.

Lucky for him, a friend tipped him off. Bhuvan could negotiate with banks to bring down the rate of interest on his home loan, by 0.5%. In fact, if he wanted a personal or auto loan, smart negotiation could bring it down by 1-1.50%!

So, Bhuvan did the needful; he negotiated with his bank and did manage to bring it down by 0.5%. Here's how.  

Step 1: Rate of interest
Bhuvan produced his income statement and assured the bank of his repaying capacity. Since he was employed with a reputed company and earning a stable income, he scored some brownie points there.

Smart tip: Other options like putting in more of your own money or adding a co-applicant to the loan, also, make a difference.  

Step 2: Initial fees and charges
Many banks offer an attractive interest rate but fleece you by charging high fees! Bhuvan asked for the lowest possible initial fees and charges.

Smart tip: You can ask for lower fees and charges, also. But the final figures depend on your income. 

Step 3: Post-disbursement fee
A bank imposes various charges like processing fees, pre-closure fees, etc. Bhuvan compared his vendor's charges with those of other banks. He negotiated using the lowest parameter. 

Smart tip: The processing fee is usually a percentage of the loan amount. Negotiate with the bank to either lower the percentage or even ask them to fix an amount about post-disbursement fees, and the terms and conditions.

Step 4: The loan amount
Bhuvan was buying a two bedroom-hall-kitchen apartment, closer to his workplace. The property cost him Rs 25 lakh. The bank agreed to lend him 80% of the amount, ie, Rs 20 lakh. But Bhuvan thought it would curtail his budget if he were to shell out 20%. So, he negotiated a higher loan amount citing his repaying capacity.

Smart tip: You can also do this, depending on your salary.  

Step 5: Extra service
Check if the bank offers post-disbursement service, which is essentially customer service, which includes answering your queries on various aspects, relating to your loan. The bank calls you. You don't need to chase them.  

Smart tip: Banks offering this service are usually reputed and have a good infrastructure and processes, and it's a good idea to opt for a loan from them.

Happy negotiation!

The author is a Chartered Accountant and MBA specialising in banking, finance & insurance. Write to him at ketul.shah@moneycontrol.com

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