Dr. Sanjiv Agarwal
While taking a home loan may be easier these days as banks now a days go all out to grab new business, of course, subject to checks and balances, yet it comes with hard facts of risks in relation to increased cash outgo over a period as against what you might have planned. This will be due to interest rate changes. Given the fact that most home loans these days are of floating rate scheme (where interest rate is not fixed over the loan term but keeps floating as per the prevailing rates over the loan term), there is always a fear that a rate increase would result in two way hit-one higher equated monthly repayment installment (popularly called EMI) or increasing the repayment term or number of installments keeping the EMI intact. Also, now a day’s homes are built or brought at a relatively lower age when people are in their 20’s and 30’s so that they are able to repay the home loan over next 15-25 years of their active career.
To overcome any such eventuality in future or to plan for rainy days, it would be desirable to always borrow wisely based on pure need and not to over extend or over stretch your finances, keep a buffer cash for safety, have cushion for any loan interest rates hike, not to default on repayments (as it costs) and if required, don’t hesitate to renegotiate or discuss your EMI whenever faced with temporary crises. One should also be prepared to prepay the loan if the additional or one off liquidity available can afford such pre-payment. As a smart borrower, one should also occasionally track policy changes and review the loan account.
Before one selects the dream house which you will normally buy only once in the life time, in most of the cases, it would be desirable to do some due diligence before you enter into the deal. While reputation and successful track record of builder or developer will guide you in general, one needs to look at certain other crucial aspects of your dream home. The cost of your house or flat is the most important deciding factor. It ought to be affordable, reasonable, as per prevailing market price trends and premiums for any other value added features such as prime location etc, fixed without any escalation clause and clear of any other uncertainties.
Generally we do not read the agreement before signing but just sign on the dotted lines. This, in most of the cases, raise disputes later on as any over charges, cost or premium or even interest on delayed payment are stipulated therein. It is always desirable to read and understand them, get clarifications from the builder and if required, specially negotiated. For example, there could be a provision for charge for delayed payment linked to phases of construction but it may be silent on delayed completion of project which also adds to your total cost in terms of interest and other financial implications. What would happen in such cases ?
Construction of residential units and its booking for sale now entails a service tax which buyer has to bear. However, such Service Tax can be avoided if you buy a completed flat as in such a case, it would not be a service but a sale. Thus, it may be financially wise to purchase a flat rather than book a flat as in later case you may have to wait for possession and if you take a loan, interest cost may be higher as your period of loan would also be longer vis-à-vis effective possession.
Diligence on verification of various permissions or sanctions from governmental authorities must also be cross checked besides visiting the actual site of construction occasionally to have a first and feel of actual work, quality etc.
Home loan seekers or home buyers should therefore, think very carefully about buying a home and their future cash plans before they finalize their dream home. In any case, follow these rules – Trust no one, take your own measurements; Never leave it to anyone, read yourself; Don’t take the things as they appear to be on their face; Ask questions and demand compliances.