Get your home loan even cheaper!

This is probably the best time for consumers to take a home loan. Interest rates have hit rock bottom and fierce competition among HFCs (housing finance companies) has ensured that consumers are being offered loans at very attractive rates. So what should consumers do to make certain that they get the best deals?

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Consider each aspect of your home loan for the answer. Most readers would agree that interest rates and equated monthly installment are factors that have the most significant bearing on the cost of your home loan. But there is another important aspect that is often ignored -- fees charged.

Fees are charged by HFCs as a percentage of the loan amount to initiate the loan process; and for a plethora of reasons ranging from processing, administration to legal. These fees are charged on a one-time basis as a percentage of the loan amount.

Processing fees can be charged anywhere in the range of 0.50 per cent to 1 per cent depending on the HFC, the loan seeker's profile and quantum of the loan applied. While some HFCs claim to offer loans at 0 per cent processing fee, the same is charged under the guise of "administration fees."

The scene differs if the loan seeker is dealing with a nationalised bank where the loan seeker is also required to pay legal and technical charges. To that extent the loan seeker is better off dealing with private banks where such fees are not borne by the applicant. The size of these fees might seem insignificant considering the total loan amount but a closer look reveals a different picture.

Let us assume that Mr. X is looking for a loan of Rs 3,000,000 (Rs 3 million) for 15-year tenure at 8.75 per cent interest. Two HFCs are willing to offer the required loan; the only difference being that HFC A charges 1 per cent as the processing fee while HFC B charges 0.50 per cent. So effectively Mr. X would pay either Rs 30,000 or Rs 15,000. The savings for choosing HFC B would be Rs 15,000 -- not a huge sum taking into account the magnitude of the total loan amount.

Now if Mr. X were to invest his savings of Rs 15,000 in any of the investment avenues (mutual funds, bonds, fixed deposits etc) he could comfortably land up with more than 3-times (using a conservative estimate) the original amount at the end of the 15-year period. A substantial sum over the long-term period.

So what should the loan seeker do to ensure that he gets the best deal? Not much! Fees charged by various HFCs are easily available on their websites; all he needs to do is make an informed choice. Owning a house has never been easier; make it even better by getting the best possible deal.