Be careful before taking out a lucrative low interest home loan

Some real estate developers offer low interest home loans, but before availing it, you should pay attention to its pros and cons. Lately, some property developers, such as Lodha Group and Tata Housing, are offering low-interest housing loan schemes. While Lodha Group has locked in interest rates at 6.99% until 2024, Tata Housing is offering to cap home loan rates at 3.5% for a year (offer valid until September 15) . According to property experts, many other developers and builders are also planning to offer similar deals to buyers. These offers are applicable for specific properties. When contacted, Tata Capital declined to comment on the story.

“Although this offer is nothing but a discount, but there is a problem here. In most cases, it is actually a refund to the customer. So it is mainly about builders’ marketing ploys to increase their sales,” says Harsh Roongta, founder of Investment Advisers LLP, a fee-based advisory firm.

Cautions About Low Interest Home Loan Programs

Hidden Charges: There are hidden charges involved in such schemes other than the interest rate which one should be aware of. “There are processing fees, which change constantly, and you have to negotiate with the bank to get the best deal. Some fees are ancillary or administrative fees, while others may increase documentation fees. Some developers charge higher late fees, while others would charge a loan penalty before closing,” says AK Narayan, CEO and Founder of AK Narayan Associates, a registered financial advisor with Sebi.

There might also be other hidden fees, such as an additional money order change charge and NSF checks. “There could also be a variable rate fee, which would cause you to pay more interest when rates continue to rise. If you decide to convert this rate to fixed rates, a fee must be paid. Interest offered will be for a fixed term.Thereafter, the applicable rate must be paid, which may be higher,” Narayan adds.

And then there is also the credit score. “Some banks might say that the credit score is low and therefore the interest rate would be higher. Although no one can offer very low rates, it may vary. Some will be strict when the rates are higher. down,” says Narayan.

The project is delayed: In such schemes, the problem arises when the project is delayed. In such cases, the buyer must start paying the EMI (equated monthly payment) even before he takes possession of the apartment. And he often ends up paying the rent and the EMI simultaneously. According to industry experts, it would be wise not to opt for a deferred payment plan, as this often reflects the sponsor’s desperate financial situation. Additionally, a builder’s late payment or non-payment of EMI can hurt a buyer’s credit rating because the loan is in their name.

Things to keep in mind when opting for such loans

Three things you need to keep in mind. First, decide that you actually need this place and aren’t buying it just on the basis of anchor bias. Second, you need to make sure that you don’t sacrifice ownership, documentation, and legality. “Sometimes I see that investors don’t trade prices or commodities properly because they already have the illusion that it’s a cheap offer due to the interest advantage, don’t fall not in this trap. Finally, don’t make a hasty decision, take your time and then make an informed decision,” says Anant Ladha, Founder of Invest Aaj For Kal, a financial planning company.

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