Owning a house is usually once-a-lifetime affair. Though a very personal experience, yet raising loans from housing finance institutions (HFIs) can be a similar experience for people from the same background. Before negotiating for a loan, it is therefore advisable for a prospective borrower to check around with successful borrowers. It can be very helpful, and save one time and trouble.

Broadly, a prospective borrower should confirm the maximum loan amount that various HFIs offer, and the maximum percentage of the total project cost that can be availed of. Some HFIs even consider the cost of the land, stamp duty and registration charges as part of the total project cost.

The bigger the loan amount, the higher is the interest rate. The effective rate of interest, which actually matters, depends upon whether it's calculated on a monthly reducing balance, quarterly reducing balance or a yearly reducing balance. Not to be viewed in isolation, the interest rate should be considered along with the processing and the administrative fees, which vary from HFI to HFI.

The amount to be repaid in equated monthly installments (EMI) depends upon the repayment period, which varies from 5 years to 20 years. At times, the flexibility in EMI can be crucial. One should find out whether it can be fixed according to graduated repayment plan, decreasing repayment plan, in lump-sum or to suit individual needs. The prepayment terms also vary, with some HFIs charging an early redemption fee on the prepaid loan amount.

Further, some institutions even charge a commitment fee if the loan is not withdrawn fully or partially. Ambitious applicants, who apply for more than their requirements, need to keep that in mind.

Besides, different HFIs consider various factors like income, age, qualification, number of dependents, stability and continuity of income. And when other earning family members are listed as co-borrowers, some HFIs also club their income with that of the borrower so as to enable him to get an enhanced loan amount. An applicant must find out the HFI which is favourably inclined towards him.

Since a housing loan is usually the biggest financial commitment, the borrower must ensure that the risks are covered.

The GIC Housing Finance Ltd (GIC-HF) has arranged a group accidental death insurance cover under which all its borrowers are covered against accidental death to the extent of the outstanding loan as on first of each year. Cost of the premium is borne by the GIC-HF. A borrower must take necessary precaution on this respect.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.