Before a mortgage, take some advice

Liability managers help structure loans to reduce interest burden and improve cash management.

With a growing number of consumers willing to leverage themselves for a second home, car or even travelling abroad, there has to be constant focus on cash management.

A salaried couple in their early 30s had taken a home loan two years ago. They were jolted out of their lethargy when they saw a sharp rise, of Rs 17,000, in their equated monthly instalments (EMIs), recently.

On enquiring with the bank, they were told that during the year gone by, the loan tenure had been raised several times and to a total of 35 years. The bank had raised the EMI only after reaching the limit (their retirement age). Due to the increase in tenure, the interest payout had increased substantially. Now, the couple is seeking professional help to resolve the issue.
 

A HOME MORTGAGE CAN TRIP YOU UP BECAUSE...

• The long-term nature of these loans can make the overall cost of debt very high
• You may not fully understand how to best deal with changing interest rates
• You may not always get the most out of your home loan deal
• Family, relatives and friends are good advisors, but they may not have the knowledge to give you the right counsel
• While a lending institute will restructure your loan to make it more convenient in the short run, a long-term view of your financials is not considered.

The first step has been to increase their EMI substantially, by almost Rs 30,000, to bring down the interest burden. They had to curtail expenses, such as a second car, to bring things under control.

They are not alone. A number of families are ending up in a debt trap due to lack of financial understanding or pure laxity.

As R V Verma, chairman, National Housing Bank (NHB), says, “There is a definite need for financial education and increasing awareness among borrowers. People need to be advised about different loan products, prerequisites of lending institutes, property valuations and interest rates.”

As the regulator of housing finance companies, NHB is partnering with the Indian Institute of Banking and Finance to create a pool of trained and certified mortgage counsellors. Together, they are building a platform through which trained agents can become an intermediary between lenders and borrowers.

Vipul Patel, director, Home Loan Advisors, says, “The tangible benefits of better loan structuring are substantial. And, a mortgage counsellor’s job is exactly that.”

The concept of a liability manager or mortgage advisor is a popular phenomenon overseas. The mortgage advisor, for a fee charged from the lending bank or the client, helps borrowers structure their loans and keep them manageable throughout their tenure.

The fee charged by mortgage advisors is 0.7–0.8 per cent of that charged from the lending institution or client directly.

In addition, they can deal with lending institutions directly and work out a better deal for the customer than the one provided. This may be of help, especially to those with an erratic income, like the self-employed. They can approach the bank or financial institution on the behalf of the client to explain the revenue model better. This can help in getting the loan, which, otherwise, may have been quite difficult.

In comparison, there are debt-counselling agencies like ‘Abhay’ a consumer can go to when faced with debt-related problems, which often concern personal loans and credit cards. A counselor will look at the client’s finances and advice them on how to manage the situation better.

Also, websites like apnapaisa.com, deal4loans.com and itrust.in allow you to compare interest rates, other charges and do EMI calculations. However, they cannot provide tailor-made solutions to your loans, the way a counsellor can.

While liability management is an important part of one’s financial planning, it also becomes a one-stop shop for navigating the home mortgage industry. In the ever changing landscape of interest rates, EMI payments, tenures and property matters, having someone on your side is a good idea.