Home loan offers: Keep an eye on caveats before choosing a lender

They may be available only to those whose credit score exceeds a specified level or who buy insurance also

Just as property developers are deluging prospective homebuyers with price discounts, payment plans, and freebies, banks and housing finance companies (HFCs), too, have come out with special offers on home loans this festive season. These include lower interest rates and complete or partial waiver of the processing fee.

If you have to choose between a lender offering a special interest rate and one offering concession on the processing fee, go with the former. “The processing fee is a one-time concession, while the benefit of a lower interest rate will accrue for a longer period,” says Arvind Rao, chartered accountant and founder, Arvind Rao & Associates.

Not every borrower will be able to avail of the offers being advertised. “These days, offers come with eligibility criteria attached. A lender could, for instance, be giving special loan rate only to clients with a credit score of 750 and above,” says Gaurav Gupta, founder and chief executive officer (CEO), MyLoanCare. He suggests that borrowers should also check if the lender is funding the property you are interested in.

Many lenders charge a fee for legal and technical evaluation of the property, in addition to a processing fee. A lender may advertise it is waiving the processing fee, but may levy the other fee. Borrowers need to clarify this.  

 Some special offers are only available if customers purchase insurance from the lender. “Depending on the type of insurance sold, the cost could range between 1 per cent and 7 per cent of the loan amount,” says Gupta. Find out in advance if the offer is available only if you buy the insurance cover.

You will have a long association with the lender you choose. Enquire from existing borrowers about its service standards. With a pandemic raging, it would be advisable to select one with a strong online presence, or one with an office close to your residence.

Also find out if, to avail of a time-bound offer, you need to apply by a certain date or get your loan approved by then. “It should not happen that by the time your loan is approved the special offer period has ended and you cannot avail of it,” says Rishi Mehra, CEO, Wishfin.

Finally, you will need to decide whether to borrow from a bank or an HFC. When you borrow from the former, your home loan rate will be linked to the repo rate. Transmission of rate cuts will happen more transparently here. A bank also agrees to accept a lower margin when it makes a special offer and cannot hike the margin unless the borrower’s creditworthiness changes.

If you go with an HFC, the loan rate will be linked to an internal benchmark called the prime lending rate. “Some HFCs take more time to reduce the rate for existing customers than others and must be avoided,” says Mehra.

Doing some research online will help you zero in on an HFC that has a better record of transmitting rate cuts.

Top festive offers on home loans
Lender	Interest rate (%)	Processing fee*	Offer
HDFC Ltd	6.90-7.65	Up to 1.5% (Min.  Rs 3,000)	Rate starting at 6.90% p.a under 'Monsoon Bonanza offer' till Oct. 31 for logins and Nov. 30 for disbursements
State Bank of India	6.95-7.95	Up to 0.40%	Rate starting at 6.90% p.a. Nil processing fee & 5 bps rate concession if applied through YONO app. Credit score based rate concession of up to 20 bps
ICICI Bank	6.90-8.05	Up to 0.5%	Rate starting at 6.90% for home loan and HLBT & low processing starting at Rs 3,000 for HLBT till Nov. 30.
Kotak Mahindra Bank	6.90-8.60	Up to 0.5%	Rate starting at 6.90% p.a. for both HL and HLBT under offer
Axis Bank	7.75-11.50	1% (Min. Rs 10,000)	Interest rate starting at 6.90% p.a. under offer
*Processing fee is %age of loan amount. HLBT stands for home loan balance transfer. Rates as on October 27, 2020. Source: Paisabazaar.com