Whom to go to for a home loan: Bank or a housing finance company?

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Whom to go to for a home loan: Bank or a housing finance company?
Owning a house that is every individual's dream is nowadays rendered through the home loan schemes.

But apart from the cost of the property you which is partially financed by banks to the extent of the cost of the property value, banks do not factor in other property purchase related charges including stamp duty and property registration fees and that has to be funded from one's own pocket.

And as the upfront payment to be made as the down payment for the property purchase plus the other charges is not a petty some, in many a case as an individuals fails to arrange for this amount, is unable to make the deal.

In this situation, the only recourse is the choice of a housing finance facility from a HFC or a housing finance company who also funds the registration fee and stamp duty charges.

Furthermore, National Housing Bank is also mulling over the disbursal of upto 90% of the property value as loan amount i.e. a n increase in loan to value ratio (LTV) by HFCs on home loan from 80% to 90% is expected in the near term (in case the property values between over Rs. 20 lakh and Rs. 75 lakh).

But how good is the idea to fund the property cost and other charges by a HFC?

Stamp duty charges that vary from state to state as well as on the gender as if a property is purchased in the name of a women they are eligible for a rebate in the stamp duty charges by some percentage points account for a considerable sum.

But, as banks following the RBI ruling do not include documentation along with stamp duty while sanctioning the loan amount, HFC offer loans considering the stamp duty and other charges as the loan amount but at a higher rate.

The higher rate is on account of the risk profile of the banks as HFCs majorly sanctions loan for individuals who fail to secure the loan amount from bank.

The interest rate is higher by 15-25 basis points but in the longer run and considering the large ticket size of the loan, the total cost of the loan i.e. the total interest outgo on the finance makes a substantial difference if secured from a HFC (if the other expenses are also factored in the loan amount secured from an HFC).

So, ideally when you can fund the other expenses related to property purchase from your own pocket, you shouldn't consider factoring in that cost in the home loan amount as it will eventually increase your month-on-month EMI by a considerable amount.

Nonetheless, with no option left at hand, you can surely go to a HFC for financing your home purchase with all the charges included.

Another factor that can be considered while deciding on a home loan from a bank or a HFC is the age criteria, in case you are in your initial years of your career and foresee an increase in the income flow in the coming time to service the debt (of a higher EMI) you can consider to choose a home loan facility from a HFC.

But in case, you are nearing your retirement, choice of home loan from a housing finance company is not suggested as it will disturb as well as put considerable pressure on your cash position.


Story first published: Tuesday, April 29, 2014, 9:38 [IST]
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