Home Loan Dilemmas

Why there are a lot of hiccups in the entire process of getting a home loan
Home Loan Dilemmas
They put a genuine question about the change in their equated monthly installment (EMI) which is driven by change in interest rates during the tenure of the loan.Pxhere [Creative Commons]

Most of the time, I find many queries in my box regarding the housing loan segment. Most of the mailers show their appetite for obtaining a housing/home loan, but lack of ‘proper guidance and cumbersome process’ stops them from pursuing it.

There are many who want clarity on interest rates as they have ‘heard’ stories of dispute over interest rate applied on home loans ‘in contravention’ to the basic loan agreements between the banks and the borrowers.

They put a genuine question about the change in their equated monthly installment (EMI) which is driven by change in interest rates during the tenure of the loan.

For instance a reader, who is a home loan borrower in a bank, complains that his bank didn’t bother to apprise him about the mechanism of applying interest rates on his home loans. The bank changed his equated monthly installment (EMI) abruptly midway through his repayment schedule.

The bank didn’t even bother to inform him about the change in the EMI. Actually this type of situation is very common at bank branches where the abrupt change in the rate of interest on home loans becomes one of the causes of confrontation between the bank staff and the affected borrowers.

Some time back one of my acquaintances while pointing towards a home loan advertisement dished out a new concept of advertising – advertising inconvenience! His concept of ‘advertising inconvenience’ surprised me. In the first instance I couldn’t get exactly the meaning of his concept, but later he vomited venom against ‘misleading’ advertisements by banks, particularly about home loan schemes.

He raised certain genuine points which have proved a major hassle for a person to access the home loan facility of a bank. Actually a common man carries the impression that home loan facility is one of the most difficult loans to access.

In advertisements getting a home loan looks very simple but in reality it is an uphill task to accomplish. I have come across genuine applicants succumbing to the lengthy procedure for availing a home loan and then taking route of expensive cash (personal) loans or any other loan scheme to fund the expenses of building, purchasing or renovating a house.

Why it is not hassle free to avail home loan? Who is responsible for making home loan sanction processing cumbersome?

These are a few important questions. When we ask this question to a bank customer, he blames the bank for tailoring twisted parameters of the scheme. To the same questions, the banks blame the customers for failing to meet the eligibility criteria as envisaged in the scheme.

It’s a common practice in banks that most of the home loan cases face rejection at the incipient stage. For this, a strong reason is incompatibility between the applicant’s credentials and bank’s requirements. Basically in the first stage it is eligibility dispute which prevents appraisal of the home loan application. In most cases, the applicant doesn’t fit into the eligibility criteria of the scheme. Here the applicant resorts to certain things to force his eligibility. For example, he may go for manipulation in his income or he may misrepresent the type of property and many more.

One of the biggest hurdles is the revenue papers of the land or house which actually are the basis for appraising the home loan application. In the first instance, obtaining documents from the revenue department is an uphill task and time consuming. The drafting of these documents, most of the time, is found improper in the context of ownership structure of the property (land or house). Then it’s the quantum of finance which ignites an argument between the bank and the applicant. Often we see the applicant not satisfied with the quantum of finance and complain of under financing. Before arriving at the quantum of finance, the bank evaluates the repayment capacity of the applicant. The repayment capacity is analysed on the basis of some factors like applicant’s monthly net income, unpaid loans, financial history, past repayment record, continuity in present employment or business, total years in employment and nature of employment. And of course, applicants CIBIL score will be considered to evaluate your financial position.

The value of property (in case you are seeking loan for purchasing a built house) or estimate (in case of loan for construction of house) showing costs of meeting different stages of construction too have a linkage to the quantum of finance. The banks have their own way for appraising a property as they have their own approved valuators who assign a value to the property based on their established parameters.

What is the proper way to have hassle free access to the home loan facility?

The only way a bank can help you in the first phase is when you provide them with proper documents especially revenue papers, income certificate and building permission wherever applicable. You cannot attribute the time consumed by you to get the revenue documents or building permission to the bank. As far as revenue papers and other relevant documents are concerned, it’s advisable that title deeds of the property and other documents should be furnished according to the bank’s format. Otherwise you might end up ruining the entire exercise of getting a home loan. To avoid such an uncomfortable situation, the best way is to enquire about all the documents required by banks beforehand and take necessary steps to get them ready within the stipulated time frame.

With regard to valuation of the property, it’s advisable to get the property valued from a bank approved valuator and remember the bank will only lend you the amount that the bank’s approved valuator has fixed on the property. Precisely, the mantra is simple - follow procedures in the scheme and don’t manipulate your eligibility.

What is switching facility in home loans? Is it beneficial for the borrower?

In interest rate war, banks are wooing existing home loan borrowers by offering them lower rate of interest. For this, the banks offer switching facilities to such borrowers. In a bid to capitalise on the falling rate of interest, the borrowers opt for shifting to a bank offering a better rate. Thus he takes the route of switching facilities. While availing switching facilities, the borrowers have to take certain things into count. The basic attraction in the process is to get the cost of loan reduced from the existing cost. The borrower has to bear some unanticipated costs like processing fee, stamp duty, notarization charges, insurance premium etc. This can easily work out to be 0.5% to 0.75% of the loan amount. Add to this the requirement of submitting all documentation again to the new bank. Maybe, these costs of switching are more than the interest relief which they expect!

A borrower had taken a home loan choosing a fixed rate of interest. Over a period of time, the bank unilaterally changed it to floating rate option. Isn’t it cheating on part of the bank?

There are innumerable instances where borrowers have shown displeasure about the unilateral change in interest rate option. At the time of availing the loan, they opt for a fixed rate option, which is usually a bit higher than the floating rate option. Those borrowers who opt for this option don’t want to float with the interest rate volatility. They take it that the fixed rate is fixed for the entire period of the loan tenure. But when banks re-fix their interest rate midway through their repayment schedule, they get shocked. They call it cheating by banks. But, it is not cheating act on part of the banks to change the fixed rate. The borrower while signing loan agreement gives the bank this right to reset the fixed rate whenever deemed fit by the bank. Borrowers have a habit not to read loan agreement documents before availing the facility. They only come to know about terms and conditions when the banks enforce them. The reset clause is invoked as and when applicable according to the terms of the agreement. Thus, in an increasing interest rate scenario, banks resetting the interest on the fixed rate home loan should not be a surprise.

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK

Greater Kashmir