3 Things about Home Loans That Banks Do Not Reveal

November 21, 2014

Loans

Obtaining the right home loan is quite an exercise. Even thought the lending institutions make it sound like cakewalk, it comes to the ingenuity and initiative of a loan seeker to find all he/she can about the loan to make it easily serviceable.

A lot of people find solace in the fact that a payable EMI in the long run benefits them. The lending institutions also emphasize on that fact. The reason for this misgiving is that the lending institutions ensure a small but long term payment if a mutually agreeable EMI is decided upon. Therefore a lot of times people might have experienced obtaining high EMI in the beginning and after “considerable efforts” the banks reduce them. When that happens, loan seekers are made to believe that the lending institution has gone out of their way to help them. This closes all doors to any other information from the banks.

Here are some of the things that the banks do not inform the users of. This information is good to know and benefits lending institutions in the long run.

Home Loan

The EMI components

It is mandatory for lending institutions to provide a repayment schedule. Most of them offer it after “special requests”. Even when they do, emphasis is laid down on timely payments rather than the loan components. The components of the EMI are not highlighted.

An EMI that a consumer has agreed upon services twoloan components- the interest and the principal. Initially, the portion of the EMI that goes into servicing the interest is higher. As one keeps paying, the weight gradually shifts in the favour of principal. The higher the EMI, the more interest component is served. Paying more actually benefits a consumer. This fact is not highlighted by the banks. They can advise consumers to pay extra to service the interest component having explained how it works. Knowing the intricacies would make consumers happily do it.

Servicing loans more efficiently

The lending institutions do not inform consumers about the ways they can service their home loans more efficiently. They do not advise them of making occasional additional payments and the fact that such payments may allow them paying lesser in the long run. They also do not inform the consumers of the benefits that they become eligible for, after completion of tenure of timely payments. Such benefits include top up loans and loan account transfers.

Consumers can use the housing.com’s home loan eligibility calculator to know how much they should be paying. If their own EMI is lesser than the one shown by the calculator and they are able to pay that amount, then they can absolutely go ahead and make higher payments.

Also, the EMI amount calculated by the banks is not sacrosanct. Consumers have the right to negotiate on an amount that helps them service the loans better.

Loan reduction options

Top up loans and loan account transfers are two ways to reduce a home loan liability drastically. While top up loans offer banks an interest benefit, loan account transfers mean loss of a customer who has found a lender with lower interest rate. Therefore this last option is usually never revealed to a consumer. Top up loans are risky for the banks and even though a consumer may have earned the right to opt for one, banks usually do not let consumers know about them.

In Conclusion

Housing loans are big, long term financial transactions. Knowledge is the key to deal with them successfully..

Home Loans