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What you need to know about home loans

23 Oct,2016

 

Dhaka, BdChronicle:

Home loan EMIs (equated monthly installments) can be a nightmare. While you do have the satisfaction of knowing you will eventually own your home, you also have to grapple with having to spend less money, with fewer treats, with giving up on luxuries that you would otherwise have enjoyed.

But Interest rates are likely to go up further, which could affect demand, putting property prices under pressure.

However, if you want to buy a house for your own use, this could be a good time.

After speaking to several renowned bankers, here are some myths, tips and facts about home loans:

Myths

•    ‘The Lender Takes the House’

False, the homeowner retains title to the home throughout the loan.
 
•    ‘I Can Be Thrown Out of My House’

False, the homeowner can stay in the home until a loan-maturing event occurs.
 
•    ‘Loan with the lowest interest rate is the best deal’

False, it may mean lower EMIs, but it may not serve your purpose if the loan amount sanctioned to you does not meet your requirement.
 
•    ‘Bank is not concerned about your employment status’

False, The home loan agreement stipulates that the borrower should keep the bank informed about change in employment, job loss, retirement, etc.
 
Tips

•    Before applying for a home loan, you should know for sure you have a permanent job to pay your EMIs on time. If you are holding a temporary job and you lose your contract and fail to make payments on time, it may result in the bank taking away your home

•    Ensure you calculate the total loan payments yourself. You need to know the exact amount you will be paying at the end of your loan term. You also need to know the penalty you will be charged if you prepay the loan. Sometimes, such penalties can be substantial

•    Loan repayments are tricky to calculate, so make sure you know how the payments are worked out on acompound interest basis

•    Use money wisely and gradually. Don't expect sales persons from banks to educate you. Do your research thoroughly and then make a decision

•    A fixed interest rate means that you will have the same interest rate for your entire loan term. An adjustable interest rate can change after a period of time. If you are comparing a fixed rate and an ARM loan, use a mortgage calculator to compare your payments down the line as well as those up front

•    If you have extra money, it is recommended that you pay a part of your loan to keep the EMI at the same level. Since most banks do not charge part pre-payment penalty, it can be an excellent option

Facts

•    Bangladesh Bank has announced an easiest-ever housing loan scheme in Bangladesh for the people of lower-middle and middle-income groups. Under the scheme, only 10% interest would be charged and there would be no hidden cost like service charges

•    Most of the commercial banks in Bangladesh provide home loans. Like HSBC, Delta BRAC Housing Finance Limited, Standard Chartered, Prime Bank, IFIC Bank, Eastern Bank etc

•    If you have taken a loan @ 10.5% for fifteen years it does not mean the same rate will be applicable through the tenure of your loan. Banks have introduced a clause according to which they have the right to revise the fixed rate home loan after two years or five years of disbursing the loan. This clause is called the Force Majeure Clause

•    Property Insurance is borrower’s responsibility not lenders. If the borrower shall make any default in insuring and keeping insured the said property, the bank may without prejudice to its rights and without being bound to do so

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