Prabhu wanted to buy a dream home for his parents and make them proud.

 

He took a home loan to buy a house – but it proved to be the biggest blunder due to his carelessness.

 

If you plan to take a home loan, you can’t miss out on this

 

A big-shot tier-1 company offered Prabhu a job with an 80% hike on his last salary.

 

It gave Prabhu the wings to upgrade his lifestyle.

 

He decided to buy a luxurious penthouse in a posh area.

 

Prabhu applied for a home loan.

 

However, he skimmed through the loan documents and blindly relied on the agent’s advice.

 

It cost him big time.

 

The bank agent insisted Prabhu should buy term insurance along with the home loan.

 

It would secure Prabhu’s family financially if he unexpectedly passes away during the loan tenure.

 

Prabhu bought the recommended term insurance.

 

The agent also promised to get Prabhu the loan at the lowest possible rate.

 

Prabhu neither checked other banks’ interest rates nor cross-verified if the agent offered him a fixed interest rate or a floating one.

 

Prabhu goofed up twice by blindly trusting the agent.

 

First, he was mis sold a ULIP plan instead of term insurance.

 

Now you may be wondering what’s wrong with it?

 

ULIP is an insurance + investment product.

 

On the other hand, term insurance is a pure insurance product that provides only death benefits.

 

ULIP can’t replace hardcore term insurance.

 

What is the downside to buying a ULIP?

 

1] The premium amount is insanely higher as compared to term insurance.

 

You can get at least 10x more coverage in term insurance by paying an equal premium amount than a ULIP.

 

2] ULIP mixes insurance and investment but falls short on both.

 

Investment returns provided by a ULIP are much lower than other investment products such as mutual funds, stocks, etc.

 

Why do some banks force customers to buy ULIPs?

 

To earn higher commissions and fees.

 

Buying a ULIP to protect your family’s future is as good as not buying insurance.

 

But Prabhu was tricked into buying a ULIP because he didn’t do enough research beforehand.

 

Prabhu also made another blunder.

 

Remember, I told you he didn’t even check if the agent offered him a fixed interest rate or a floating one.

 

Turns out the bank official gave him a fixed interest rate.

 

What’s the difference between the two?

 

If you opt for a fixed interest rate, the bank locks the interest rate for you for the entire loan tenure.

 

Irrespective of the change in repo rate or bank interest rate, your loan’s interest rate remains constant.

 

Since banks have to lock the interest rate when disbursing the loan, they keep the fixed-rate much higher than the floating rate to adjust for inflation.

 

In Prabhu’s case, he got the loan at 13% compared to the floating rate of interest,  which was 8.80% then.

 

Over the next few years, when the bank reduced its interest rate, prabhu couldn’t avail of its benefit.

 

While others were paying 7% interest, Prabhu still had to pay 13% interest.

 

Also, since Prabhu had opted for a fixed interest rate, he had to pay the penalty on the pre-payment of the loan.

 

Prabhu was frustrated with his current loan provider.

 

He decided to transfer his loan to another bank.

 

Here’s another shocker – he was allowed to transfer only 60% of his loan as stated in the agreement without paying additional fees.

 

If he wanted to transfer all of it (100%) – he was supposed to pay a 5% fee on the total amount (remaining principal + interest amount).

 

Prabhu felt stupid for not going through the entire agreement and being ignorant of such terms and conditions.

 

He paid the 5% fee (A HUGE SETBACK) and transferred his loan to another bank.

 

Five reasons why you should RESEARCH before applying for a home loan!

 

1] Cross-selling by banks

 

Know your rights as a loan borrower.

 

Banks can’t force you to buy a credit card or insurance with a home loan.

 

Don’t fall into the trap of cross-selling by the banks.

 

2] Fixed vs Floating rate of interest

 

If you expect interest rates to increase in the future, you may opt for a fixed interest rate.

 

But if you are unsure, opt for a floating rate.

 

3] Loan transfer terms

 

Lack of research can refrain you from transferring your loan to another bank.

 

So much so that extra hidden charges might just be waiting for you!

 

Read the transfer T&C carefully before borrowing the loan.

 

4] Prepayment terms

 

Why on Earth would you want to choose a bank that’d charge you for paying your debts early?!

 

Research for the ones who don’t.

 

5] Home loan insurance

 

Go for hardcore term insurance, not a ULIP plan.

 

This decision can make or break your family’s future.

 

Play with fire for once but not with THIS.

 

Remember, taking a home loan to buy a house is not bad.

 

However, taking a home loan without due research and understanding of T&C is horrible.

 

Since you take a home loan for a longer period, you should be well aware of what you are getting into.

 

CONCLUDING TIP 1: Don’t be like Prabhu.

 

CONCLUDING TIP 2: Know what you’re signing up for.

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