Promises & Pitfalls Of Festive Home Loan Offers

Festivals in India are all about gifts, shopping and celebration with big ticket purchases such as buying a dream house. During this time, homebuyers get many attractive home loan offers from banks and financial institutions. These offers, which range from discounted interest rates to zero processing fees, promise to make homeownership more accessible. However, it’s important to carefully weigh the promises against potential pitfalls.

Promising Offers:

Lower Interest Rates

During the festive season, lenders often offer reduced interest rates, making it a favourable time to apply for a home loan. Lower rates can lead to significant savings over the loan tenure. Even a 0.25% reduction in interest rates can reduce your monthly EMIs, easing financial pressure.

Waiver of Processing Fees

Some banks waive off the processing fees, which typically range between 0.5% and 1% of the loan amount. This may seem like a small percentage, but for a large loan, this can result in savings of thousands of rupees.

Special Schemes and Discounts

Banks and housing finance companies often tie up with real estate developers to provide additional discounts on property prices or faster loan approval processes. Some lenders may also throw in cashback offers, vouchers, or even gold coins as part of their festive campaigns.

Attractive Fixed Rate Loans

Many lenders offer fixed-rate loans during the festive season at competitive rates. This can be beneficial for borrowers who want certainty about their future EMIs, especially when interest rates are expected to rise.

The Pitfalls

Temporary Benefits vs Long-Term Commitment

It is important to remember that a home loan is a long-term commitment. What looks like a deal today could strain your finances if you haven’t carefully evaluated your repayment capacity. A slight difference in interest rates can lead to substantial payments over a 15–20-year period.

Hidden Charges

The promise of no processing fees or lower interest rates can sometimes overshadow other hidden charges, such as legal fees, valuation charges, or administrative costs. Before committing, ensure that you thoroughly understand the fine print, including all fees that may be bundled into your loan.

Interest Rate Fluctuations

Many festive home loan offers relate to floating rate loans, which are tied to the Reserve Bank of India’s repo rate. While current interest rates might seem low, they can rise over time, increasing your EMI burden. Borrowers need to prepare for the possibility of higher rates in the future, especially if they are opting for floating rate loans.

Overstretching Finances

Lower EMIs during the festive season can tempt buyers to opt for a higher loan amount than they might otherwise consider. This can lead to financial overstretching, especially if the borrower’s income is not expected to increase significantly in the near future. Borrowers should ensure their home loan EMI does not exceed 30-40% of their monthly income, keeping room for other financial goals and emergencies.

Adhil Shetty, CEO of Bankbazaar.com, says, “Check your credit score before applying for a loan. A good credit score can help you negotiate even better terms, beyond the festive offers being promoted. Don’t hesitate to ask the lender for clarification on any terms you don’t understand and take your time before a big decision.”

Festive offers, thus, provide an opportunity for potential homebuyers to take advantage of favourable terms and conditions. However, they also come with risks that you must keep in mind. The best approach you can adopt is to balance the allure of short-term benefits with the reality of long-term financial commitments.

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