In today’s modern world every average person dreams of a house that he can call his own. Some want it for luxury, some as a need, some as future security, while others feel it is the best way of investing your money guaranteeing the maximum return in minimum time. In metros though the definition of a house has now changed to multi-storied apartments.

Gone are the days when a house meant one with a lawn and garden at the front, a car garage at the side and a kitchen garden at the back. All you get to see now are spaces with walls literally suspended in mid-air. Yet people are ready to pay lakhs of rupees to be able to own one of these. You can see them all around you. Cities are now a complete concrete jungle, yet no one wants to be left out from the race.

Finding a house is not difficult as you have a housing project in almost every locality. Even in the weirdest of places one can imagine. So is it really that easy to acquire one? Not really, the cost being a major deterrent. A single bedroom apartment may cost from 8lakhs to somewhere above a crore depending on the locality, builder reputation, construction quality and amenities provided. So how does one fulfill his dream? Is there no way out?

HOME LOAN – a respite for anybody wanting a house But I really wonder if it is really so. Almost every bank has a home loan department now offering loans at an interest rate varying from 8% to 12.5%. Just when you are wondering if you should also buy a house like your friends but how, you receive calls from various banks offering you home loans at the cheapest rates possible.

You could not have asked for something more. The call is like a life savior for you. But is it really the case? If you are not cautious enough you can end up paying more than four times the cost of the house to the bank. So should one avoid taking home loans completely? Not really. You just need to keep certain things in mind while going for one listed below.

1. Keep the duration of the loan as less as possible. All the banks offer home loans for duration of 20 years at the maximum. So if you take a home loan of Rs 30,00,000 at an interest rate of 9% for 20 years your monthly EMI (Equated Monthly Installment) to be payable to the bank comes to Rs26,992. Quite cheap you think. But then think again.

If you sit back and calculate, you pay a total of Rs 64,78,080 to the bank. Which means a total of Rs 34,78,080 only as an interest. If the same loan was for duration of 10 years your monthly EMI would come to Rs 38,000 but the total loan amount that you pay is just Rs 45,60,360. Much more economical for you in the long run.

2. If the bank at any point lowers the interest rates they give you an option of reducing the EMI that you pay each month. Instead, insist on paying the same EMI but getting the loan duration reduced. Any day a better deal for you.

3. Fixed loan of interest is better if you plan to pre pay your loan in small installments at the earliest. It gives you a chance to plan your finances for a particular duration of time in advance. You can then easily plan and save money to pre pay the loan at the earliest as it helps in reducing the interest amount you pay. Banks do not charge interest for part pre payment of loan done if below 90% of the total loan.

4. While going for a loan transfer from one bank to the other offering a lesser rate of interest do your calculations well before going ahead. Every bank charges 2% to 4% pre-payment charges on closure of the entire loan amount. The bank you are transferring to might be charging some processing or mortgaging fees on the total loan that you want.

There might be a case where you end up paying more rather than gaining by the transfer. A certain friend of mine had a home loan of 45 lakhs with a bank and transferred it to another, which was providing the home loan at 1.25% lesser interest rate. Obviously a better deal anyone would think. But then after adding the prepayment closure charges paid to the previous bank and adding the mortgaging fees of the newer one her home loan now stands at 48lakhs. Did she really gain by the transfer? I don’t think so.

5. Understand the statistics and the calculations even if maths has been your weak area. It will help you in avoiding situations such as my friend landed herself in. It is not necessary that every person-transferring loan gets a non-profitable deal. There would be no loan transfer offers being given if such was the case.

6. Make sure that the amount paid as a pre-payment closure fees to the previous bank is not added to the principal of the loan you take from the other bank. You will only end up paying unnecessary interest on the amount.

Most of us really don’t bother to get into details, but I can assure getting into the details of the home loan amount actually paid. Everyone there is ready to fleece you of your money, its you who should take care that no one fails.