1. Age -> Silent factor that determines your tenure.
I had spoken about this in my other blog related to home loan - Top factors to consider while availing a Home Loan.
You might’ve seen ads that say, “loans for longer tenure*”. Well, that long tenure is applicable only if you are in your early 20s.
Let us understand this from a bank’s perspective.
Home loans are a long-term commitment. If you are aged 50 when you take a loan, bank knows one thing with certainty – you do not have much working age left in you. You are highly likely to stop working soon or at 60. It is just a matter of time that your income is going to stop. What does the bank do? They just give you a loan with a shorter duration and increase your interest rate. They would not want to take much risk on you.
My friend, at 30, was eligible for 20 years of loan. Well, as much as it can be negotiated, the banks are definitely reluctant to go beyond the age of 50. So, if you are someone like me who is planning to buy a home later in life, be ready to take a short duration loan. This will imply higher down payment and higher EMIs.
2. Tax payments –> Silent factor that gives an alternate view of your income level
Let’s say you have a good salary on paper. Your previous 3 month’s salary slips show that you have a decent salary to avail loan. However, you have bought a good health insurance plan for yourself and your family. You might’ve also bought a ULIP plan just last year because your uncle forced you to. You bought it thinking it gives you tax benefits as well. You might also be investing in PFs to save tax.
With all these you might’ve successfully managed to avoid paying tax :). But if you look at this from your bank’s perspective, you are left with less than 5 lakhs income (or 7 lakhs in new tax regime). Banks might be a little more cautious when they give you loan as they are not entirely sure if you can commit to your EMIs.
Banks might charge you additional premium through higher interest rate. Or may not consider extending any additional offers to you, even if you have an excellent credit score.
3. Your relationship with the bank – Do they know your spending habits?
If banks can track your finances, they know how much money you end up saving every month. They can analyze your spending habits. They know where you spend the most and can analyze if your expenses are on the rise. They can make better judgements on you.
If they can track your incomes and understand that you have a steady flow of income, your expenses are in control and you have enough money towards the end of the month to pay your dues, they can offer higher value or better offers.
In some cases, banks also have pre-approved loan offers which is very personalized. If you have a pre-approved loan, you can get the money transferred to your account in matter of minutes (or a few hours). That too without any documentation.
Always maintain a good relationship with your bank and be consistent with it. Do not change your salary account unless it is mandated. Do most of your transactions from one account.
4. Bank's relationship with the builder/ constructor
Most of the reputed builders would have a good relationship with the banks. They might’ve already cracked some deals to offer you a better deal. Always leverage that relationship to your advantage.
Banks might also have a view on the builder’s finances. Builder has to have accounts in some banks and banks can track it. If the banks know a builder has sufficient cash to complete the current project, banks will be more open to extend you the loan. If banks feel that the builder is going bankrupt, they may hesitate to give you the loan. Of course, you would be liable to pay the loan even if the builder doesn’t complete the project, but you may simply stop paying EMIs and go to court. And banks do not want to get into this.
If your builder has a bad reputation, or if the builder could go bankrupt in future or has not been diligent in paying their EMIs, the bank might sense it and might be resistant in giving you the loan. Or give you a loan with higher interest rate.
5. Location of the property
Just like you have a preapproved loan, some properties are pre-approved by the banks. Especially, if the location is in a high demand area, or an upcoming area. It could even be locations where large projects are expected to come up in near future.
If the property value is expected to grow in future, banks know that their loan is protected even if you stop repaying your EMIs. In such places banks might be little more open to lend you up to 85% or 90% instead of standard 70-80%.
Likewise, if the bank feels the location is not up to their expectations, they may be a little hesitant and offer up to only 70% of the total value.
6. Bank’s financial situation
If your banks have a lot of deposits laying around, they want to give out more and more loans, then they may be open to negotiation. They would be obliged to give you a better offer than competitors so that lend more to the market.
Mind you, banks earn by extending more loans. So, you are always on the driver’s seat and you can always negotiate with the banks to extend you a better offer.
You can also look at small finance banks and check their interest rates. Or even the housing finance companies. They would have higher targets to achieve and be open to give you a better offer. Bigger banks will have set rules which would make them less flexible.
You can also take advantage of situations when banks want to lend more. In recent times, after the covid period, banks wanted to lend more. These times could be a very good situation to extract best possible offer from the bank. Builders push to sell as many units as possible would also give you an added advantage.
These are some of the Silent factors, determining your loan EMI, that nobody talks about!
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