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Home Loan is the best option people can opt for their Dream Home. But You should have clarity picture of terms and conditions. Assume that your loan application for Rs 20 lakh got approved. Since you felt that the interest rates would maybe rise in the future, so you opted for the ‘fixed interest rate loan’. The interest rate applicable was 8.5 per cent per annum. As the property was under-construction, the loan was disbursed in stages over a period of 8 months. In the interim, interest rates rose, and the bank hiked the interest rates applicable on its deposits and loan productsSurprisinglyly, the Equated Monthlinstallmentnt (EMI) amount applicable on his loan too, mirrored a rise. On probing, you was told by the lender that the interest rate applicable on the loan was the rate prevailing at the time of the final loan disbursement (i.e. 9 per cent per annum) and not the interest rate that was prevailing at the time of sanctioning of the loan (i.e. 8.5 per cent per annum)Obviouslyly you, felt cheated. You can avoid being caught in a similar situation if you are aware of your lender’s sanction and disbursement norms.

DISBURSEMENT COMES IN VARIOUS FORMS

When it comes to loan disbursement, the stage of completion of the property as well as the reputation of the builder play an important role. Lenders will disburse the entire loan amount only in case of a fully constructed house, which has no pending work on the part of the builder. When you purchase a house which is under-construction, your lender will not disburse the entire loan amount. A partial disbursement will be made wherein the loan amount gets disbursed in stages. For instance, 25-30 per cent of the loan amount will be disbursed initially; the next 30 per cent when there is a significant progress in the construction; and so on. Only in certain rare cases are lenders willing to part with the entire loan amount, even if the property is underconstruction. This is called ‘advance disbursement’ and occurs only in case the developer enjoys a very good reputation. Therefore, as long as you select a property that is still under-construction, you cannot expect your lender to disburse the entire loan amount at one go.

THE INTEREST RATE DEPENDS ON THE DISBURSEMENT DATE AND NOT THE SANCTION DATE

When your lender extends the ‘loan sanction letter’ to you, it specifies the rate of interest applicable on your loan. However, the interest rate prevailing on the date on which the final disbursement has taken place is the actual interest rate applicable on the loan, irrespective of whether the loan is ‘fixed’ or ‘floating’. For instance, at the time of loan sanction, the interest rate applicable on the loan is 9 per cent per annum. The loan is being disbursed to you in stages. By the time you receive the final disbursement, the interest rates have risen by 50 basis points. The interest rate therefore now applicable on your loan would be 9.5 per cent per annum and not 9 per cent per annum as mentioned in the sanction letter.

GENERALLY THE LOAN AMOUNT GETS CREDITED TO YOUR BUILDER’S/SELLER’S ACCOUNT

In most cases, the loan amount gets credited directly to the builder’s account if the property is underconstruction or the seller’s account in the case of a re-sale. This step is taken by lenders to safeguard themselves against any frauds that could take place on such loans. However, if you would like the amount to be credited to your account, you need to enter into an agreement with the builder/seller as the case maybe. The agreement states that the builder/seller has no objection to the loan amount being credited to your account. Further, it also states your intention of crediting the sum to the builder/seller as soon as you receive the same from the lender. However, if the property is under-construction, and if the builder does not enjoy a very good reputation, then, you will need to get the property approved by your lender. This can become tiring and cumbersome.

A FEW LENDERS INSIST ON A GUARANTEE

Prior to disbursement, a few lenders also require you to arrange for a ‘personal guarantee’ from a person that is not a co-borrower, as long as he or she is financially sound. This is done to ensure smooth repayment of your loan. Before your loan is sanctioned, find out from your lender whether they have any such condition that needs to be met for you to obtain a guarantee on time and prevent any delays in your disbursement.

COSTS BORNE BY YOU BEFORE DISBURSEMENT

Before you get the disbursement money from your lender, you will need to cough up all the expenses involved in acquiring the home such as certain legal expenses, stamp duty charges, home search services, etc. Apart from these, you will also need to pay processing fees to your lender. Generally all these expenses are calculated as a percentage of your total loan amount. If, due to any reasons, the lender refuses to sanction your loan, you are not entitled to receive a refund of these expenses from your lender.

CONCLUSION

To ensure a hassle-free sanction and subsequent disbursement of your home loan, you must study your loan documents carefully. This will ensure that you do not feel ‘cheated’ by the lender.