Flexi plan is lucrative

There is nothing like having a roof of one’s own. It ends house hunting after every few years; it saves from grumpy landlords and killing rents. Without enough cash in hand, people don’t dare to think of a home of their own and this is where home loans come into play. If we look at the data released by the RBI, home loan disbursal has grown by a good rate in recent years in the country. Home loan disbursals rose by 20 per cent to Rs 3.15 lakh crore in the financial year 2009-10 compared to records of a year back. If we look back, housing loans in the 2008-09 fiscal stood at Rs 2.63 lakh crore, which marked a growth of 4.1 per cent as against the financial year 2007-08.
The RBI has taken many steps in order to make things more transparent and consumer friendly. The central bank has capped housing loans at 80 per cent of the property value, as it seeks to check rising home prices. RBI has also increased the standard asset provisioning (the amount to be set aside against all assets) on teaser loans to 2 per cent from 0.4 per cent. The risk weight on loans above Rs. 75 lakh has been increased to 125% of the loan value.
As the banks have switched to base rate system from July 2010, it has introduced transparency in the system and customers know what they are getting compared to others and can bargain for a better deal. Base rate is the minimum rate a bank can charge its customers. It is important to note that banks can’t charge below its base rate, but they can still charge over this, depending on the condition of the market. With the base rate system in place, home loans are now priced with reference to this base rate. Thus things have become easy for prospective home buyers.
If you have decided to go for a home now, builders are offering a number of payment plans, which can create confusion. Choosing one from these depends on your ability to pay, capacity to take risks and ultimately on your convenience. There are broadly four existing payment plans namely down payment plan, construction linked payment plan, time-linked payment plan and flexi plan.
Down payment plan
Under this plan, one has to pay 10-15 per cent value of the property as down payment. Nearly 80-85 per cent amount is paid within a certain period (say 30 days) of the booking date. In addition, one is supposed to pay various associated costs- like club membership, car parking, lease rent and preferential location charges etc. Rest amount (say 5 per cent) and annual maintenance charge are required at the time of possession.
The EMI has both the interest and the principal component under this plan. The advantage of this plan is that EMI begins at the time of allotment. By the time one gets the possession, the principal amount on the debt gets reduced substantially. It is a good plan for those who vie for fat discounts as sellers offer 10-15 per cent discount on the base price easily. But, since one pays 90-95 per cent amount before taking possession, it is necessary that the builder delivers the project on time. In case the builder delays the delivery, the person is caught in a trap. Mukesh Gupta, Director, Wealthcare Securities, says, “This option is better only when the developer is reputed and it has a good track record of project deliveries in time.”
Construction-linked plan
Under this plan, the payment is linked to the progress of construction of the property. At the time of booking, one pays around 10 per cent of the price of the property. In addition, say another 10 per cent is paid after 30 days of booking. The rest of the amount is paid in parts at each stage of construction work- like completion of the foundation, basement slab, the first floor, the second floor and so on and so forth. The system called pre-EMI (in pre-EMI, one has to pay interest on the loan) is used under this plan before the final payment. Final EMI (on the principal) starts only after one gets possession on the property.
It is better for those who are unable to afford a full EMI and rent of the home in which he lives. Gupta says, “This proves to be better for people who can’t afford rent and full EMI together.” Not only this, it’s better in case one doesn’t get the possession on time. But in this plan, the total cost may be more; hence one ends up paying extra money.
Time-linked plan
The payment is linked to time under this plan and one pays a certain pre decided part of the price according to a calendar decided by the seller. The plan is not negotiable and the seller holds most of the clauses with him. The worst part of the plan is that one has to pay the installment, even if the delivery of the property is delayed. Gupta says, “As most of the clauses of the payment belong to the seller, it is a bad plan for customers.”
Flexi plan
To lure the prospective home buyers, sellers have come up with Flexi plan, a plan with the advantages of both the down payment and construction-linked plans. Under flexi plan, one needs to pay 10 per cent of the price on the date of booking, another 30-40 per cent of the price is paid within 30 days of booking. The rest of the amount is paid like construction linked plan.
It is better for people who have a number of liabilities and the same time want to have a home as well. But the discount on the price is not as good (only 5-6 per cent) if we compare this with the down payment plan. Srinivasan TS, Certified Financial Planner & Chief Consultant at WealMan Associates, says, “Flexi plan is the best one from the customers’ point of view, taking all the things into account.”
Last but not the least
It is important to note that banks show interest rates in different ways such as reducing rate, flat rate etc. So, mere numbers of interest rate don’t give you a clear picture of whether the loan is a good deal or not. Fee of processing, related taxes, pre payment fee etc should be considered as well while choosing the loan. Before buying a home, one should understand the break-up of the payment clearly.