Owing a home is a dream come true for most of us and I am no different. This is my personal story that I want to share so that other people who are also in the same boat can benefit from my experience.
Since, I belong to a middle class family, I needed a home loan to finance my newly booked under construction house. After paying the initial booking amount, I started searching for the best and off-course cheapest home loan. Now, Home loan’s cost depends on various factors like processing fees, interest rate and other small expenses here and there. We will talk about these expenses associated with taking a home loan in detail in another article.
As a common man, we all have heard people advising that we should vouch for a home loan from a government bank instead of a private bank. I preferred it too for their low rate of interest and flexible pre-payment policies.
I applied for the home loan from one of the biggest public sector bank of India i.e. SBI. Everything was fine as my builder’s project was approved by SBI for loan and i was quite happy as I got what I wanted i.e. the loan from a public sector bank.
But, the only thing which irritated me was the requirement of supporting your home loan application with a GUARANTOR.
What is the meaning of Home loan GUARANTOR?
A Guarantor is a person who can guarantee the re-payment of loan amount in case something happens to you i.e. death or any other disability. This means that if you default in paying back the loan due to any reason whatsoever, the bank will pass on the liability to the guarantor. In this case, Guarantor has to pay back the remaining amount of loan.
An interesting point to note here is that almost all public sector banks have this as a mandatory requirement to give you home loan. Whereas private banks do NOT even ask for it. They are okay with your salary slips and other income proofs.
Who can be a GUARANTOR?
Anybody who can vouch for you can be guarantor. Normally they ask for a person from your family, but your friend can also be your guarantor.
What documents are required from a GUARANTOR?
A guarantor needs to submit his income statements to prove that he/she is capable of paying back the loan amount in case the person in question defaults. Normally, the salary slips and other income proofs like PF, any existing property proofs (photocopies) are acceptable.
What to do if you DON’T have a GUARANTOR?
In today’s world, it is really difficult to find a person who would like to be your guarantor. Nobody wants to inject an unnecessary tension in his/her mind by signing legal papers for you. Who knows, you may default tomorrow and why should anybody pay in case you default? Ask yourself, would you sign a guarantee for anybody?
These days, even parents ask their children to do it on their own as they also do not want to carry their child’s loan burden.
Well, I was the one who did not had ANY guarantor whatsoever. My mother is a house wife and my father is no more in this world. I am the only bread earner in my family and it was really difficult for me to convince anybody to give my guarantee.
This meant that even though I had all the papers in place and was eligible for loan, i could not get it just because I did not had a GUARANTOR!!
I had lost all the hopes until i got to know of an insurance policy which could act like a GUARANTOR for me! This policy is called Loan insurance policy and is offered by almost all banks/insurance companies these days.
What is Home Loan Insurance Policy?
It is an insurance which is tied to your home loan EMI payments to safeguard bank’s investment in giving you home loan. It is closely tied to your EMI payouts and the insurance company takes on the burden of re-paying the loan to bank in case something happens to you.
The amount of premium is calculated based on the tenure (total months) of your loan and the amount that is insured reduces with each EMI payment made by you.
The policy hence can act as a guarantor for you in case you don’t have any. I preferred buying this policy instead of requesting people to vouch for me. I feel that it is much better to depend on yourself than somebody else!!
Any other benefit of Home Loan Insurance Policy?
The biggest crisis and pain that your family faces in case something happens to you is the loss of a beloved one. This pain is increased if the bank comes to your doorstep to ask for EMI’s and the pain is even more when you get to know that the home which you bought is actually mortgaged with bank and hence can be sold by bank to recover the outstanding loan.
The home loan insurance provides a big relief in this situation. The insurance company will pay back the outstanding loan to bank, bank will release the mortgage and will transfer the property on your family’s name.
Also, the premium amount that you pay is for the full tenure. In case you prepay the loan and close it before your actual tenure, home loan insurance company returns the unused premium back to you. But this is generally a small amount as per the terms and conditions of the policy.
So, apart from being a guarantor, it helps you LIVE and reach heaven tension free.