India home loan

Important to know for a home loan seeker

2011-11-15T23:09:00.000-08:00

A home loan includes great deal of intricacies which are often include arcane terms and hence making it difficult for a commoner and even difficult for the first time borrowers. Most of the loan applicants do not take the matter seriously and hence are likely to suffer set backs in the later part of the loan tenure.

While sanctioning a loan, lenders are more concerned about the future aspects as they do not want a customer who would default on his loan. To keep things simple they want to make sure in the beginning itself whether the applicant would be able to manage his loan or not, if an applicant does not satisfy a certain criteria then the lenders reject the proposal straight away.

To avoid rejection an applicant must check his loan eligibility before he applies for a loan, which in turn is decided by a number of factors. Loan eligibility of a particular borrower is the maximum amount that he can borrow; it mainly depends on the income of the borrower.

A borrower must have an idea about his monthly expenses so that he can get an idea about the amount that he can pay as the monthly installment for his loan. An applicant must borrow an amount which he can repay easily and it also helps him to avoid the risk of rejection.

Credit score is also an important factor, lenders wants the applicant to have a high credit score as it gives the lender and idea that the person does not default much and can expect that he will not do so with him as well.

The nature of job can sometimes also play a deciding role, a person working with a reputed company is likely to face less difficulty in finding a lender as compared to a person working with a lesser known company. Also, if a person is a constant job hopper then it can also add to certain disadvantage for the applicant.

Prepayment penalty of home loans likely to go

2011-11-09T03:34:00.000-08:00

Finally, after initial resistance, lenders have started to waive the prepayment penalty in home loans. The banks used to levy penalty on the customer that borrowed money from some other lender to make the prepayments. However, such a penalty was not applicable to a customer who is making prepayments solely through his own resources.

The Reserve Bank of India was never in favor of this practice which was followed by majority of the lenders. Setting an example for the other lender, the largest lender in the country State Bank of India earlier has waived the penalty for the new customers and now has exempted the existing customers from the penalty.

“Banks have already agreed, but they are not issuing the guideline (to their branches) that you cannot charge prepayment penalty. We are not clear why banks charge the prepayment penalty,” said Mr. K C Chakrabarty, Deputy Governor of RBI.

The Chairman and managing Director of Punjab National Bank, Mr. K. R. Ramath said “If the regulator ultimately wants it, we need to fall in line. The prepayment penalty is not an avenue for bankers to make money, but a mechanism to recover costs due to mismatch in assets and liabilities. If RBI feels we have to do away with that, as bankers we will have to find a way to recover the cost.”

Some other public sector banks including Bank of India, Indian Bank and United Bank of India have also waived prepayment penalty on floating rate retail loans and more lenders are expected to joint the group soon.

How you can notch those extra benefits?

2011-09-09T02:13:00.000-07:00

The initial process of a home loan is the most difficult as well as decisive phase of a home loan, there are a lot of things that are to taken care of by a person before he gets into a deal with a lender. The fate of a dwelling loan depends on the approach of the borrower.

Once a loan has been borrowed it is just the payment of the installments which is left to be done, the difference is that with a good home loan deal can fetch some extra benefits to the borrower as well as there will be least complications involved in such a loan which in itself is sufficient to make borrowing an enjoyable experience.

It is the smart work which really pays off in a home loan, proper strategy is very necessary which can give a edge to that person over the other lender and which can enable him to extract the maximum benefits out of his home loan.

Like everything else here also basics are the key to success, if the primarily things which are required by the lender are in perfect order then the only thing the applicant is left to do with is to negotiate with the lenders which can offer him home loan scheme which can suit his requirements in the best possible manner.

To get the basics right the credit score of the applicant must be in perfect order which means he must have an impressive credit score, an applicant must be sure about his requirements and more importantly about the amount of loan which he is eligible for and the amount which he can repay comfortably.

If all these things are in perfect order then a person can be sure about grabbing a perfect loan scheme otherwise he wants to have one then he must get them corrected, a person with not such an impressive portfolio can also borrow a loan but then he would not have the leisure to get an extra bit from the lender, he would be able to avail only the regular features of the loan.

Be prudent while borrowing home loan

2011-09-05T05:24:00.000-07:00

It is not only about borrowing a home loan but the most important thing is that whether the loan scheme that a person has borrowed is suitable for him and if yes then to what extent. Managing a loan is another very important task that a borrower has to tune with, the fact being that a borrower can manage a loan well only if it suits him or otherwise he must get ready for sleepless nights.

Even people who are aware about the basics of borrowing a home loan make several mistakes which can ruin the excitement of buying a home. They stick to the basics, which is very important but the mistake that they make is that they consider only the present market conditions and do not consider the future aspects which complicates the situation to a great extent.

As the Reserve Bank of India has been continuously hiking the policy rates resulting in hike of home loan rates, now considering this enormous hike most of the people which are borrowing home loans are opting for a fixed interest rate scheme.

Such people need to understand that this hike is not going to remain forever and someday the rates will fall and when it happens a borrower must make sure that he does not let go any single opportunity from where he can reap benefits and a borrower can do this through floating interest rate scheme which allows a person to witness every fluctuation in the market rate be it upwards or downwards.

While borrowing a home loan apart from taking intelligent decision a borrower also needs to be prudent in his approach and that is how he can take the maximum benefits out of his home loan.

Are you looking for a home loan?

2011-08-26T05:06:00.000-07:00

When it comes to home loans there are a few things that must pass through the head of a person who has some idea about home loans and they are his credit report and his loan eligibility. If they are at their place whether they are supposed to be then a borrower is just left to steer through the loan procedure.

The loan eligibility of a borrower is the amount of the loan for which he is eligible and it is important that the applicant is aware of his borrowing limits because if the amount for which the borrower has applied for exceeds his borrowing capacity then the loan application is likely to be rejected.

What a borrower must do is that he must first get an idea bout his borrowing capacity and then he must look for the property accordingly, so that there his loan application gets approved and also it would make easy for the borrower to manage his loan.

Also, a person must check his credit report before he applies for the loan, if he has a good credit score then there is not much to worry about but if it is not then he might have to work hard to earn some points. It would take time but it is necessary to have a good credit score if he wants to avail best interest rates.

To do so he must try to repay all his pending debts as soon as possible without skipping any, while doing so the credit score will gradually improve and after that the person can apply for the loan.

Charges apart from interest rate applicable on home loans

2011-08-11T04:55:00.000-07:00

Most of the people believe that it is only the interest rate applicable on the loan which determines the overall cost of the home loan but it is definitely not so there are a few other fees applicable on a home loan that sums up to produce the overall cost for a home loan.

It starts with processing fees, when a person applies for a home loan at that time the borrower requires to pay processing fees which generally is around 2% of the loan amount applied for but basically it depends on the lender and more importantly it is non-refundable, it means that in case the loan application is rejected or the applicant himself backs out then the processing fees would not be refunded.

Most of the lenders also levy charges that they have incurred for legal and technical verification after that a borrower is also required to pay stamp duty to the Government which depends on the size of the loan borrowed.

Lenders even charge penalty in case the borrower prepays his loan, the penalty is applicable on the pending loan amount that the borrower was supposed to pay, depending on the lender a borrower might have to pay 2%-5% of the pending loan amount as prepayment penalty.

A borrower will also have to pay some extra amount in order to get duplicate statement copy which a person requires for annual tax filling purposes. Certain penalties are also applicable in case of delayed payments or if the cheque bounces.

These are a few extra costs that a borrower might have to encounter, so if a borrower does not want to get surprised every time he is charged with some charge or penalty then he must make things clear in the beginning itself.

How to select a lender for refinancing?

2011-08-10T04:07:00.000-07:00

When borrowers are not satisfied by their loan scheme they might like to try the option of refinancing. Undoubtedly is a very beneficial facility if handled carefully. Reason may differ for people due to which they wish to refinance.

The most common thing for which the borrowers seek to refinance is to avail low interest rates. There is a probability that the person did not do proper research while borrowing a loan and hence ended up with an expensive loan scheme.

Sometimes a borrower might discover some time after he has borrowed the loan that the terms and condition that are applicable on his loan are not suitable for him and have eventually he might realize that it was not what he intended to borrow.

To all such things the solution is ‘refinancing’, however it is not a sure shot as it is up to the intelligence of the borrower that can decide how beneficial it would prove to be for him. The foremost thing that a borrower needs to know that if he would apply for refinancing then he would be levied with penalty and that might make the loan a bit more expensive.

A borrower must do proper research and must try to get if not all then most of them fixed this time and to get ensure that this time he has shopped for the correct loam scheme and more importantly that the interest rate is as low as possible.

While doing this he must not forget to include the amount of penalty to the total expenses and after that if the profit that the new loan scheme promises loses their charm then he must not go any further with that scheme and must look for some other lender.

An informed decision can ensure good results

2011-07-28T04:30:00.000-07:00

When it comes to home loans and a person wants to make the maximum out of it then apart from a lot factors the one that can have a lot of effect on the deal is whether the decision that the applicant is making is an informed decision or not? Some people might not take this very seriously but in real world all it takes to grab a beneficial deal is an informed decision.

The market conditions are never stable and hence it become necessary to get a track of it, such a thing can help a lot as then it can provide an idea about the future perspective and hence a borrower can choose a loan scheme accordingly or at least one car be prepared if something happens in future.

The most important thing in a home loan is the interest rates, they forms the basis of any loan and so it becomes imperative to have a close look on them, interest rates are also linked with market conditions and that way they are a bit volatile in nature and hence it requires a borrower to be very meticulous while he is out searching for the home loan deal.

A borrower can no do much if there is a hike in the market rates in fact it is not possible for any body but one the one thing that an applicant can do is that he can look for a lender that can offer best possible rates so that even if there is a hike in the interest rate he does not get to suffer much.

Mortgage calculators can be of great of great use here, they might look ordinary in appearance but at times they can prove to be very useful. They are available freely on internet and are in fact very easy to use. Basically they can be used to compare various loan schemes, there are various fields on a calculator a person just have to provide the inputs and the calculator would generate the overall cost of the loan and hence a person can get an idea about how much a particular loan scheme would cost him?

Extra charges on a home loan apart from interest

2011-07-26T05:08:00.000-07:00

It is not only the interest rate that a person is required to pay for his home loan but there are a few other charges that a borrower might have to come across and if he is not prepared for them then it can even create a few complications for him. Some of them are mandatory and some of them are applicable only under certain circumstances and hence can be avoided.

When a person applies for a loan at that time the borrower has to pay a processing fee, it can vary from up to 1 percent of the total loan amount, another important thing is that it is essentially non-refundable, it implies that in case the loan is not sanctioned to the applicant or due to some reasons if the applicant himself would want to back out of the deal then he would lose the amount paid as processing fees.

Some of the lenders also charges administrative fees, some of the lenders charge both of them together and some once the loan has been sanctioned, it is same as the processing fees.

If the applicant wants to prepay his loan, then he will have to pay prepayment penalty which would be applicable on the pending loan amount; a lender can levy this penalty only if the borrower is borrowing from some other lender to prepay his loan but if he is prepaying from his own sources then the lender can not charge anything from him.

Some lenders also ask the borrower to get his loan insured which is at least of equal value as of the loan borrowed. These are a few sources that might require a borrower to spend some extra on the loan.

Home loan at 8% for Government employees in Bihar

2011-07-21T04:33:00.001-07:00

The Government employees in Bihar would now be able to borrow a home loan upto 30 lacs at an interest rate of 8%., the Deputy Chief Minister of Bihar Mr. Sushil Kumar Modi made the announcement.

He said that the Government would become guarantor for the home loan and if any borrower defaults then the amount would automatically be deducted from the salary of the employee and will be paid a s the EMI for his loan.

How people with bad credit can refinance their home loan?

2011-07-15T04:15:00.000-07:00

There are a lot of people that are not very much satisfied with their home loan schemes and still they are skeptic about giving other options like refinancing a try because they do not have a very good credit history. Through refinancing, a borrower can shift his loan to some other lender and can enjoy the new terms and conditions that he thinks would be more beneficial for him.

Even to refinance the home loan there are a few things that are of vital importance and among them the thing that tops the chart is the credit report of the borrower. It is not that a borrower with bad credit can never get a refinance but before he approaches a lender he must make sure that he has decent enough credit report by the time he does so.

The first thing that he must do is to get a copy of his credit report and get the details of his defaults, sometimes there can be some mistake form the lender in providing the details to the credit provider agency, so that way a person can also find out any such delinquency and get that rectified.

After a person has identified the areas that are affecting his credit score then he can start working them, first a person must take the low amount bills and the penalties and try to repay them as soon as possible and after he is done with them he can take the bigger debts and dues also while a person is working on his credit report he must try to avoid any and every king of borrowing because then if the borrower misses even single installments that can destroy all the hard work that he had done by then.

It might take a while but then he can approach a lender and can apply for refinancing and can enjoy the benefit.

Don’t let a home loan to be a burden

2011-07-12T04:40:00.000-07:00

A slight mistake from a person while borrowing a home loan can cause a lot of difficulties, that would eventually suck away all the excitement of the borrower about his home, then the only thing that he is concerned about is how to get rid of his home loan as it does not take a lot of time for a home loan to transform into an instrument that can create a lot difficulties for a borrower in a very short span of time.
Actually, a home loan is not that bad, in fact not at all; it is meant to help a person in fulfilling his dream of having his own home, but it is due to the delinquent acts of the applicant or misjudgment that makes creates problem. So, a borrower must try to avoid the things that are quite hazardous.
A person that wants to borrow a home loan must do proper research before he actually borrows one as there are a lot of loan schemes available in the market and it is very important for a borrower to choose the best out of them, so that he does not have to repent in future about his decision of choosing a particular loan scheme.
It is also very important for a borrower to be aware of his borrowing capacity as an over sized loan can very difficult to manage. Also, it is very important that the applicant to make sure that he is aware about all the charges associated with the loan, as there are some hidden costs that keep popping out during the whole loan tenure that make the loan far more expensive for the borrower.
Credit history has a very important role in a home loan, a person with a good credit score can avail a home loan at competitive interest rates or at least can enjoy additional benefits on his loan but things cab be really tough for a person with a low credit score as most of the lender prefers a clean credit history.

How to find a suitable home loan scheme?

2011-07-05T05:11:00.000-07:00

Which loan scheme would be suitable? This is a thing about which a person who is looking for a home loan is most concerned about. A suitable home loan scheme can ensure an enjoyable experience of borrowing a home loan but even the slightest of delinquency can have devastating effects. So, it is very important for a person to be very sure about whatever h does.

To find out an apt deal a borrower need to do a lot of homework. The first thing that a borrower needs to do is to evaluate himself, as only then he can get an idea about how much amount can he afford to borrow or how much borrowing can he handle without any difficulty.

Most of the people are always trying to borrow the maximum amount that they can borrow but this is definitely not the approach that a home loan borrower should have. An over budget loan is sure to cause harm to the borrower at some instant of time and that is not a situation that anybody would like to be in , so the best thing to do is to borrow an affordable amount of loan.

The next thing that a person must do is to prepare a list of the requirements and that would help him in finding a loan scheme that could carter to his demands and also it is essential to ensure that the credit report of a person is on good shape as lender rely heavily on credit report to establish the credit worthiness of a borrower and some times it can be the deicing factor whether the lender would sanction a loan or not.

It is only after ensuring all these things a borrow must approach a lender and apply for a loan, to avoid any complication a borrower must educate himself about the basic terms associated with a home loan, that cab help a lot also a person can seek help of a broker. These things can ensure profitable deal for a home loan applicant.

Avail benefits of Home Loan Calculator

2011-07-01T04:55:00.000-07:00

A home loan is quite an arcane kind of thing, it cab be really very difficult for a common person to be able to pick from several apposite loan schemes. There can be loan schemes on which interest rate applicable may be same but by the end of the loan tenure one of them might prove to be a lot more expensive as compared to the other.

The difference lies in the terms and conditions applicable on the loan schemes and that makes it very important to get through each and every detail linked with the loan. If a person want to compare loan scheme on the basis of the interest rates applicable and also get an idea about how much would cost him by the end of its tenure, in that case Home Loan Calculators cab be very useful.

A home loan calculator is a very easy to find but rather very useful equipment. A person can find a lot of such calculators on the internet, they are also very easy to use, one just needs to enter the details in the fields and the calculator will generate an approximate cost for the loan. A person can vary the data and can get an idea about the cost of loan in various situations.

Doing this can help a person in selecting a suitable loan scheme, by doing this a person can also plan his loan in more efficient manner and can be sure of getting maximum benefits out of it.

Evaluate yourself before you approach a lender

2011-06-20T05:00:00.000-07:00

Most of the people do not have an idea about how lenders decide home loan eligibility for a borrower, a lot of the times it has been seen that when a borrower applies to borrow a loan to buy a particular property, the borrower rejects the application, a very probable reason for that can be that the value of the property exceeds his home loan eligibility.

Home loan eligibility of a borrower is generally decided according to repayment capacity of a person, it is not the only factor that contributes to it there are a few more factors that lenders are very keen about. A person can borrow more if he is in early stage of his career as then he can repay his loan for a longer tenure.

The nature of occupation of the applicant also affects a lot on the loan eligibility of a person. A person associated with a highly reputed company can borrower more loan than that who works in a less known company. If a person is a constant job hopper then it can lower his loan eligibility.

The number of dependents on the applicant his savings, his credit history make a fair contribution in deciding the loan eligibility, other than that the lenders also consider the fund inflow and outflow pattern, it includes all the prior commitments of the borrower as then only the lender can decide on much the person can take out of his monthly salary to pay for the loan that he has applied for.

The basic idea of lenders behind all this is to evaluate the credit worthiness of the applicant or in other words how much loan can the borrower afford. Lenders are quite reluctant to the people that do not satisfy to the basic requirements of the lender as home loans are hefty and also quite vulnerable.

If a person falls short of the amount that he require to purchase a property then the best option with the person is to club his income with any of his family member, it would increase his loan eligibility and then he can purchase that property or if the applicant has already borrowed a loan then he must repay that first as it would also enhance his loan eligibility.

So, before a person applies for a home loan he must evaluate himself, it would make the process speedy and also if a person fits into the eligibility scale of the lender then there are chances that he can get away with the loan at exciting interest rates.

Don’t leave any stone unturned while borrowing a home loan

2011-06-13T04:51:00.000-07:00

When it comes to borrowing a home loan then home loan comparison becomes very important for those who want to get a best possible deal. There are people that do not bother to enquire anything about a home loan scheme, they randomly select one bank and apply there to borrow a loan. Loan borrowed this way is vulnerable and cause inconvenience to a borrower in future.

Before a borrower actually borrows a loan he must be sure and satisfied that this is the best what he can get and one can reach at such a conclusion only when he has done research in the market and has checked with as maximum lenders as possible.

However, it is a common misconception amongst the borrowers that the nature of loan is decided only by the interest rates applicable but actually there are various other things that are as significant as interest rates. In order to get maximum advantage out of loan, the lenders tend to imply several conditions that somehow allow the lender to have an upper hand.

There are several kinds of penalties that are applicable under certain circumstances and most of the times a borrower is not even aware about such penalties. These are the extra costs that can make a loan really expensive, sometimes even more expensive than a scheme where the interest rate was considerable higher than the one borrower had opted for.

So, it is imperative that a borrower is sure about each and every aspect of a loan and nothing is left. A borrower must also be very cautious while choosing an interest rate scheme. Basically there are two of them, one where the interest rate is same over the whole loan duration known as fixed interest rate scheme and the other where the interest rate fluctuates in accordance to the market conditions.

The thing that is important here is the fact that the under fixed interest rates scheme the interest rate does not remains fixed over the whole loan duration, lender can reset the interest rate after certain period of time and also the interest rate under this scheme is considerably higher than the market rates. So, a borrower must always go for a floati8ng interest rate scheme.

Home loans: real test of intelligence!

2011-06-03T04:53:00.000-07:00

Home loan is the facility that helps a person to get a place of residence for himself and for his family; a dwelling place is all what people want and when it happen people gets ecstatic. However, in the times where we live in it has become very difficult to get a place of residence because of the soaring property rates.

What makes it excruciating is the surge in the interest rates on the dwelling loans and what once believed as a convenient option to get a home has now become a riddle. A home loan can test the intelligence of a person in real sense, it might look like a very simple thing but the ones that are thing that way are sure to get into trouble.

A professional approach is very necessary to minimize the risk involved in it, there are multiple aspects that are relates to a home loan and each one of them having their own importance, a minor negligence can result into crises. Before a person sets out looking for a lender, he must be well aware about the market situation.

Research leaves a very little room for any error as then the customer can analyze the loan scheme vey well and is very less likely to commit any blunder. It also helps to get into the skin of the loan schemes and to generates a better understanding about the loans and hence they can easily find out the trap set by the lenders.

It is not over yet, it is just the beginning, the most essential part of a loan scheme is interest rates and it decides the total cost of the loan for a borrower, so a person must read the terms and conditions applicable and must try to negotiate on them. Lenders can offer such favors to the borrowers that are less vulnerable and promising, so it is always better to try to get the best.

One can relate home loans like this: the more he works hard the better his chances to get a favorable deal.

Avoid committing the same mistake twice

2011-05-30T05:35:00.000-07:00

Home loan refinance has presented a far more convenient way for the borrowers that are not satisfied with their present lender or with the loan scheme that they have opted for. The borrowers that messed up while judging a lender have a chance to rectify their mistake and to ensure that they are not paying any extra penny.

It is very common thing for the borrowers to land in an unfavorable deal, it is not a thing to resent, one just needs to work out the situation and he would be out of it in no time. All one needs to do is to find a borrower that is willing to offer lower interest rates and that suits the requirements of the borrower the best.

Before finalizing a deal with the other lender, a borrower must make sure that he will not have to encounter the same problems that he has been facing with his present lender that ways the new deal will be of no use and the efforts will result in vain only.

So, a borrower must try and not to repeat the mistakes that he had committed while making the earlier deal and he must make sure that time he gets what he has been looking for. It is imperative that he is aware of the terms and conditions and there are no or minimum hidden costs associated with the loan, he must tweak as much as he can.

Some borrowers make the mistake of judging a home loan scheme solely on the basis of interest rates that is a very wrong conception. Lenders formulate the loan scheme that makes the loan product much more attractive then it really is. So it becomes very important to follow the implication of the loan products that he wants to borrow.

Enjoy extra benefits with Joint Home Loans

2011-05-26T04:56:00.000-07:00

The continuous hike in the lending rates has been terrorizing the borrowers, the lending rates have been soaring since the last couple of years and hence it has had an advert effect on the financial planning of the borrowers.

A borrower can not do much to regulate the lending rates so in order to save as much as they can out of the unfavorable conditions like these, borrowers are opting for advanced loan schemes where they can get much more benefits then the conventional loan schemes and hence to an extent can counter the effect of high lending rates; one of such kind are the joint Home Loans.

In such home loans two individuals co-borrow a home loan; it is the best option for the working couples. From the borrowers point of view it is a multi benefit loan scheme, one that their loan eligibility increases and two they can enjoy more income tax benefits.

"Under section 80C of the I-T Act, deduction from total income is available to the extent of .`1,00,000 in respect of any payment, re-payment, part payment and/or installment, towards the cost of purchase/construction of a new residential house property to any bank, financial institutions, etc," said Suresh Surana, founder of Astute Consulting Group.

The amount of EMIs to be depends on the ownership of the borrower in the property, inn case the ownership proportion changes then the EMI pattern for the co-borrowers also changes accordingly.

Reverse Mortgage Scheme, bliss for senior citizens

2011-05-23T04:11:00.000-07:00

For the people that have entered second innings of their life and does not have any primary source of income and yet they do not want to be a burden on anybody; reverse mortgage scheme is the best way out, the only condition that implies is that they must have a place of residence.

Reverse mortgage scheme is meant for the people that are above 60 years hand have a primary place of residence. The best thing about such loans is that considering the age of the applicants the loans procedure is very lenient and the loans are kept at high priority due to which the loan gets sanctioned in no time.

Under reverse mortgage scheme, lender pays the borrower a definite amount after a definite interval so that a borrower can meet his necessary requirements. It depends on the borrower whether he requires lump sum of money or if he wants to be paid on the monthly basis. The best part here is that the borrower can enjoy the benefits of the loan scheme while he is staying his house.

The idea here is that the lender decides the value of the property according to the market rates at time of borrowing and a borrower can opt from various options available to him to customize his loan. The loan amount will be due only if the borrower dies or he moves out of the property.

In that condition the lender will sell the property and will recover the loan amount due and in case the property fetches more amount then what the lenders is entitled to then the rest of the amount is transferred to the heirs of the applicant.

This scheme is not suitable for the people that do not want to give away their property as the lender will ultimately sell the property to recover the loan amount. The other thing that needs to be considered is that if a borrower moves out of the property immediately the amount that the lender has paid becomes due.

To tackle soaring rates go for prepayment

2011-05-19T04:59:00.000-07:00

Sometime back the hike in the property rates was the primary concern for the buyers but now the soaring interest rate on the home loans also is not leaving any stone unturned to exploit the home loan borrower. The people that were planning to borrow home loan have a option of wait and watch but what can a present borrower do, except shelling out his hard earned money.

For the borrowers that are devastated by the soaring interest rates, prepayment can be a very good option. Depending on his capacity and the resources available a borrower can either prepay the whole loan amount or he can for partial prepayments.

While doing that a few things are to be kept in mind that when a borrower prepays his loan, the lenders levy prepayment penalty on his that is decided in accordance to the loan amount and loan tenure remaining and it can also vary from bank to bank; generally it is high for private sector lenders but if a borrower is making partial prepayments then the lenders do not charge anything.

But if a borrower is prepaying by his own resources and is not borrowing any money from any other lender to prepay the loan borrowed from the present lender then also lenders can not charge anything extra from the borrower.

Is a person wants to prepay his loan and does not have any extra source of income then he can make use of recurring deposit scheme. At present a person can earn around 6 percent from this scheme, by the time a borrower has accumulated a considerable amount of money he can utilize that for prepaying his loan.

Due to the prepayment the principal amount will decrease considerably and hence the amount interest will be charged will decrease resulting in decrease in the amount of EMI to be paid.

Home loans for NRIs

2011-05-12T04:10:00.000-07:00

A nice home is what every one requires including. A lot of people living outside the country also want to own a house in their own country but they sometimes find it difficult to give a concrete shape to their dream. It can be due to several reasons but most of the times it is due to the monetary issues, home loans for NRIs is a very suitable option for such people.

A lot of the banks provide home loans to the NRIs, the schemes that they offer can vary to a great extent. So it on the customer to do some research and decide which loan scheme will suit him the best. Before finalizing a deal with a lender it is better to get every details related to the loan and get every aspect of the loan cleared, so that one can get the most of his loan.

Eligibility is rather a ver6y important tissue here, an applicant must be above 21 years of age, he must have a valid Indian passport and the documents that validates that he is employed abroad. The lenders not only provides loan to purchase a new home but one can also avail a home for home improvement loans.

It is very important that the applicant follows the application procedure properly and keeps the all the documents required ready as it will make the process swift other wise it can be very tedious. Also, a borrower must ensure that the information he is providing is correct as if at any point the lender discover t hat the details are not authentic then he can cancel the loan application at that instant itself.

Precautions necessary for best deal

2011-05-09T04:55:00.000-07:00

There is whole lot of lenders available in the market willing to lend to the borrowers at easy and attractive conditions but the point that must be considered here is whether a loan scheme can suit to everybody’s requirements. The answer is no.

Sometimes a borrower might find it difficult to resist to the glittery home loan schemes but these attractive loan schemes can also cause inconvenience to the borrower at later stages of the loan. So it is very necessary for a borrower to go for cautious home loan reviews.

Apart from that a borrower must be clear about his requirements and expectations. It will help the borrower to narrow the search ambit and therefore will increase the probability to get away with a more favorable loan scheme.

Self evaluation of the borrowing capacity is another aspect of towards a hassle free approval of home loan. Sometimes people selects a property on which no ban k is willing to lend then loans as the property value exceeds the borrowing capacity of the customer. Self evaluation can come handy in these cases.

Home loans even for people from lower income group

2011-05-09T04:44:00.000-07:00

Home loans are no doubt very hefty in nature and are generally for a long term, it is a very difficult decision even for a middle class salaried individual to opt for a home loan considering this one can easily say that home loans are next to impossible for a person from lower income group like those working as domestic staff.

One might be shocked to know but there are lenders that have started offering home loans even to the people falling in the lower income group. Lenders like Micro Housing Finance Corp. Ltd (MHFC), a Mumbai-based lender, Aadhar Housing Finance Pvt. Ltd, GRUH Finance Ltd and SEWA Bank offers home loans to such people and even assist them to borrow the loan.

Private sector lender, YES Bank is also going to launch a similar facility on pilot basis in Mumbai. The lenders have a list of projects that they are financing making it easier for the borrowers to select for a home that fits in to their budget and suits their requirements.

They also require doing paperwork like filling up the application form apart from it they also need to have identity proof, address proof, PAN card, family status and source of income. The lender will then confirm the authenticity by calling the employer.

The borrower needs to submit at least 20% of the loan amount as margin, they can avail maximum of Rs. 7 Lakh as home loan for a maximum duration of 15 years but the interest rate applicable is slightly more than that in market; it ranges between 12-14 percent, another advantage is that there is no prepayment penalty involved

A person that has a long association with his domestic staff can guide him to get a home of his own.

A few things to care about in home loans

2011-05-02T04:55:00.000-07:00

It is a dream of everyone to have a home of his own but the dreams of various people had to suffer major set back due to the aberrant hike in the interest rates during past few years. It is almost impossible for a person in present condition to buy a home exclusively from his own savings; here the home loans have proved to be a real savior for such people.

Home loans are a very convenient option to own a home but due to the complex nature of home loans sometimes a borrower can fund himself stuck amidst deep trouble. So, a borrower needs to be very cautious not only during the whole loan application procedure but he also needs to keep a vigil on each and every aspect of loan even after the loan has been sanctioned.

To start with a customer requires evaluating himself according to the norms set by the lender, also he require to make sure that while applying for the loan he has supplied the lender with all the documents that were asked. Such act ensures hassle free movement of the loan application.

Then the other important thing is the home loan amount that a borrower can avail. Generally the lenders sanctions 80-85% of the total worth of property as home loan the loan, rest a borrower needs to arrange by himself. Also the credit score is of vital importance, a customer with good credit score can avail extra benefits on his home loan.

Stick to the basics when going for home loans

2011-04-27T03:59:00.001-07:00

Due to the boom in the real estate sector the property rates have also witnessed exponential growth. Over the years property has evolved as a very exciting investment option but with that it has also posed a hindrance to the dream of a common man to own a house.

Here the home loans have come very handy to such customers. Borrowing a home loan also consists of considerable amount of risk as they are generally very hefty and so a borrower needs to make sure before he opts for a home loan scheme that every aspect of the home loan has been taken care of.

The boost of real estate sector in the country has inspired many companies in the country to lend money to the people who aspire to have their home. As a result of it at present a person can have a lot of options of lenders and home loan schemes to choose from. But some times a borrower can find himself baffled while picking one out of them.

That is why it is very necessary for a customer to go through the loan and research well before opting for a home loan. Before going for a loan a customer must make his mind about his priorities, this will make a lot of things clear for the borrower.

To get a better idea a customer can also compare the loan schemes of various lenders that will also simplify things for him. A borrower should have a basic idea of the interest rate prevailing so that he could make the most out of the deal.

If a borrower sticks to the basics then he can get the best deal with a lender and also a vigil customer will always get away with the best deal he can have.

Enjoy peace of mind with preapproved loans

2011-04-25T04:29:00.000-07:00

The home loan market is on a high, there are a lot of lenders available in the market to cater to the financial requirements of people. There is a lot of competition and that’s why to lure more and more customers they introduce new and attractive schemes. One out of them is preapproved home loans.

Now a person can get a home loan even before he has finalized the property that he wants to buy it. The application procedure is more or less the same as for a normal loan; but the loan is disbursed only when the property has been finalized.

Here also the repayment capacity, monthly income and the credit background of the borrower holds the key to the loan. With this loan some terms and conditions are also applicable. This type of loan has a validity period that can differ from one lender to another in which the borrower needs to finalize the property that he wants to purchase.

A spokesman from HDFC bank said "There is no typical period within which the loan seeker is required to avail of the disbursement. However, we keep the file open for six months and if the applicant does not act within this period, we send reminders to the individual."

The borrower will be charged with the interest rate applicable at the time sanctioning of loan. Such loan can definitely give mental peace to the borrower as home loan can be really tricky some times. The other good thing with such loans is that the processing time is less than normal loans.

The Executive Vice President, retail assets, Kotak Mahindra Bank, Mr. Kamlesh Rao said "In the event of the borrower (with a pre approved home loan) finding it difficult to take a decision, the bank may direct him to the right kind of project. Thus, if both the loan as well as the project is pre-approved, the processing will be much shorter."

Way out to pre-payment penalty

2011-04-07T04:20:00.000-07:00

To lure more and more customers, the home lenders have come up with a lot of home loan schemes, offering the customers a lot of options. Apart from adding new customers, due to rising competition the lenders are taking necessary steps to discourage borrower to switch loan.

To discourage such trends the banks levy pre-payment penalty. This is the penalty that a borrower is levied with if he wants to repay the loan before the original loan duration. A lot of banks have even have hiked the amount levied as pre-payment penalty in order to minimize the loss caused to pre- payment of the loan.

The best way out of this situation is that a borrower can go for a loan scheme where there is no penalty on pre-payment or if avoiding penalty is not possible then a borrower can look for a loan with least possible penalty.

Fixed or floating , which rate to go for?

2011-04-01T02:11:00.000-07:00

If a choice is give to a person who does not have much of knowledge about home loans between fixed and floating interest rates given the present day situation in which the interest rates are soaring then at a first go he might give a thought to the fixed rate scheme. But is it is so, are the interest rates under fixed loan scheme really fixed?

The answer to that question is no. The banks generally reset the fixed interest rates offered to the customers in after every 2 or 3 years, depending on the market situation. Apart from that, the interest rates under the fixed rate scheme are far much costlier than the interest rates under floating rate scheme.

Talking about the floating interest rate scheme, they are very volatile in nature specially in the times that we live in. the rate of interest are on a constant high and each time there is a hike in the interest rate the burden of EMI on a borrower increases.

There is very little that a customer could possibly do about all this but he sure is left with a few options. Like if a borrower feels that he will not be able to afford such high EMIs then he can request the bank to increase the loan term or if a borrower can also prepay the loan. However if the borrower is prepaying the loan amount other than his own sources then most of the banks levy prepayment penalty on the customer.

Whatever the case might be, floating or teaser loan scheme is a far better option than the fixed interest rate scheme.

Muthoot Group to enter home loan segment

2011-03-30T00:44:00.000-07:00

Kerala based Muthoot Pappachan Group (MPG) has announced to enter the home loan segment. The group will provide home loans under Muthoot Housing Finance that will operate as a 100 percent subsidiary of Muthoot Fincorp. Initially the the company plans to open 25 branches in the the suburban areas of Ahemdabad, Bangalore, Chennai and Mumbai.

The company plans to target the middle class customers with a monthly income ranging between Rs 3-10 lakh. The company will provide home loans between 3 to 10 lakh with a repayment period of a maximum of 15 years.

The company will charge a high interest rate of 15-15 percent as compared to the interest rate that the bank offers that generally ranges around 1-12 percent. Due to this reason most of the customers with the company are likely to constitute of the people that find it hard to get loans at the banks.

The Executive Director of Muthoot Fincorp Ltd. Mr. Thomas George Muthoot said “We will cross-sell home loans to the one million-odd customers of Muthoot Fincorp. Majority of Muthoot Fincorps customers have availed themselves of gold loans and they present an excellent opportunity to cross-sell.”

How new age bank evaluates borrower

2011-03-25T03:16:00.000-07:00

Every one has a home that he dreams about. But in the present day situation it is very difficult for a common man to even think about having a home of his own choice due to the soaring property rates. It is very hard for a common man to arrange for all the funds required from his own resources. Home loans are a blessing for such people.

But there are a few things that a customer must understand before he applies for the loan. When a customer approaches a bank for home loan the first thing that the banks do is they evaluate the customer on the basis of his eligibility i.e. how much the trustworthy the customer is?

So before a customer approaches a bank he must self evaluate himself whether he fits in certain criteria’s that the banks look for. The first thing that the bank will do is that they will try to evaluate the customer according to his repayment capacity in order to check whether the customer will be able to pay the loans on time. The bank will take in to consideration your personal credit income documents, education, experience.

The banks calculate the loan eligibility of a customer through FOIR (Fixed Obligations to Income Ratio). Most of the banks take FOIR up to 45-50 percent of the monthly income of the customer. Banks considers that a customer requires around 50% of his monthly income to meet his personal expenses and rest 45-50% includes all his fixed obligations that also include the home loan. All these factors play decisive role in determining the loan amount as well as the home loan rate to be charged to the borrower.

The older banks still takes in to account the past record and the relationship of the borrower with the bank to sanction loan.

Axis bank takes branch count to 5 in Vizag

2011-02-23T03:39:00.000-08:00

The third largest lender in the country Axis bank has opened fifth branch in Vizag at Gopalapatnam. The mail focus of the branch will be on consumer banking and on the retail segment.
The bank that currently comprises of 1,192 branches and 5,590 ATMs has recently signed an agreement with Indian Army. The bank enjoys huge customer base of more than one crore.

SBOP extends special home and car loan scheme

2010-10-06T04:19:00.001-07:00

State Bank of Patiala has announced extension of its concessional home loan rate scheme under and 'Ezee Car Loan Scheme' under which it is offering 8 per cent, till December 31 this year.

A spokesman at the head office informed under the House Loan Scheme, the bank is offering fixed rate of 8 per cent for the 1st year and 9 percent for 2nd and 3rd year thereafter the prevailing base rate will be applicable. The maximum tenure of the loan is 25 years.

He said under its Ezee Car Loan Scheme for new cars, bank is offering fixed rate of 8 percent for the 1st year and 10 per cent for 2nd and 3rd year, thereafter the prevailing base rate will be applicable. For this maximum tenure is 7 years.

Under these special schemes bank will not charge any prepayment penalty if the borrower want to pre-pay the loan at the time of reset.

He told, the special schemes on home and car loan have been extended to make possible house /car loan available at affordable rates to general public.

Banks might extend festive offers for two months, not raise loan rates

2010-09-27T04:16:00.000-07:00

Every year at the time of Dussehra and Diwali, the demand for loans increases keeping in mind the holiday season ahead banks have decided not to raise home loan rates.

However, when the Reserve Bank of India had revised its police rates in mid-September, several banks had said they might increase their lending rates in October when the base rate, on which loans are priced, is reviewed.

This year also, considering the festival months of October and November, banks may opt for not raising loan rates seeing huge demand in personal, car and home loans, as this is considered to be an auspicious time to buy homes or other assets. During this period, most banks offer special schemes featuring discounts in the form of a waiver in processing fees and lower rates to attract customers.

Oriental Bank of Commerce CMD TY Prabhu said, “Banks may not hike home rates immediately since sales are expected to pick up soon after the Pitr Paksha is over.” During Pitr Paksha (shards), which is related to rites performed by Hindus, many people consider it inauspicious and choose not to take any major investment decisions.

On the other hand banks might be under pressure to raise lending rates in October as their cost of funds has increased by 50 to 100 basis points during the last quarter. Interest rates on bulk deposits and certificate of deposits have crossed 8% for one year compared with 7% a few months ago. Thus, Mr Prabhu said if banks are under pressure to raise lending rates, they might raise the base rate but will also narrow the spread between the base rate and home loan rates. At present, banks have set their base rate in the range of 7.50% to 8%.

The State Bank of India special home loan scheme is going to end on September 30, but its officials have said most probably bank will extend the scheme for another quarter to attract customers in the festive season. Under the special scheme SBI is offering a fixed rate of interest of 8% in the first year, 9% in the second and third year, after which the floating rate is applicable.

Punjab National Bank, the second-largest bank, under its festive offer on home loans has fixed rate of interest of 8.5% for the first three years and afterwards the prevailing floating rates will be applicable.

Last week, Corporation Bank also launched its special home loan and vehicle loan scheme, known as grand festival offer, in which it is offering loans up to Rs 30 lakh at base rate of 7.75% for the first year and 50bps above the base rate for second and 8.25% in the third year. But bank will charge 0.25% more if the loan is above Rs 30 lakh. SM Swati, general manager in charge of retail lending at Corporation Bank said, “So far, demand for home loan has not been very encouraging, although we are better than the peers. But with this offer, we expect to deploy Rs 1,000 crore.”

Indiabulls Financial Services launches special home loan scheme for salaried class

2010-09-10T03:28:00.000-07:00

Indiabulls Financial Services, a financial service provider launched a special home loan scheme for the salaried class. Under this scheme it is offering 8.5% interest up to March 31, 2011, followed by 9.5% till 2012, the company said in a statement.

It said, subsequently from the third year onwards 9.5% floating rate will be charged.

Earlier, country largest mortgage lender HDFC had launched a dual rate home loan (DRHL), in which for the initial year fixed interest will be charged and later it will change to floating rate.

All the new home loan customers, to avail the new DRHL-4 offer have to apply on or before September 30 and take at least part disbursement before October 31.

Indiabulls Financial Services CEO Gagan Banga said, "Introduction of this new home loan scheme at 8.5 per cent is a move to augur the aggressive growth plans, with an annual target of Rs 6,000 crore worth new home loans disbursement."

The borrowers can avail offer at 140 cities and towns across India.

"We plan to grow our home loans business by 40-45 per cent this fiscal and increase our market share from the current 4 per cent to 10-15 per cent by 2014," Banga added.

He said every year company is in the process of adding 25-30 cities to its distribution network and, also increasing the sales strength by 25-30 per cent, at present its sales strength is of 1500.

State-run banks and HFCs to lend more for low-cost housing

2010-09-09T04:52:00.000-07:00

The finance ministry will be pushing state-run banks and housing finance companies to set aside more funds for the low-cost housing projects.

The ministry of housing and urban poverty alleviation said that low subsidy demand from banks clearly indicates to the extremely bad lending to low-cost housing.

A finance ministry official told the ministry has asked the banks to submit details about their exposure towards low-cost housing and the reasons for slow progress.

However the government has set aside an interest subsidy of Rs 1,100 crore for four years up to 2012 for the low-cost housing scheme for the urban poor, but, as per government records there has been claim of only Rs 4 crore from banks.

An official working with ministry of housing said, “We’ve requested that all public sector banks should be asked to increase their lending towards the segment so that subsidy amount provided for the scheme is utilized.”

Government is also planning to ask the regional rural banks to lend to low-cost housing for this it will make these banks eligible for the interest subsidy on loans under the scheme.

National Housing Board (NHB) and HUDCO have been made the nodal agencies which will provide 5% interest subsidy on housing loan given to economically weaker sections and low income groups.

However government has instructed 17 state-run banks and six housing finance companies to provide these low-cost loans. On the other hand, bank say that the local authorities are directly responsible for low disbursals as the borrower is required to provide evidence to prove his eligibility for the subsidy.

Bank of Baroda official said, “The inordinate delays on their part is reflective in low credit off take.”

To solve the problem the government has decided to give the authority to the banks to decide on the eligibility of the borrower. NHB executive director RV Verma said, “It has been decided that banks on their own assessment can provide these certificates and disburse loans.”

Up till March 2012, government is planning to provide subsidy support to over 3 lakh low cost houses. “The scheme is a blend of achieving social needs while maintaining a profitable orientation for the banks. Banks will finally see its a win-win situation for them,” Mr Verma said and added that in states such as Andhra Pradesh, Tamil Naidu and Madhya Pradesh the scheme is successful.

Under this scheme banks can sanction a maximum of Rs 3 lakh to a borrower belonging to economically weaker category and Rs 5 lakh to a low income one. Moreover scheme provides a subsidy of 5% for a loan amount of Rs 1 lakh for the full tenure of the loan.

Special home loans still continue with banks

2010-08-27T04:53:00.000-07:00

Recently, many banks have raised their BPLRs but teaser loans still continue to be provided by many banks and financial institutions. Along with soft interest rates, host of innovative schemes are being offered to attract customers, informed industry experts and bankers.

For instance, LIC Housing Finance has introduced variable EMI (equated monthly installment) product to target the young salaried class, who are planning to buy a house but cannot afford high EMI. The scheme offered by them would structure the repayments in such a way that EMIs remain low at the start of the loan and will increase as the loan period progresses. The scheme has been designed assuming that the repayment of capacity of the customer will increase as salaries increase.

The company is offering product at a floating interest rate of 8.75 per cent for loans up to Rs 1.5 crore.

RR Nair, managing director and chief executive officer of LIC Housing Finance points out, “This product is for the young salaried employees, who would like to own a big home but do not have the salary to match. There is a lot of scope to be innovative in the home loan market, as there are varied customers with a variety of needs.”

Punjab National Bank, a public sector lender is giving choice to the customers to extend even margin money payments over a period of time and is also offering home loans at a lower rate of interest.

Recently bank has launched a home loan festival bonanza, in which it has slashed interest rate to 8.50 per cent (fixed) on loans up to Rs 50 lakh for three years across all repayment tenures and has also waived off processing fees and documentation charges. Bank has also waived off prepayment charges.

Already HDFC and State Bank of India (SBI) are offering floated fixed/ floating rate products, under which fixed interest rate is offered for a specific period of time and then it will be reverted to floating rate of interest.

SBI has been doing good business in home loan segment as it is offering an invitation rate of 8 per cent, which is the lowest in the market.

LIC Housing Finance has also introduced a product in home loan segment called Advantage 5, in which it offers a fixed interest rate of 9.25 per cent for five years thereafter will be reverted to a floating rate.

More banks and home finance institutions are offering similar fixed-cum-floating rate products to attract customers.

Sumeet Vaid, chief executive officer of Financial Freedom, a financial planning company based in Mumbai says, “In a rising interest rate regime, it is beneficial for customers to get into a fixed loan scheme, so that the interest rate is protected for a short duration. Banks are looking at very aggressive strategies to win home loan customers.”

The factors that determine home loan amount eligibility

2010-08-23T04:19:00.000-07:00

Many of us plan to take home loan but don’t know the factors that banks take into consideration for fixing loan amount.

1. Age: Borrowers age is the most important factor. If the borrower is working in public sector and is closer to the retirement then the loan amount will be less. The reason is, the number of working years will be relatively lesser and the EMIs will be higher. This will increase the burden on the borrower therefore banks will taken into account the age of the borrower while deciding the eligibility.
2. Income: The monthly disposable income is the most important factor for loan eligibility. Usually the EMI is to be set in accordance to a fixed percentage of the applicant’s disposable income which will enable the borrower to repay the loan installments comfortably. This reduces the chance of default.
3. Source of Income: Before sanctioning the loan banks check the source of income. The borrower has a secure job or steady and assured stream of income if he owns a business. In case the borrower is unemployed or does not have secure job then in spell of unemployment it would be difficult to keep up the EMI payments.
4. Securities: In case the borrower is not earning good salary but his financial background is strong this will also help him in getting a higher loan amount. If the borrower has other securities such as fixed deposits or good amount of insurance, this also helps in getting a higher amount of loan. If the borrower’s repayment record is good then also bank tends to offer a higher amount.

Banks don’t give joint home loan to friends, cousins, live-in couples

2010-08-12T00:00:00.000-07:00

To increase home loan eligibility you can go for joint loan. But housing finance companies (HFCs) provide joint home loans to father-son duo or spouses, but don’t give to siblings, cousins, sisters, friends and live-in couples.

However LIC Housing Finance has a product in which brother-sister duo can jointly avail home loan by combining their incomes, subject to certain terms and conditions.

But joint home loan can be availed by two brothers, however there are certain conditions.

A senior official working with LIC Housing Finance said some of the HFC do accept such applications, but volume of the loan sanctioned might be low as high risk is involved in this.

The official said, the HFC has stringent internal norms for sanctioning such loans. In such cases the loan eligibility reduces by 10 per cent.

The official further said, “The residual income (income left after excluding monthly expenses and other costs) goes down when siblings avail a home loan. Thus, the loan eligibility too goes down.”

In case of father-son duo the joint home loan is sanctioned depending on the remaining tenure of service of the father if he is a salaried professional. Likewise two brothers can also avail a joint loan, if both of them are co-owners of the property.

Santosh Govardhan, chief credit officer with IDBI Home Finance, said, “Two brothers availing a joint home loan have to be working and residing in the same city. Also, the property has to be a minimum two bedroom-hall-kitchen.” He added, the terms and conditions have been made in such a way that very little room is left for default in repayment.

Bankers say in case of joint loan given to brother-sister duo, the chance of default is high because when sister gets married and moves away their joint income gets affected.

However some banks give loan to two cousins living in a joint family but it will depend on a case-to-case basis. Govardhan said, “If the profile of the customers is really good and if there is a genuine reason for purchasing a joint property, such a case can be considered as an exception.”

Moreover some banks and home finance companies sanction joint loans to a couple even when they are engaged. But the loan amount is disbursed only after the marriage certificate is produced.

Banks or housing finance company do not give joint home loan is not given to two sisters, an uncle and a nephew or a niece as the risk of default is apparently quite high in such cases.

A banker said, “There is an uncertainty of repayment when such a set of people avail the loan together. Hence, most banks shy away from extending loans to such customers.”

LIC Housing Finance too has stringent terms and conditions for a joint loan offered to a brother-sister duo. For instance, one of the conditions in such case is that the property has to be owned jointly by the applicants. Moreover, the tenure of the loan might be reduced on a case-to-case basis, based on the remaining term of service of the applicants.

LIC Housing Finance official informed, “If the company is giving concession on some terms and conditions, it tightens other parameters.”

However, the joint home loan has many benefits such as it increases loan eligibility, both applicants can avail income tax benefits under Section 80C of the IT Act for the principal repaid and under Section 24 for the interest repaid.

Indiabulls housing finance announced its home loan teaser rate at 8.25%

2010-07-13T10:16:00.000-07:00

After two leading lenders SBI and HDFC, Indiabulls housing finance, a part of Indiabulls financial services announced 8.25% teaser rate home loan.

Under this scheme company is offering a home loan at concessional rate at 8.25%, "taking care of any future fluctuations in interest rates up to April 2012 and market rate-linked rates thereafter," the company said in a statement.

The new scheme will be available across 140 cities and towns.

Indiabulls Financial Services CEO Gagan Banga told that company has set a target of achieving 40 to 45 per cent growth in its home loans business by this fiscal, apart from increasing the market share to 7-8 per cent by 2014.

He said, "The introduction of this new concessional home loan scheme at 8.25 per cent is a move to augur aggressive growth plans, with an annual target of Rs 6,000 crore worth new home loans disbursement."

Earlier on July 2, mortgage leader HDFC had launched its teaser home loan rate at 8.25 per cent and the scheme will be till the end of August. SBI, a public sector lender was the first one to extend its teaser home loan rates at 8% for another three months till September.

From July 1 all the banks have moved to base rate system but SBI decided to extend its popular home loan and car loan schemes without changing the terms.

Banga said, for the meantime the company is planning to increase its sales force for home loans by about 25-30 per cent to meet its growing customer needs. He added, at present the sales growth stand by 1,500.

Joint home loan is more advantageous than single loan

2010-06-30T05:31:00.000-07:00

To increase the eligibility individuals can apply for a joint home loan. The most significant benefit of joint home loan is that the loan amount increases for purchasing the dream home. Moreover all the joint home applicants can avail tax rebates under Section 80C for principal repaid and under Section 24 for interest repaid. But these tax deductions are capped at 1lakh for the principal repaid and 1.5lakh for the interest repaid.

Following are some of the benefits of joint home loan:

1. To increase the home loan eligibility joint home loan is most beneficial. Wife and husband, son and father, brothers can pool for joint home loan and this increases the loan amount.

2. All the applicants in joint home loan can avail tax rebates under Section 80C for principal repaid and under Section 24 for interest repaid and HRA deduction. Under Section 80C, you can get a maximum tax deduction of Rs 1 lakh on principal repaid and under Section 24 you can get a tax break of up to Rs 1.5 lakh on interest repaid.

3. Around 4 and 6 people can take joint home loan, depending on their credit profiles.

4. In case of joint home loan bank insist on one most important point that all co-applicants should be the co-owners of the property.

In some cases two brothers want to take joint home loan or brother and sister want to take loan. However banks prefer to give joint loan to husband and wife, or parent and child. Some of the banks allow brothers to take joint home loan but both should be co-owners of the property. Banks do not give joint home loan to sisters, friends or unmarried couples living together.

No more teaser rates on home loans as bank move to base rate

2010-06-29T06:01:00.000-07:00

From Wednesday teaser rates offered by big banks will withdrawn back as banks move to a new system of pricing loans from July 1.

The big lenders – HDFC, ICICI Bank and State Bank of India had last year launched special loan schemes in which they offered low rates at fixed rates for the first couple of years — will end on June 30. The bank officials said, now none of these schemes can be extended.

India’s largest bank — SBI’s and ICICI Bank’s home loans will be priced on new base rate from July 1. SBI was the first lender to introduce teaser rate scheme offering home loans at 8% for the first year, 9% for the next two years and linked to market rates in the subsequent years.

Followed by, HDFC bank, which offered loan at fixed rate of 8.25 % up to March 2011, 9% for 2012-13 and the prevailing rate thereafter.

Then ICICI Bank offered a fixed rate of 8.25% during the first year, 9% in the second year with the loan then being shifted to a floating rate linked to the prevailing benchmark.

SBI during the special scheme witnessed aggressive sanctioning of loans on an average of Rs 2,000 crore of home loans every month. Therefore bank extended the scheme, as did HDFC, the leader in the mortgage lending segment.

But shift to new benchmark it is not clear that how banks will price their home loans, although banks have indicated that their base rates will be in the range of 8-10%. Banks are not clear that how they would lend.

Under the new base rate system no bank can lend below the base rate. Moreover old borrowers will have the option to shift to the base rate as the new benchmark. According to some bankers they might have to continue announcing the prime lending rate as a benchmark simultaneously as they have signed contract with borrowers to peg interest rates to the PLR.

The base rate will be favorable for borrowers in a falling interest rate regime as lenders will have to revise the base rate to reduce lending rates.

However RBI has made it clear to the banks that any changes in base rate will have to be applicable to existing customers also. The most important thing to notice is that RBI has only told banks to adopt the base rate system, and the new system will not be applicable to housing finance companies and NBFCs.

In the old system the benefits offered to new borrowers were not forward to the old customers on their home loans as banks offered low rates to new customers while old customers continued to pay higher rate.

According to banking analysts if the base rate is set in the range of 8-10%, home loans, will have to be priced higher than this. Furthermore, home loan rates are likely to increase as interest rates are expected to rise.

Meanwhile, many banks have held back a review of their interest rates until the adoption of the new benchmark. RBI executive director Deepak Mohanty pointed out that the base rate system will not increase the effective cost of borrowing as projected by the corporate lobby and that it is aimed at bringing transparency in the lending rates.

On the other hand bankers say that interest rates on home loans will continue to be competitive as it is a secured loan.

Shriram Group to launch home loan segment by December

2010-06-22T05:55:00.000-07:00

Chennai-based financial player, Shriram Group is planning to enter into home loan segment by December. At present the group is offering general and life insurance products. The group plans to offer housing and mortgage loans under Shriram City Union Finance. It is a non-banking financial services company that accepts deposits and offers personal loan, business loan, auto loan and loan against gold.

In the beginning Shriram City Union Finance will offer housing loans in south and western regions. Shriram Group founder R Thyagarajan said, “If we have to remain profitable, we can’t be just a life insurance or general insurance company. We need to be a distributor of multiple financial products.”

The Shriram Group will also expand its wealth management advisory services to tier-II and tier-III cities. Currently it is carrying out operations under Shriram Wealth Advisors in Mumbai which caters to high net worth individuals. Thyagarajan said, “Going forward we will take our wealth management expertise to tier-II and tier-III cities in Tamil Nadu, Andhra Pradesh and Karnataka.”

Although the group is expanding its array of financial products but it has no plans to enter into the health insurance sector. The company has also clarified that it is not entering into mutual funds and has not applied for license for mutual fund operations in a joint venture with Sanlam Group of South Africa.

He said, “We will never get into the health insurance segment as the Indian market needs to get more sophisticated as far as health insurance goes. And though we aim to offer an array of financial products, we have no plans of getting into mutual funds.”

Earlier in 2006 Shriram Group had ventured into the life insurance business through Shriram Life Insurance and general insurance business through Shriram General Insurance Company in 2008 and both of the business has been launched in a 74:26 joint ventures with the Sanlam Group of South Africa.

This year company is planning to expand its general insurance business to the Philippines and Indonesia.

SBI increased loan limit by 10-fold for buying land to build a house

2010-05-21T03:28:00.000-07:00

State Bank of India (SBI), country’s largest lender has decided to increase loan limit by ten-fold given to individuals who plan to buy land to build a house as bank moves forward into the housing segment.

As per the new proposal the bank will be lending Rs 10 crore for buying land for housing against the earlier cap of Rs 1 crore, informed a senior SBI official. The bank has also done modification in the norms pertaining to the construction period if the project is undertaken by government agencies. At present a project must be completed within two years.

A senior SBI official said, “A customer will also be eligible to avail another housing loan for other housing-related construction on that plot, enjoying the benefit of running both the loans concurrently.”

Moreover bank has set the margin money limit – the amount a customer has to pay upfront for availing a loan — at nearly 35% for loans above Rs 1 crore.

For loans up to Rs 75 lakh, bank has fixed the margin money at 20%. It is believed bank’s latest move to push ahead its housing sector shows its troubles with excess liquidity and a tepid credit offtake.

“We have a liquidity of over Rs 40,000 crore; schemes such as this will help us achieve our credit growth targets,” the official said.

The bank has set a target of increasing its credit growth by around 22%. Last year, the RBI had revised the credit growth target for commercial banks, the money they lend to customers, to 16% from 18%.

SBI has already started pushing forward its housing sector recently it extended its popular 8% home loan scheme, or teaser loans, until June 30.

It is also trying to work out other avenues to increase the credit offtake, though it will take steps to see that the due diligence process doesn’t suffer.

“To minimize fraud risk, two title search reports from different lawyers will be obtained before sanctioning the loan,” the official said.

It is believed this sharp increase in the loan amount will boost the real sector, which is at present, in spite of the return of buyers, is suffering from a big drop in the banking credit. According to RBI figures, for the 11 months to end February loans to the realty sector had decreased by 97% to Rs 842 crore as against Rs 33,617 from a year ago.

“Schemes such as this will indirectly ensure credit flow to these companies,” said a senior official of a real estate company.

2010-05-05T03:59:00.000-07:00

LIC Housing Finance, a subsidiary of Life Insurance Corporation of India (LIC), will be applying for a banking license if it fulfills the conditions laid down by Reserve Bank of India (RBI) in its guidelines for fresh licenses for private sector companies. If its not possible to venture into banking with its parent company, LIC, the home loan company will continue with its plans of foraying into banking if it qualifies the proposed RBI guidelines.

R R Nair, director and chief executive officer of LIC Housing Finance, said in a press conference called to announce the company’s fourth quarter results, “We are interested in applying for a banking license. LIC may or may not be part of the venture because it is a public sector organization and has its own regulations to follow. We have not initiated any talks with RBI. We are waiting for the guidelines from the central bank.”

In the next six months company will also launch its real estate venture capital fund with an initial seed capital of Rs 500 crore. Nair said, “About 20 per cent of the capital will be from LIC and the housing finance company and the remaining would be mobilized from HNIs (high net worth individuals) and institutions.” Earlier company had planned to get into joint venture for this but it has changed its mind. Now it will be a subsidiary whereas LIC and the home finance company will be major shareholders. It will be investing in real estate projects in residential and commercial areas.

In Financial Chronicle it was first reported that LIC and LIC Housing Finance will start a real estate fund with a corpus of Rs 500 crore.

The company is also looking to raise Rs 20,000 crore during the financial year through non-convertible debentures and public deposits.

However in 2009-10 company share of home loans have increased by 12 per cent as against 6 per cent in 2008-09. The company offers special home loan rate of 8.9 per cent fixed for three years and a 8.75 per cent floating rate. By the end of fiscal year in March 2010, the company had approved Rs 18,043 crore of loans to individuals and real estate developers and disbursed Rs 14,853 crore. Out of this, company sanctioned about Rs 14,151 crore home loans and disbursed amount was Rs 12,448 crore. The company registered a 36 per cent year-on-year rise in net profit to Rs 213.51 crore in 2009-10.

To save taxes repay your home loan

2010-03-30T04:49:00.000-07:00

To save tax you should repay your home loan. Under Section 24 of the Income Tax Act, interest paid up to Rs 1.5 lakhs a year on a home loan can be set off against 'loss' from other heads for a self-occupied property. Suppose the property has been acquired before April 1, 1999, interest up to Rs 30,000 a year can be set off. If the property has been rented out, the entire interest paid is deductible from the taxable income after computing rental income. The loan taken for renovation then interest up to Rs 30,000 a year is deductible.

Under Section 24 of the Income Tax Act, the pre-equated monthly installment (pre-EMI) interest amount (the interest amount paid during construction) is deducted equally over five years from the year of completion of construction.

You can not claim tax benefit on loan taken only for purchasing land, but if you take a composite loan (for land and house construction) you can claim income tax benefits only after the completion of the construction.

You can claim tax benefits on loans taken for construction of a residential property, buy a residential property, extend a house, and for major repairs or renovation of a house. As the construction progresses the home loan installment is given.

However during the construction period, you have to pay pre-EMI interest every month. The entire pre-EMI interest paid is allowed as a deduction (under Section 24) equally over five years starting from the year in which the construction is completed. In case of a self occupied house you can claim total deduction towards interest on the home loan is up to Rs 1.5 lakhs a year. While there is no limit for deduction on interest paid towards a second home loan provided you add the rental income (annual rental value of your second house) to your income. Thus the annual rental value will be the higher of actual rent received a year, municipal value, and fair rent fixed.

Moreover out of the total annual rental value, you will get standard deduction of 30 percent available towards maintenance charges and municipal taxes. Even the insurance premiums paid on the property can also be deducted.

However the deduction on principal loan amount repaid is set to Rs 1 lakh.

In case of personal loan, taken to purchase or construct a house, the tax benefit can be claimed on both principal and interest paid. But if you have borrowed the loan from a friend or relative, you will get tax benefit only on the interest paid.

If there are co-owners of the property then both can claim tax benefits separately, as per the shareholding in the property. If the ratio of shareholding is not mentioned in the purchase agreement, they can execute an agreement on a requisite stamp paper, mentioning the shares in the property, and claim the benefits separately. Both the co-owners can claim tax deductions up to Rs.1.5 lakhs a year separately towards interest paid for a self-occupied house and the entire interest paid on a rented-out house, after computing rental income received, and also up to Rs 1 lakh towards principal repaid.

Under Section 80C of the Income Tax Act, home loan borrowers can claim a deduction of up to Rs 1 lakh from the taxable income on a loan repaid during the year, along with specified savings instruments. Which means along with other specified savings instruments, a home loan repayment amount, the amount spent on stamp paper and registration costs on registering a house, all up to Rs 1 lakh is deductible from the total income.

In case you sell the property within five years from the year when you started claiming tax benefits, you will lose all the tax benefits you had availed under Section 80C (on the principal loan amount) and the amount will be clubbed to the income of the year in which the property has been sold. Whereas the deductions claimed on interest paid under Section 24 will remain intact.

How to know the eligibility of home loan?

2010-03-18T04:17:00.000-07:00

Most of the people don’t have the idea that how much loan they are eligible for? Here we have discussed few things related to home loan which can help you in knowing how much home loan you can take.

First one is eligibility criteria. To decide the amount of home loan two important factors are taken into consideration – income and repayment capacity. The other factors include qualification, age, dependants, assets, liabilities, credit report, savings and the stability and consistency of your occupation also matter. The bank can also calculate the loan amount taking a specific percentage of the cost of the property.

Second is repayment capacity. Banks calculate repayment capacity on the bases of your income and expenditure pattern. It is assumed that you need around 40% of your income as living expenses. For example if you are earning Rs60,000 per month and out of this you are spending Rs25,000 as living expenses and Rs20,000 on heads, such as a car loan, then your eligibility will be calculated on the remaining Rs 15,000.

Then, is the formula to calculate the eligibility.

Home loan eligibility=monthly savings/equated monthly installment (EMI) per lakh x 1 lakh. For a home loan of Rs1 lakh taken for 20 years at 10% interest rate, the EMI would be around Rs965. Thus, in this case the eligibility will be 15,000/965 x 1 lakh, or Rs15.54 lakh.

You can increase the home loan amount. You take joint home loan with your spouse, children, parents or siblings to increase your eligibility. Try to get the longer tenure of loan, this increases the eligibility.

ICICI Bank, Kotak Mahindra hike home and auto loan rates by up to 0.5%

2010-03-10T02:46:00.000-08:00

ICICI bank country’s largest private sector bank has withdrawn its 8.25% special home-loan scheme and hiked its auto-loan rates by up to 0.5%, signifying rising interest rate regime.

An ICICI Bank spokesperson told, "Auto loans rack rates have been raised by 0.25%-0.5% depending on (the) segment and tenor with effect from 5th March."

The bank sources have not given any reason for hiking rates but industry experts believe that the bank decision is largely prompted by indications given by the RBI in its last monetary policy review.

In its policy review RBI had hiked the cash reserve ration or the amount banks have to park with the central bank by 0.75% to 5.75%, absorbing Rs36,000 crore from the system in order to absorb excess liquidity from the system. The hike in CRR will be able to absorb Rs 36000 crore from the system.

ICICI Bank special home-loan scheme stands withdrawn from 1st March said the spokesperson. The bank has raised new auto loans which will be in the range of 9.75%-11%.

At present bank is offering home loans up to Rs30 lakh at 8.75%; loans between Rs30-lakh to Rs50 lakh at 9% and those above Rs50 lakh at 9.5%.

Another private sector bank, Kotak Mahindra Bank and its car financing group has also raised its home and car-loan rates.

Bank has hiked its home-loan rates by 0.25%-0.5% with effect from 18th February, Kotak Mahindra Prime (KMP), the car-financing arm of the group, has hiked its loan rates by 0.5%-0.75%.

Kamalesh Rao, Kotak Mahindra Bank's head of retail assets said, "We decided to hike the interest rates for home loans by 0.25%-0.5%. This is primarily to align lending rates in line with the cost of deposits."

He told this year bank registered a growth by 50% in its home-loan segment. KMP chief executive Sumit Bali told that the new lending rates will be effective from 8th March.

Mr Bali said, "We are hiking the lending rates as the cost of funds has gone up by up to 0.75%. We have to pass on this additional cost to customers, which we didn't do last month".

In this financial year KMP total loan book of around Rs 6,500 crore has registered a growth of around 35%. Mr Bali said, the company is looking at loan growth in the range of 15%-20%.

Banks seek clarification from RBI on pricing of old home loan rates

2010-02-26T03:48:00.000-08:00

The Reserve Bank of India (RBI) has instructed banks to give loans on ‘base rate’ instead of the PLR. The new system will start from April 2010. The base rate will be calculated on a cost-based formula and will be lower than the PLR, although banks will be free to charge a risk spread over the base rate but they cannot lend below the base rate.

However banks have asked for the clarity from RBI on pricing of old home loans once the new ‘base rate’ is adapted as loans given for a longer duration i.e. for 15-20 years, do not have any provision for replacing the prime lending rate (or PLR) – the anchor interest rate to which the floating rates are linked.

Moreover RBI has instructed banks that during the renewal of loans or resetting interest charges, banks should take the ‘base rate’ as the anchor rate. The home loan agreements are like other loan deeds, are legal documents, according to bankers many retail borrowers might resist a switchover from PLR to ‘base rate’ and signing on a new agreement.

Then bankers will also have to struggle with the fact there is no renewal date in case of home loans and existing loan agreements are for the entire tenure of the loan. Also, as the base rate is a floor rate, thus bankers might have to hike the interest rates on some home loans if the base rate of the bank is higher than the existing loan rates.

At least three senior bankers told ET as there is uncertainty on the matter thus they are seeking clarity from RBI on this. “The moot point is the floating rate home loan do not have renewal clause, making it difficult for banks to link these loans to base rate. Alternatively, banks can give customers an option to shift to base rate. But, if customers have availed of loan at rate lower than the base rate, they may resist shifting to base rate. Banks also cannot force base rate on them as it’s a legal document (loan agreement).”

According to bankers the other alternative can be to maintain two parallel rates – PLR and base rate till the maturity of all old loans in their book. But bankers say, RBI might not approve this move.

The RBI main aim is to eliminate the discriminatory prices for old and new customers. At present the old home loan customers are paying higher interest rate in comparison to new home loan borrowers, even though both of them have taken floating rate loans. According to banks they offered new loans at cheaper rate because their incremental cost of funds has come down. But RBI argues that reduction in incremental cost results in reduction of overall cost of funds and thus the benefit of lower rate must be passed to the old home loan borrowers as well. Therefore, if BPLR continues to be anchor rate for old home loans, it might counteract the purpose of introducing base rate.

A senior banker said, “In case of short-term loans given to corporates, individuals and small businessmen, banks may have to keep alive its BPLR. But whether it can be kept active for home loan which has a 15-year maturity is yet not clear.”

The main reason for RBI to introduce the base rate system is to improve the transmission of policy rate to the credit market. Frequently RBI has observed that whenever the policy rates have been reduced banks have not reduced the lending rates by the same quantum. In the policy document of January 2009, RBI governor, D Subbarao pointed out, “While changes in RBI’s policy rates were quickly transmitted to the money and government securities markets, transmission to the credit market was slower. Evidently, the transmission is still in progress.”

Between October 2008 and December 2009, RBI considerably reduced policy rates — the repo rate by 425 basis points and the reverse-repo rate by 275 bps. CRR was also reduced by 400 basis points of NDTL. But the public sector banks reduced BPLR by 125-275 basis points, followed by 100-125 basis points by private banks and 125 basis points by five major foreign banks.

Axis Bank leads in withdrawing teaser home loan scheme

2010-02-09T04:11:00.000-08:00

After the Reserve Bank of India has hiked cash reserve ratio (CRR) there are chances banks might start withdrawing teaser home loan offers. Axis Bank India’s third- largest private bank has announced to withdraw its teaser home loan scheme two months before the schedule tenure.

Earlier on January 6 bank had launched a fixed-cum-floating rate home loan scheme. Under this scheme bank has been offering 8.25 per cent interest rate for the first two years. Bank charges 3.5 per cent and 3 per cent interest on loan which is less than the mortgage reference rate for loans up to and above Rs 30 lakh, respectively.

A senior bank executive informed that as the CRR has been hiked due to which it would not be possible for bank to offer a fixed rate for two years. But it will continue to offer 8 per cent fixed rate for the first year.

The bank has also removed the product information from its website. This move of bank has surprised many. A direct selling agent had applied for home loan under the scheme said, “With Axis Bank suddenly withdrawing its teaser rate scheme, I am approaching other banks.”

Last year a number of banks launched special teaser home loan schemes led by countries largest, State Bank of India and Axis was one of the last banks to offer such a scheme.

A senior SBI executive has informed that with the hike in CRR the cost pressure is increasing, but bank will fulfill its commitment and continue to offer the product till the end of March.

However under Housing Development Finance Corporation’s the sanction of loans under teaser rate scheme will close on February 13. The disbursement of loans will be completed by March 31. The Axis bank scheme was advantageous as there was no prepayment penalty. According to industry source, “After two years, if the bank’s rates go up sharply, customers can shift to other banks without any penalty.”

On the other hand, other banks are charging around 2 per cent of the outstanding amount as pre-payment penalty. The hike in CRR by 75 basis points done by RBI is expected to absorb around Rs 36,000 crore from the system. Therefore, this along with advance tax outflows in mid-March is likely to reduce liquidity. In view of this in March most of the banks are likely to review their teaser loan schemes.

Canara Bank to double home loan portfolio by Dec, 2010

2010-02-04T03:31:00.000-08:00

Canara Bank, Bangalore-based public sector lender has set a target to double its home loan portfolio to around Rs 17,500 crore by December 2010. as of December 2009, bank’s home loan portfolio stood at Rs 8,464 crore, little over 5 per cent of the total advances informed the bank’s executive director K L Jagadish Pai.

During the announcement of bank’s third quarter financial results he told Business Standard, “We had actually set a target to achieve at least 10 per cent of our loan portfolio from home loans by March-end 2010. But, it is not possible in the remaining two months and we intend to disburse another Rs 6,000 crore during the first three quarters of the next financial year-ending December 2010.” Meanwhile for the year-ending March 2010, the bank aims to achieve Rs 1,75,000 crore advances.

He told, however the bank has performed better in home loan sector and was able to achieve 27 per cent growth in the first three quarters of the present fiscal-ended December 2009 against the corresponding period last year. In August 2009 the bank had launched a home loan scheme in which it offered 8 per cent interest rate for the first year and 9 per cent for the second year and 10 per cent for the remaining period of the loan for individual home loan customers. The scheme has been extended up to March 2010.

Pai said, “The real estate sector is reviving and people are coming back for loans. We are the bank with lowest exposure to real estate among our peers. Our exposure to commercial real estate is less than Rs 2,600 crore presently compared to Rs 2,900 crore at the beginning of the fiscal. We are looking at financing more and more Bangalore-based real estate companies so that we will get more individual accounts during this year.”

In view of long gestational period bank is aiming to increase housing loans. He said the sanctions are likely to touch 10 per cent of the asset book of the bank, but the disbursal can be less. He added for the next two months of the present fiscal, the bank is likely to disburse another Rs 500 crore.

He told bank has opened more retail hubs whose number has increased to 37 across Tier-I, Tier-II and Tier-III cities in the country. He said, “We are targeting 10 accounts per day for each retail hub.” Thus the bank aims to target more of individual home loan seekers than the commercial real estate sector. The loan amount of these loans will be around Rs 15-20 lakh.

He added, the bank has not been aggressing in lending to commercial real estate segment in spite of big demand for funds, and said that at present the total exposure will stand around Rs 2,000 crore. He told, “We are not bullish on commercial real estate like many other banks.”

He said the present sanction of loans by the bank stand at close to Rs 30,000 crore, and added part of it will be disbursed over next 18 months.

RBI deputy governor express concern over teaser home loan rates

2010-01-18T03:39:00.000-08:00

Almost all the banks are offering ‘teaser' home loan rates or the fixed-cum-floating rates which are a major cause for concern.

Ms Usha Thorat, Deputy Governor, Reserve Bank of India said, banks must inform the borrowers about the implications of such rates and during evaluation the repaying capacity of the borrowers is taken into account when the rates become ‘normal’.

Ms Thorat stated it is the responsibility of the each bank to take up the issue at its own level.

Ms Thorat's views are of utmost importance in view of the fact as most of the banks, both public and private, had announced dual rate home loan schemes.

In these schemes the banks have fixed interest rate at a low rate of 8-8.5 per cent for the first few years after which it becomes the prevailing floating rate.

State Bank of India was the first one to launch such a scheme, later on almost all the other banks followed it. Mr O. P. Bhatt, Chairman, State Bank of India stated the bank had launched the special loan scheme due to excess liquidity and no pressure was put on it by the government.

He added at the time of normal floating rate loans also, the interest rate increases after a few years.

He said the 8 per cent loan scheme helped in the growth of SBI's present credit offtake. Mr M.V. Nair, Chairman of the Indian Banks' Association and Chairman and Managing Director, Union Bank of India said, during the sanction of loan bank does an appraisal of the borrowers' repaying capacity and transparency is maintained in the rates, thus there is no issue with regard to dual rate home loan schemes.

SBOP extended home loan till Jan, 31, 2010

2010-01-06T02:16:00.000-08:00

The State Bank of Patiala, following the other big players has announced that its home loan scheme has been extended up till January 31, 2010. The bank is offering 8% interest on its home loan scheme. Earlier the home loan scheme was available up to 31 December, 2009.

The bank is offering three schemes- SBP Hi-Five under this it has set interest rate at 8 per cent for a maximum of five years on up to Rs 5 lakhs, and the other schemes are SBP Easy Home Loan and SBP Advantage Home Loan in these schemes the bank is offering interest rate is at fixed rate of 8 per cent for the first year.

Bank will not charge any pre-payment penalty if the customer opts to pre-pay the loan on reset date.

Low interest rates in 2009, best in many years for borrowers

2009-12-31T02:26:00.000-08:00

Amongst all those bad news of global economic crisis, recession, high inflation, etc., the year 2009 was the best in many years for borrowers as interest rates had come down.

This year the car and home loan rates had come down to as low as 8 per cent, the lowest in six years brought cheers to borrowers.

The country's largest lender State Bank of India launched its special home loan scheme in February, under it offered loans at eight per cent and by the end of the year many other big players like HDFC and ICICI Bank followed the suit.

In all this the borrower made merry.

Some of the banks reduced the car loan rates to 8% from as high as 14%. But the investors suffered a rude shock when banks started reducing deposit rates in a phased manner by 400-600 basis points, and the banks continued reducing rates till November.

However Reserve Bank (RBI) kept its policy rates to low level in order to boost the economy.

The rate at which banks borrow from RBI in exchange of government bonds is known as repo rate was low at 4.75 per cent, reverse-repo at which the apex bank accepts deposits from banks at 3.25 per cent and Cash Reserve Ratio, the portion of cash banks invest with the Reserve Bank, at 5 per cent.

Bank of Baroda chairman and managing director M D Mallya said, "The year 2009 was quite eventful for banks and it showed the resilience of the system to a huge crisis in related markets."

"As we move ahead, when we shun the impact of slowdown, I expect the bank credit growth to revive considerably, which may result in upward movement of lending rates as well."

On the other hand the central bank is under pressure to tighten monetary stance due to increasing inflation, up till now it has been dovish.

The bankers say if RBI increases cash reserve ratio, it can help in clearing up the excess liquidity, after this RBI can start raising repo rate and reverse repo rate to come out of the easy money regime.

Currently, there is surplus liquidity in the system. RBI can start the process of mopping up liquidity by hiking CRR by around 25-50 basis points in January, Jammu & Kashmir Bank chairman Haseeb Drabu said.

This measure taken by RBI will automatically indicate to hike in interest rates in the system.

Also, the discussion on the consolidation in the public sector banks started this year as Finance Ministry held meetings with leading PSU banks to explore the possibility of creating a few large banks by merging and acquiring small banks.

In November Additional Secretary G C Chaturvedi called a meeting which was attended by the heads of five major PSU banks - Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India and Bank of India.

According to bankers in 2010 the consolidation talks in the Indian banking system will gain momentum, both in public and private sectors, as it the competition in the global banking space is going to increase.

RBI in order to strengthen the banking system has proposed to increase provision coverage for the banks which should not be less than 70 per cent by September 2010. Increase in provision coverage can lower profits (mainly for SBI and ICICI Bank) in the next three-four quarters, an analyst said.

The Reserve Bank panel has suggested ensuring transparency, banks should offer interest rates on loans linked to a defined minimum base rate instead of the present benchmark prime lending rate (BPLR).

The RBI stated linking lending rates to base rate will raise concerns relating to growing sub-BPLR portfolio of banks.

Thus as per this proposal all the banks will have to declare a base rate and fix interest rates over that depending upon the credit profile of the borrower and repayment period.

State Bank of Mysore has extended two home loan schemes till March 31

2009-12-07T03:21:00.000-08:00

Following the suit of big players State Bank of Mysore has also extended its two home loan schemes till March 31, 2010. Currently bank is offering fixed rate of 8% for the first year under its two schemes - “Easy Home Loan” and “Advantage Home Loan”.

However, from this month bank will be charging processing fee, a source in the bank’s personal and services banking department said. The scheme was set to expire on November 30.

The sources said, “All other banks have extended their schemes and we have also extended our festival offer. We are witnessing steady demand for home loans as buyers are now looking at investing their funds in buying property”.

Borrowers get best rate option on home loans

2009-12-03T03:16:00.000-08:00

On Tuesday HDFC announced its offer of dual-rate on home loan, thus the aspiring home buyers are getting good options.

Before the State Bank of India (SBI) offer of 8 per cent on home loan was termed as ‘a gimmick’ by the Housing Development Finance Corporation (HDFC) has entered the dual-rate bandwagon with its ‘festive’ offer of 8.25 per cent for home buyers.

The HDFC bank loan offer will be valid till January 31, 2010, is expected to offer more options to the potential home buyers. Besides HDFC, there are number of players offering attractive home loan rates.

According to the figures, Bank of Rajasthan (BoR) is offering the lowest rate of 7.5% per annum which is 50 basis points less than the SBI offer. The Development Credit Bank is giving offer of 7.95% for the first year. The other players are such as Axis Bank Power Plus, State Bank of Bikaner and Jaipur and Canara Bank are offering 8 per cent rate for the first year.

According to industry experts for home buyers the first year rate should not be most important factor because the normally the home loan tenure is of 15 to 20 years. Therefore, if the low rate is offered in the first few years and later on increases, the home buyers will find themselves under serious financial problem.

SBI is offering 8 per cent for the first year and 8.5 per cent for the second and third year subsequently the rate will be 2.75 per cent less than its benchmark rate or the State Bank Advance Rate from the fourth year onwards.

On the other hand HDFC’s dual-rate offer is equivalent at 8.25 per cent till March 2012, after that at loan will be offered at floating rate which will be 500 basis points below their benchmark.

Suppose you choose to take loan of Rs 25 lakh for 20 years from BoR, the EMI (equated monthly installment) for the first year will amount to Rs 20,140. While for a similar loan amount from SBI and HDFC the first year monthly EMI will amount to Rs 20,911 and Rs 21,302, respectively.

Thus by taking loan from BoR you will save around Rs 771 per month (Rs 9,252 a year) and Rs 1,162 per month (Rs 13,944 a year) for SBI and HDFC, respectively. The figures are not quite significant as the home loan is for a long tenure. Moreover in the second and third year, HDFC (till March 2012) will charge 8.25 per cent, while BoR and SBI are offering 8.5 per cent for the same.

Hence before taking the final decision on best rate, one has to look at the costs such as processing fee. BoR charge 0.5 per cent to 1 per cent processing fee of the loan amount whereas, HDFC charge 0.5 per cent and SBI nil.

While a person takes a loan of Rs 25-lakh, then the processing fee charge by the BoR will amount to Rs 12,500 to Rs 25,000. However on loan taken from HDFC the fee will be Rs 12,500, and for SBI, the cost is zero. Thus the person will not save anything in the first year if the loan is taken from BoR due to higher costs.

Subsequently from the fourth year, the applicable floating rate of the bank’s existing cost of funds and the benchmark rate will be charged. Although it is not easy to predict the future rate of interest but to get some idea about the EMI one can use current benchmark rates and calculate the average rate of interest per year.

After the calculation the figures will be something like this. BoR is offering the best rate at 8.53 per cent, followed by HDFC and Axis Bank at 8.63 and 8.65 per cent, respectively. At 8.76 per cent, SBI’s rate comes fourth.

Therefore the potential home buyers get a lot of options. At present they can pay low EMIs and pay higher when their incomes improve after three years.

Moreover it also provides good option for the borrowers who want to shift their high-cost on the existing loans to cheaper options. Most of the existing borrowers are paying excess of 10 per cent on their loans, so for them it is the right to shift. But they have to work out the cost of shifting as it involves a prepayment penalty.

SBI clarifies: no plans to withdraw special home loan scheme

2009-11-06T01:33:00.000-08:00

Almost all the news paper published news that State Bank of India (SBI) might withdraw its special home loan schemes. Country’s largest lender SBI sources has clarified that it has no plans to revise its most popular home loan scheme under which it is charging 8 per cent interest for the first year.

The bank source has issued the clarification in view of reports published in various newspapers stating SBI might withdraw the scheme from November 7.

The bank added, “News reports have been appearing in various newspapers across the country indicating that SBI plans to withdraw its special home loan schemes carrying an interest rate of 8 per cent for the first year of the repayment period. SBI has no immediate plans to revise interest rates on home loans”.

Bank had launched the scheme in February after which other banks due to increasing pressure followed the suite. SBI is giving the same offer for auto loans too.

Earlier when SBI announced the scheme in February, the offer was valid till April-end; later on the scheme was extended till September. The bank has further extended the scheme but has not set any deadline for its closure.

Central Bank restructuring home finance arm before selling

2009-10-26T23:09:00.000-07:00

Central Bank of India, Mumbai-based public sector lender is in the process of restructuring its home finance subsidiary, Centbank Home Finance, for this the bank has appointed Ernst and Young for advice on restructuring and valuation. The bank has an aim to raise the valuation of the mortgage company before selling it.

In this process bank will be buying the shares of other shareholders in the home finance arm. According to Central Bank executive bank has already started negotiating with other shareholders. The bank plans to sell home finance arm over the next two years.

In the home finance arm Central Bank is having a 59.5 per cent stake in the subsidiary while UTI and National Housing Bank have 16 per cent each. Hudco is holding the remaining 8.5 per cent stakes. Central Bank has nominated five directors on the board of Centbank Home Finance, while Hudco, NHB and UTI have nominated one director each.

At present the home loan company capital base amount to Rs 20 crore while the net worth is Rs 48 crore. During 2008-09, the mortgage company's net profit was Rs 3.18 crore. By the end of March its gross outstanding loans stood at Rs 257.88 crore.

In the current financial year, Centbank Home Finance has decided to disburse around Rs 150 crore, which will be twice the amount sanctioned last year. It will be also increasing the average loan amount to Rs 10-15 lakh from the present level of Rs 3 lakh.

Recently Central Bank gave a credit line of Rs 100 crore in order to increase the profitability of Centbank Home which would partly be used to repay the entire debt of NHB.

As a restructuring exercise the head office of Centbank Home office has been shifted to Mumbai from Bhopal.

Several public sector banks who has opened separate home loan arm have exited or are in the process of exiting the business to avoid duplication ad they are already offering home loans.

Earlier in May, Punjab National Bank had sold 26 per cent in its home loan arm, PNB Housing Finance, to Dawnay Day, with an option to sell another 25 per cent. IDBI Bank is also in the process of selling its home loan subsidiary.

Stimulus package offered to PSBs by govt. boosted housing loan demand

2009-08-13T02:45:00.000-07:00

The benefits of government’s first initiative taken to boost the realty sector in the form of special home loan package are visible. As per the latest data released by RBI there has been a growth of 353% i.e. four times growth in housing loan distribution during three months ended May 2009 in comparison to the average 53% decline in the previous three quarters.

Bank of India executive director M Narendra said, “It was a right step to introduce the stimulus package. This helped to ease out the risk of interest rate volatility for at least the initial years”. He added unless there is growth in housing, real estate and construction sectors the core sectors like steel and cement can not grow.

In December 2008 the home loan rates were around 11% therefore to boost realty sector special housing loan scheme was announced. Under this the public sector banks were given a special incentive package to offer home loans at low interest rate.

Under the scheme housing loans of up to Rs 5 lakh offered at 8.5% interest rate and for Rs 5-20 lakh the banks charged 9.25% for the first five years. Although this scheme was up till June 30, 2009. The scheme received gentle response in the initial stage. Later on in the month of April and May the demand started picking up due to which there was a growth of Rs 3,138 crore in housing loans during three months ended May 22 as against to Rs 693 crore in first three months of the scheme.

For instance Bank of India residential mortgage year-on-year (YoY) basis increased to 31% at the end of June 2009, as compared to 15% growth at the end of March 2009. Other banks also witnessed the similar growth.

IC Shetty, divisional manager of Canara Bank stated, “The response to the scheme showed the impending demand in the sector. April May and June saw the maximum loan applications”. The measure taken by the government showed the positive response of boosting housing demand which helped the homebuyers who were unable to fulfill desire of owning a house due to skyrocketing prices.

The low interest rates scheme not only attracted aspirant home buyers but also helped the developers in generating revenues. During August’08-March’09, hardly any houses were being sold but by April the demand picked up so much that almost 3-4 flats were being sold every week.

Can Fin Homes Ltd reduced home loan rates for fresh loans

2009-08-06T05:34:00.000-07:00

Canara Bank subsidiary Can Fin Homes Ltd (CFHL), has reduced the home loan rates for fresh individual housing loans. The new rates have come into effect from 1 August, 2009.

According to CFHL release the company, in the current financial year has reduced the rates of second time.

As per revised interest rates on fresh loans rate will be 8.7 per cent for loans up to Rs 20 lakh, 9.00 per cent for loans above Rs 20 lakh to Rs 30 lakh and 9.75 per cent for loans above Rs 30 lakh.

The rates have been reduced under variable interest rate scheme and will be applicable for all repayment periods

For the current fiscal the company has set a target of disbursing loan of Rs 550 crore as against Rs 300 crore as of March 2009 at the growth rate of 83 per cent, the release stated.

FM says: Interest subsidy on home loans to be offered through banks

2009-07-31T02:47:00.000-07:00

The interest rate subsidy for mid-segment housing loan is basically for the customers belonging to lower middle to middle income groups. Finance minister Pranab Mukherjee informed that the interest subsidy will be passed to the customers through commercial banks and housing companies which are registered with the National Housing Bank.

He added to boost the housing sector tax holiday benefit will be provided to it on the profits earned from projects which were approved between April 1, 2007 and March 31, 2008, if these projects are completed on or before March 31, 2012.

He said, ‘‘I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector’’.

On Monday while speaking on the finance bill Congress MP from Mumbai (North) Sanjay Nirupam pointed out that 42.4% of Maharashtra’s population is living in urban cities and in last few years there has been increase in the migration to cities. Moreover the home loan rates are increasing sharply therefore it would be right to provide relief to the borrowers. Also providing an interest subsidy and a targeted tax break can give some support to the stranded real estate sector.

However on its part government has asked the real estate developers to lower prices so that housing becomes more affordable for the aam aadmi.

The housing loan subsidy is attached with a slew of other concessions such as exempting road repairs and maintenance from the sphere of service tax on the other hand the sunset clause for tax holidays for industrial parks has been extended for two years up to March 2011 to increase growth in infrastructure. However the FM made it clear that the service tax on new services and any alteration in the existing services announced in the Budget 2009-2010 will come into effect from September 1, 2009.

Renu Sud Karnad, Joint MD, HDFC Ltd stated, “It’s a welcome step from the government. The decision is sure to improve loan eligibility and affordability of a large section of the Indian middle class. It will also lead to increased activity with regard to real estate in the affordable housing segment which in turn will create employment’’.

Bankers say: “extremely unfortunate if the developers were to increase the home prices at this juncture”

2009-07-09T03:13:00.000-07:00

Slowly the real estate market is coming up as banks have reduced lending rates and especially in home loan segment most of the banks are offering 8% interest for the first year therefore some of the big developers have started increasing prices. But on Tuesday leading bankers have warned the real estate developers against raising residential prices as any such move at this point can bring halt in the recovery market.

Mr Deepak Parekh, Chairman, HDFC, stated, “Certain top-rung developers have already started increasing prices, especially in mid-income projects, following the recent pick up in sales. Besides, with liquidity no longer a constraint, certain developers are seeking once again to increase their margins”.He stated that just now the real estate market has begun correcting itself and it will be “extremely unfortunate if the developers were to increase the home prices at this juncture.”

While speaking at Habitat Business Forum event organized by FICCI, Mr Parekh, expressed his uncertainty on whether existing developers might stay committed to affordable housing segment.

Mr S. Sridhar, Chairman and Managing Director, Central Bank of India, expressed the similar views. He said that it will be “short-sighted” in case the players think of raising prices thinking that the demand is coming back into the market.

According to Mr Sridh, “It is difficult to generalize but as a whole there is some more scope for downward adjustment in prices, or in certain places it should plateau. That will stimulate the demand. If the real estate players revise the prices upwards, it will stall the recovery process”.
He pointed out however, the demand for housing loans has picked up among the banks.

LIC Housing Finance launched new scheme for new customers

2009-07-03T03:37:00.000-07:00

People who are planning to take home loan there is good news LIC Housing Finance has reduced interest rates for new customer.

A new scheme has been launched by LIC housing finance a three-year 'Fix-o-Floaty' scheme, under which the customers will get flexibility as well as protection against the volatilities of interest rate movement.

A press release issued by LIC stated in this scheme, the borrowers will have to pay a fixed interest rate of 8.9 per cent for loans up to Rs 75 lakh and 9.5 per cent for loans above of Rs 75 lakh for a period of three-years.

The release added after that, a floating rate prevailing at the end of three-years will have to be paid. This scheme will be effective from today.

The release added any time during the three-year initial period, the customer can opt for shifting to the floating interest rate without paying any additional charges.

The home loan borrowers who opt for floating rates ab-initio, the special offer rates for new customers for loans up to Rs 75 lakh will be 8.50 per cent, instead of 8.75 per cent to 9.75 per cent. While for loans above Rs 75 lakh, the rates will be 9.50 per cent as against 10.25 per cent earlier.

Home loan borrowers should ensure to get insurance policy papers

2009-07-02T00:24:00.000-07:00

In case you have taken home loan and bank has insisted you to take an insurance cover for the outstanding loan amount, have you got the policy documents from the bank subsequently?

Most of the home loan borrowers are not aware of this or assume that the bank by itself has done it and they would not have to worry.

Although it is the duty of the bank to submit the application immediately to the insurance company should get the policy documents and hand over the same to the borrowers, but it has been noticed that some banks fail to submit the application and the policies are never taken.

Mr M. Govinda Rao, a retired bank official, quoted some instances of failure on the part of some banks in submitting the proposal. “While an additional amount is added to the home loan sanctioned amount, presumably towards insurance premium, the same is either not sent with the proposal form to the insurance company or sent very late.”

On enquiring from the District Consumer Redressal Forum President, Mr S.A. Sreeramulu, told about 6-7 cases related to deficiency in service by banks and insurance companies (with respect to housing loans) have been filed out of which he had passed orders in respect of three cases in favor of the borrowers. He added the remaining three are pending before the court.

He informed, “In one reference, the borrower had died before the bank submitted the policy proposal, almost a year after the date of sanction of the loan. The claim could not therefore be made because the policy had not materialized at the particular time. There have also been instances of banks failing to handover the policy to the borrower after receiving it from the insurance company, leaving the legal heirs in the dark about any such policy”.

Coimbatore Consumer Cause Secretary, Mr K. Kathirmathiyon explained, “Borrowers should ensure submission of the proposal form to the insurance company without delay and should demand the policy from the bank / insurance company and keep the papers along with their bank loan documents”.

He stated, “The borrower should inform his family members about the insurance policy and banks should take proactive steps in submitting the claim proposal to the insurance company in the event of the death of the borrower for liquidation of the loan”.

Mr Govinda Rao pointed out, “Some banks offer ‘Free Accident Insurance’ cover on housing loan. Unfortunately, most borrowers are not even aware of such a policy. And, in banks, except for the operating officials, many are not aware of it”.

He advised, “Borrowers should enquire about such freebies at the time of sanction of the loan and demand that it be made available to them. Further, the bank should ensure that the policy paper regarding the free accident cover is handed over to the borrower immediately on sanction of the loan and make a note of it in the sanction letter”.

“Insurance polices are normally issued against a particular loan account. In the event of a change in the account number, for whatever reason, the borrower should ensure that the cover is available to the new account also.

He should not presume the extension of the cover to the new account as automatic. Else, in the event of a claim, the insurance company might refuse to settle the claim contesting that the two accounts are different.”

Banks fail to find buyers for attached properties

2009-05-13T04:19:00.000-07:00

The number of attached immovable properties is growing fast but banks are finding difficulty to find buyers for these properties. The attached properties are the one whose owners fail to pay the dues/EMIs therefore banks attach such properties from time to time.

According to bank sources every year in Delhi and NCR region more than 125 properties are attached. It is believed this figure might increase as the world is facing a massive market downturn.

Earlier three months ago outside a big kothi in West Patel Nagar a small board used to hang on the gate inviting attention of almost all the passers-by. On the board in bold letters following slogan was written, "This property is attached by the ... bank. Trespassers will be prosecuted."

With the introduction of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) banks have got plenty of powers to take physical possession of properties that are financed by them. In case the borrowers become regular offenders and do not pay EMIs to the bank, along with interest for six months in a row, then banks act speedily.

In case the borrower continues to be the defaulter bank serves a show cause notice to pay the money within 30 days. Sunder Khatri, legal expert on property matters said if the borrower doesn’t act within next 15 days, the bank seals the property. Khatri told after the fixed time banks inform the police station that a particular owner of the property has failed to pay the loan amount to the bank, therefore they will seal his property.

A senior official of SBI told that when bank officials seal any property, they make sure that the local police officials are also present there. Although due to courtesy of securitization acts, banks are able to attach properties in certain circumstances, but the problem starts when banks try to dispose of the property in order to recover their money with interest.

According to VK Suri, an expert on banking affairs as banks have to sell the attached properties and the payment is to done in white money, more often than not, buyers evade buying such properties. More over banks accept payment only through a cheque, thus the new buyer has to pay a huge stamp duty. This creates a big difficulty for the new buyer.

Sunil Jindal, director of SVP group, says that in our country there is no controller for the realty sector so the issue of black money in this business cannot be settled and solved. Jindal added that though everybody knows that black money has a significant role in realty business, till date the government has not taken any corrective measures. In case the government takes some steps to settle the issue of black money, banks will start getting buyers for the attached properties.

A banker acknowledged due to the white money payment provision, people do not take interest in buying attached properties. Suri said therefore banks are left with very few options to deal with this situation, he added, "Attached properties only add to their growing list of non-performing assets."

Therefore, public sector companies buy the attached properties. As the companies prefer to make payments through cheques thus, they buy these properties. But generally banks fail to find any other buyer for attached properties.

PSU banks restructuring loan slabs will offer cheaper home loans

2009-05-05T04:13:00.000-07:00

The public sector banks (PSU) are restructuring their loan slabs in order to extend the cap to the consumers. Currently PSUs on loans up to Rs 20 lakh are offering a special rate of 9.25% for the first five years, under a special scheme open till June 30, 2009.

But now the state-run banks will offer 9.25% or less interest rate for the first five years on home loans up to Rs 30 lakh aiming to stimulate housing demand.

Executive informed following this bank are working out to extend the cap for availing of the special offer to Rs 30 lakh through restructured loan slabs and keep the offer open for a longer period.

For instance Corporation Bank has indicated that it will replace two concession slabs of up to Rs 5 lakh and Rs 5-20 lakh with a new slab of up to Rs 30 lakh.

“We are working on restructuring of slabs for home loans to bring down the lowest slab to Rs 30 lakh. We find that 75 % of the demand for home loans was in this segment,” the bank’s chairman and managing director JM Garg informed.

He said the rate of interest for the first five years will have a ceiling set at 9.25% or lower. Mr Garg told, “There is further room for interest rate cuts and our next asset liability committee is to take a call”.

IDBI Bank chief financial officer RK Bansal also confirmed that the bank is having final round of discussions on restructuring of the slabs, whereas other public sector banks such as Canara Bank have already begin the exercise.

It is expected the steps taken by the state-run banks will help in stimulating demand for new homes, which cratered since September last. Indeed, the December quarter saw insignificant growth in housing loan off as compared to the previous quarter.

However the demand for lower-priced houses showed improvement in the March quarter, with developers reducing prices and banks launching special schemes.

In metropolitan cities as well as tier-I and tier-II cities banks witnessed a surge in
demand for sub-Rs 30 lakh home loans.

Kotak Mahindra executive vice-president Kamlesh Rao pointed out, “While home loans in the sub-30 lakh category industry is seeing a higher growth of around 10-15%, the Rs 30 lakh plus category is showing a growth of 5-10%.”

Currently, state-run banks are charging 9.75-10% on loans of Rs 30 lakh.

After restructuring of loan slab monthly payment on a 20-year Rs 30 lakh loan will drop roughly Rs 500 for every 25 basis cut in interest rates.

Thus, a rate of 9.25% or lower could leave Rs 1,500 or more will leave more money in the hands of the buyer every month.

According to the special IBA (Indian banking Association) package open till June 30, housing loans of up to Rs 5 lakh draw a maximum interest rate of 8.5% in the first one year, while loans between Rs 5 lakh and Rs 20 lakh attract 9.25% for the first five years.

Indian housing sector witness growth by 12-15%

2009-04-29T04:05:00.000-07:00

In the past few months the banks and the housing finance companies have been reducing interest rate on house loans. The effect of the cuts is now visible as the Indian housing sector has started showing increase in growth with a marked increase in the number of transactions for the last quarter of fiscal 2009.

As per information by global real estate consultancy Jones Lang LaSalle Meghraj (JLLM) by the end of March 31 there has been increase in the number of residential transactions by 12-15%. Leading realty players confirmed to Sunday ET there has been certainly increase in demand in the last couple of months, especially in March.

Rajeev Talwar, group executive director, DLF told, DLF, India’s largest realty player, has been able to sell all 1,400 apartments in its upcoming project in West Delhi within 24 hours at a discounted price.

Unitech company spokesperson told that, Unitech had launched two of its affordable projects last month in Delhi NCR and Chennai, too has witnessed an enthusiastic response from buyers. The developer managed to sell off 750 apartments in Uniworld Garden II in 45 days of its launch. Unitech official also claimed there another project, Ananda, launched in Chennai and priced at Rs 20 lakh onwards was also able to sell off 500 apartments in 10 days.

As per information provided by Niranjan Hiranandani, MD, Hiranandani Developers in Mumbai, in last 40 days the company has been able to sell more than 2,500 apartments.

Banks too have confirmed the increase in home loan takers. Leading banks informed Sunday ET spokesperson that business home loan segment has witnessed an estimated growth of 10-15% in Q4 against the previous quarter.

Kamlesh Rao, executive VP, Kotak Mahindra Bank pointed out, “In the sub-30 lakh category, the industry is seeing a higher growth of around 10-15%. However, we are major players in the Rs 30 lakh and above category of home loans, wherein a growth of around 5-10% has been observed.”

An anonymous senior official from IDBI Bank confirmed the trend.

Home loan scheme unable to attract borrowers

2009-03-06T02:48:00.000-08:00

It has been two months the public sector banks (PSBs) have reduced interest rates of home loans up to Rs 20 lakh, but according to records of PSBs only 28,000 proposals have been cleared and around Rs 1,550 crore have been distributed under the special scheme announced by the banks.

According to data compiled by industry bodies and the government Punjab National Bank (PNB) India’s second-largest public sector bank has cleared only 35 loan proposals and has distributed Rs 1.70 crore under the scheme. While the State Bank of India (SBI) country’s largest lender has approved around 6,500 applications.

A special loan package pushed by the government to stimulate growth in real estate public sector banks announced freeze on interest rates on home loans up to Rs 5 lakh at 8.5 per cent for five years. Therefore for loans between Rs 5 lakh and Rs 20 lakh, the rate was freeze at 9.25 per cent. SBI moved ahead and reduced the rate further to 8 per cent for a year and others such as Central Bank of India followed on the line.

In addition borrowers can take loan of up to Rs 5 lakh by paying 10 per cent upfront and in case of home loans of Rs 5-20 lakh, and the upfront payment has been fixed at 15 per cent compared to 25-30 per cent for other loans.

Bankers pointed out that buyers are expecting real estate prices to fall further, thus many are deferring a purchase for the moment.

"Real estate firms are grappling with a sharp drop in demand and mounting debt repayment. They will have to reduce prices substantially to clear inventory. Once that happens, we may see some improvement in response," said a senior public sector bank executive.

Banker added although prices have come down by around 30 per cent in certain pockets, but buyers are more worried about the equated monthly installments (EMIs), which will drop down only when the real estate prices dropped more. "Interest rate is a smaller worry," said a bank executive. "With the economic slowdown, many buyers prefer to stick to rented accommodation instead of purchasing their own apartment," another executive said.

Moreover, many banks are not interested in giving out home loans under this scheme as they are worried over their cost of funds. According to analyst at a Mumbai-based brokerage funds being raised at higher costs, public sector banks will feel pressure on their spreads if they hawked the special scheme too aggressively.

Besides the cost of funds, banks also have to accept the cost of providing life insurance cover to the borrowers. Moreover they the banks cannot charge any processing fee, which adds to the overall cost.

Bankers added that even for normal home loans, demand has slowed down in a hope of further reduction in real estate prices. As per the data provided by the Reserve Bank of India, the growth in housing loans has dropped to 8.8 per cent for the year up to December 19, 2008, in comparison to a year-on-year rise of 14.8 per cent in the period up to December 21, 2007. In the year up to December 19, 2008 banks have been able to sanction home loans of Rs 21,989 crore, as against Rs 31,780 crore in 12 months ended December 17, 2007.

LIC Housing Finance cuts lending rates for new borrowers by 100 bps

2009-02-18T00:47:00.000-08:00

After banks now the housing finance are reducing lending rates for the borrowers. LIC Housing Finance (LICHF) has announced a cut in lending rates for new borrowers by 100 basis points across various loan categories. After this cut home loans up to Rs 30 lakh, irrespective of the tenure, will get cheaper by 100 bps at 8.75 per cent, whereas for loans above Rs 30 lakh, the rates have reduced by 9.75 per cent as against 10.75 per cent earlier. The new rates have come into effect from February 1.

LIC Housing Director & CEO R R Nair remarked, “Earlier, similar loans with tenure up to five years charged 9.25 per cent and loans with tenure between five and 20 years attracted 9.75 per cent. Now we have decided to aggregate the two schemes and charge same interest rate”. Around 80 per cent of LICHF’s loans come under the Rs 30-lakh category, with an average loan size at Rs 16 lakh.

Meanwhile after the meeting with acting Finance Minister Pranab Mukherjee, many public sector bank chiefs, including UCO Bank and Corporation Bank, had signaled a cut of 50-100 bps in lending rate.

State Bank of India has already announced 8% cut on home loans for a year, irrespective of tenure and amount.

The offer announced by the SBI does not provide any benefit to the existing borrowers but it will be reviewing the decision on April 1.

Nair said, “We have passed on the benefit of incremental reduction in costs to the new borrowers. We always take a quarterly review of the lending rates for the existing borrowers, as we take into account the average cost of funds which is next due in April”.

Earlier on January 1, the company had announced cut in lending rates for existing borrowers, which is at present in the range of 10.75-11.25 per cent, by 75 bps.

In December quarter, the firm attained a 26.70 per cent rise in net profit at Rs 134.33 crore and distributed Rs 1,944 crore. The firm’s total borrowing in 2008-09 fiscal year would go up to Rs 11,400 crore as compared to Rs 7,490 crore last year.

Nair added, “The repayment outgo has increased with rising costs, so our borrowings for FY09 have increased. We have already borrowed Rs 8,800 crore in FY09 and we would require another Rs 2,500 crore to support our annual disbursement target of Rs 10,000 crore.”

Home loans still not within reach of borrowers

2009-02-17T03:40:00.000-08:00

After the Reserve Bank of India and the government directed banks to cut down the lending interest rates, in spite of that people are facing problem in taking a home loan. The reason being banks are openly insisting that borrowers are required to contribute 20-30% of the value of the property, instead of 10-15% earlier.

Banks finance proportion has also come down from 85-90% of the property value to 70-80%, therefore borrowers (mainly the younger lot) are finding it difficult to go for a home loan.

Recently SBI has brought down its home loan rate to 8% and free zed for one year. Therefore the bank will lend only 80% of the value of house if the requirement is between Rs 20 lakh and Rs 75 lakh. In case the loan is more than Rs 75 lakh, the bank lends only 75% of the amount. In fact, Punjab National Bank (PNB) is lending 75% of the loan for a property of above Rs 20 lakh.

Other PSU banks like Union Bank and UCO Bank are also lending only up to 80% of the value of the house. On the other hand private sector banks like ICICI Bank are asking for 20-30% buyer's contribution while giving a home loan.

In metros like Mumbai, Delhi/NCR Bangalore the average price of a three-bed room apartment is around Rs 40 lakh. In other big cities like Kolkata, Chennai and Pune, it is around Rs 30 lakh. Hence the buyer's contribution to buy a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier. This is acting as a big restriction for a young buyer especially in the age group of 30-35 years.

But the bankers are not really bothered. UCO Bank executive Director TM Bhasin told as real estate price are coming down, banks have increased the buyer's contribution with a view that the market value of the property should not fall below the loan amount during the course of repayment. He pointed out if the bank gives 85% of the transaction and the market value of the house falls by 20% within six months, the loan amount will be more than the value of the property taken as security. In such conditions, the borrower can decide to walk off surrender the house to the bank and like this bank will be able to recover the money by selling the property. To avoid such conditions, the bank has increased the buyer's contribution.

This factor played a very big role in the current US crisis. The banks have given up to 90% of the value of the house. But when the market price fell below the outstanding loan amount, the borrower decided to surrender the house to banks, which in turn are finding it difficult to sell them to recover money.

Banks have also tightened the norms related to a loan. Previously, they used to allow an EMI of up to 50% of monthly income of the borrower. But now, this has been reduced to 40%, this has made difficult for the borrower.

HDFC new home loan rates for limited period

2009-01-22T02:48:00.000-08:00

On Friday HDFC leading mortgage lender posted new loan rates under which the loan amount up to Rs 30 lakh will carry interest of 9.75 per cent and above Rs 30 lakh will attract interest of 10.75 per cent per annum.

The rates have come into effect from Friday, and the offer is valid for limited period. In a statement released by HDFC stated the new offer will be applicable for new floating rate home loan customers.

On the other hand the bank reduced its deposit rates in the range of 0.50 per cent to 0.75 per cent.

HFCs set to slash rates on sub- Rs 20 lakh loans

2009-01-16T03:50:00.000-08:00

New Year brings good news for new home loan borrowers. New home loan borrowers, with a loan size of less than Rs 20 lakh, will probably get cheaper loans from institutional lenders from January 1, 2009. The second-tier specialized housing finance companies (HFCs) following the footsteps of the leaders too, are introducing special home loan schemes for the sub-Rs 20 lakh loan category. With this large section of fresh home loan takers get benefited.

Second-step HFCs, which are planning to slash rates, include Dewan Housing Finance (DHFL), GIC Housing Finance (GICHF), DHFL Vysya Housing Finance, among others. They might reduce interest rates by 1-1.5 percentage points as compared to their existing rates for loans up to Rs 20 lakh.

These lenders also have plans to reduce rates for existing borrowers, although by a lesser extent. GICHF, with a home loan portfolio of Rs 2,800 crore, has decided to reduce interest rates by 1-1.5 percentage points for fresh borrowers. Therefore for loans below Rs 20 lakh, it will be charging 10.25% per annum for 5-15 years and 10.5% per annum for over 15 years.

On the other hand DHFL, with a home loan portfolio of around Rs 5,000 crore, is yet to finalize its plan. According to information received from the sources, it might offer special rates, too, for the both sub-Rs 20 lakh and sub-Rs 5 lakh loan categories. It is a subsidiary of DHFL Vysya Housing Finance, also plans to introduce special rates for new home loan takers.

These players have taken the indication from public sector banks and the market leader Housing Development Finance Corporation (HDFC). Following the government’s instruction, public sector banks have introduced a concession rate of 9.25% for home loans below Rs 20 lakh and 8.5% for loans less than Rs 5 lakh. HDFC the home loan leader has announced a floating interest rate of 10.25% for loans up to Rs 20 lakh and 11.25% for loans above Rs 20 lakh.

National Housing Bank (NHB), which offers refinance support to HFCs, has offered a special Rs 4,000-crore refinance facility at 8% annual rate. It is also offering a Rs 2,000-crore refinance support for loans against rural housing projects.

“As we will get refinance from NHB at easy terms, we have decided to pass on the benefit to new customers from January 1,” GICHF managing director M Sivaraman told ET. However Industry players are of view that NHB facility would be given only against fresh lending. So, the benefit of the soft rates will be limited to fresh loans. GICHF, for instance, will reduce its interest rates for existing customers by 0.25 percentage points.

According to DHFL Vysya Housing Finance managing director R Nambirajan, the company will be cutting its rates by 0.5 percentage points for existing borrowers across the range. “Besides offering the special refinance scheme, NHB has reduced its normal refinance rates too. Both the moves will help lowering interest rates,” he said.

While on Tuesday NHB CMD S Sridhar said, “As we have reduced rates, we also expect HFCs to reduce rates and pass on the benefits to end-customers.”

Govt banks to offer up to 9.25% on home loans

2009-01-05T02:48:00.000-08:00

After RBI efforts to bring down the inflation by cutting the repo and CRR the state-run banks are willing to lower interest rates on some loans to home buyers and small businesses as part of a government initiative to boost the demand in mid of a global crisis but analysts are of view that high real estate prices will reduce the demand.

O.P. Bhatt, chairman of State Bank of India, India's biggest bank informed government banks have agreed to offer interest rates of 8.5 percent on new home loans of up to 500,000 rupees and 9.25 percent for loans between 500,000 to 2 million rupees. "The thrust is economic stimulus," Bhatt said at a conference. "The concern is to stimulate (the) economy, to create demand."

He anticipated the home loan package can result in the disbursement of 150 billion to 200 billion rupees worth of loans by June 30, 2009, by the end of the scheme.

"This will not have much effect on margins," S.K. Goel, chairman and managing director of UCO Bank, said. "The revenue that the bank will get will be affected by 2-3 basis points."

Bhatt further explained that the interest rates will be frozen for five years, after which the borrowers can opt for fixed or floating rates.

Bhatt added the banks will require a margin of 10 percent for loans of up to 500,000 rupees whereas for loans between 500,000 to 2 million rupees it will need a 20-percent margin.

A banker pointed out till now the banks have been offering these loans at interest rates ranging from 10-11.25 percent with margins sometimes as high as 25 percent for both categories.

Bhatt further added now these home loans will have no pre-payment or processing charges and the borrower will get the benefit of a free life insurance cover for the entire loan outstanding.

Official maintained that home loans below 2 million rupees constitute more than four-fifths of the mortgage portfolio of state run banks.

Bhatt said in a correlated move to boost economic activity, the banks are also planning to cut rates on existing and fresh loans to micro industries by 100 basis points effective immediately.

He added that small and medium enterprises will have to pay 50 basis points less on loans up to 100 million rupees.

It is expected that these moves by the state-run banks will follow a push of measures by India earlier this month, including $4 billion extra fiscal spending and a cut in key lending rate by the central bank to 6.5 percent, the lowest in two-and-a-half years.

Although analysts have welcomed the rate cuts but are sounding caution about the still-high real estate prices.

"Before lending starts, property prices should come down and cost of funds of the banks should come down. It will take 3-6 months for the cost of funds to come down," said Vipul Shah, an analyst at KR Choksey Shares and Securities.

Over the past five year the real estate industry was booming but from few years the real estate industry has been battling unenthusiastic sales, with purchases falling by a fifth in the first half of the year, as inflated property prices and decade-high interest rates brought an end.

"It may not be sufficient considering the overall economic downturn and high realty prices," said Hitesh Kuvelkar, associate director, research, at First Global Securities.

Though most real estate developers have cheered the move and hoped demand will pick up on softer interest rates and property prices.

While expressing his views Sanjay Chandra, managing director of Unitech Ltd said, "This will encourage a lot of people to buy and the next few months will be good for the sector".

Home loan firms in no mood to cut rates

2008-12-12T01:19:00.000-08:00

In the last few weeks Public sector banks have announced of lowering home loan rates after a slew of measures by the Reserve Bank of India (RBI), but housing financial companies (HFCs) are yet to take decision on the issue.

According to HFCs the cost of funds is showing no signs of reduction since banks are still charging around 12-13 per cent, which is higher than the average lending rate of HFCs.

For instance, HDFC and LIC Housing Finance Company, the two big house financing companies together account for over 70 per cent share of the HFC market and charge around 11.5 per cent, whereas home loans from Dewan Housing Finance Company costs between 12 and 14 per cent.

“Our interest rates are a function of our cost of funds. We have always passed on the benefit of lower cost of funds to our customers and we will continue to do the same. As of now, we have not seen interest rates coming down even though RBI has taken steps to provide liquidity. The issue today is not of liquidity, but of credit and until it is made available, it would be difficult for anyone to bring down interest rates,” said HDFC Joint Managing Director Renu Sud Karnad.

“With banks cutting home loan rates, there is an expectation of rate cut in the housing sector, but our cost of funds still remains high. In the foreseeable future, there is no scope for reduction in lending rates,” added LIC Housing Finance Chief Executive Officer R R Nair.

HFCs sources said the high cost of funds has affected their ability to compete with public sector banks because the weighted average cost, on an average, is 300 basis points higher. Nair added on the contrary, lending rates are 50-100 basis points higher than those of public sector banks.

“We are lending to NBFCs at about 13 per cent, which will not come down as we consider it as a high-risk sector,” said an executive of a large public sector bank.

As per the industry approximate calculation, HFCs comprise over 40 per cent of the Rs 1,20,000-crore housing finance market. According to executives of these companies said HFCs will now account for 15 per cent of an increase in the pie as against 25 per cent in 2007-08.

Recently the National Housing Bank (NHB) had even raised the refinance rate to up to 12 per cent from around 9 per cent which also did not help the cause of HFCs.

In the current circumstances the bigger players, backed by strong background, are still finding difficulty to sustain the higher cost of funds, thus their smaller peers are finding it even more tough to operate.

“The recent measures by the regulators have not translated into the availability of credit from banks. We operate in the lower-income group, with an average loan ticket size of Rs 6-6.50 lakh with a very low margin. So, if things do not improve soon, we will be left with no choice, but to increase lending rates,” said Dewan Housing Finance Vice-Chairman and Managing Director Kapil Wadhawan.

Wadhawan confessed that in the current year, the distribution growth has slowed down compared as compared to the last year.

“The real estate market is reeling. So, the demand is bound to come down. But, we hope to grow at around 18-20 per cent in incremental disbursement this year compared with over 25 per cent growth last year,” he added.

LIC Housing Finance giving loans to builders

2008-12-02T01:11:00.000-08:00

The expectations have grown high regarding the downward slope in the interest rates of home loan after the cut in repo rates. Therefore LIC Housing Finance is distributing more loans to builders/developers who comprise to 6% of their business as against individuals which frame up to 94% of their business.

R.R. Nair, director and chief executive, LIC Housing Finance informed that, “We are supporting the builders and developers by funding their upcoming projects to support individuals to afford real estate properties. This will, in due course, result in escalating business in our home loan segment”.

According to latest reports builders are now negotiating prices with buyers, though they are still refusing to reduce property prices officially. LIC Housing is offering easy and hassle-free loans to builders (for new projects) with an aim to encourage builders to reduce prices to a reasonable level.

The main idea behind the move in focus is to encourage individual buyers to book properties. The objective is clear in the loan disbursement target set by the company for the current fiscal. By the end of the current fiscal the company plans to distribute Rs 8,000 crore in home loan segment and Rs 2,000 crore loan to builders, as against Rs 5,900 crore and Rs 1,200 crore respectively in the last fiscal 2007-08.

Up till now, LIC Housing has distributed Rs 5,000 crore, of which Rs 500-Rs 600 crore has been given to builders. Furthermore, it has already sanctioned Rs 6,000 crore loans for which disbursement is due.

In the words of Mr. Nair, this strategy can originate as “loan on tap”. “When we give loans to builders, we also make soft approach to their buyers to take home loans from us. The builder himself shows the way, although it is not a compulsion for the buyers,” he explained.

LIC Housing will be providing funds to builders in all projects sizes--big, medium and small. As per information available from sources it has allocated funds to real estate projects of Rajeha Builders, Sheth Builders and is also in the process of loaning money to Sriram Builders. But Mr. Nair refused to comment on these developments.

While distributing loans in this distressed economic situation, LIC Housing is taking certain precautionary measures. At present company is funding estate projects mostly in groups with other financial institutions like HDFC, SBI, Punjab National Bank, Axis Bank, Central Bank. “This strategy was framed to distribute the risk factor, especially in this downturn market. In a big project of Rs 2,000 crore, if all institutions contribute partly, the risk factor is mitigated on pro-rata basis,” Mr. Nair said.

The company also makes sure that the asset value of the securities given by the borrower as collateral should be twice the loan value. Thirdly, it is carefully examining the cash flow of the builders keeping in mind of the current depression. LIC Housing also do the study of the neighborhood to determine the rationale for pricing a property.

Banks directed to set up Entrepreneurship Development Institutes

2008-11-26T02:54:00.000-08:00

The State government is focusing on the self employment of the youth and has asked the banks that are having more than 15 branches in the state should set up the Entrepreneurship Development Institutes (EDIS) in line with the Rural Development and Self Employment Training Institute (RUDSET Institute). The official sources said that the banks that have not opened their EDIs should speed up the process of setting up a similar institute in the state.

The State Bank of India (SBI), UCO Bank, Andhra Bank, Canara Bank and Syndicate Bank have set up such institutes; Union Bank of India has started the process of setting up a similar institute in the state.

The banks that have not yet opened their EDI have been instructed to set up such institutes in the rented premises without further delay. They can also look for land/shed/building in the districts where they propose to set up these institutes.

In the recent meeting of the State Level Bankers’ Committee (SLBC) held in October it was discussed that the interested banks will have to apply to the collector of the concerned district through the District Industries Centre (DICs).They can take support or assistance from the National Bank for Agriculture and Rural Development (Nabard) and involve it in the process while opening such institutes.

Further, in the situation of insufficient finance with the micro, small and medium enterprises (MSMEs) in the state, the banks have been instructed to improve credit flow to the sector. The pending applications for loans under MSME category will be cleared off at the earliest.

In addition banks have been directed to take maximum advantage of the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) as it helps the entrepreneur to get collateral free loans up to Rs 50lakh. It is being expected to boost the finance under SME sector.

The SLBC has formulated a plan of action to improve the credit-deposit ratio in the state and also to increase the quantum of differential rate of interest (DRI) loans to 1 percent of the total advances.

According to the plan of action, the cent percent financial inclusion of Kendarapada, Koraput, Kandhamal, Kalahandi, Nuapara, Baragarh, Jharsuguda, Jagatsinghpur, Bhadrakh, Balasore, Dhenkanal, Mayurbhanj and Gajapati would be completed at the earliest and for the entire state the process must be completed by 2009.

Whereas the banks who have accepted the handloom clusters must extend necessary finance to those clusters, and the banks who have not yet adopted the clusters must which adopt the clusters which have been identified by the textile and the handloom department of the Orissa government.

Further more, to boost crop production in the state, banks have been asked to finance the schemes related to farm mechanization, Jalanidhi program and other subsidy linked scheme sponsored by the agriculture department of the Orissa government.