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.”
Friday, August 27, 2010
Monday, August 23, 2010
The factors that determine home loan amount eligibility
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.
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.
Thursday, August 12, 2010
Banks don’t give joint home loan to friends, cousins, live-in couples
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.
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.
Tuesday, July 13, 2010
Indiabulls housing finance announced its home loan teaser rate at 8.25%
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.
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.
Wednesday, June 30, 2010
Joint home loan is more advantageous than single loan
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.
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.
Tuesday, June 29, 2010
No more teaser rates on home loans as bank move to base rate
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.
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.
Tuesday, June 22, 2010
Shriram Group to launch home loan segment by December
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.
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.
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