Category Archives: Home Loan

Home Loans is a part of the mortgage loans and is available in a variety of situations like buying a ready to move in house, buying an under construction property, renovating / extension of an existing home etc.

Home Loan Loans

How to compare Home Loan quotes for your dream home

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Compare Home Loan quotes for your dream home

Compare home loan quotes

How to compare Home Loans

Choosing the dream home is a difficult and an important task in one’s life and an equally important one is choosing and comparing your home loan. There are many websites which offer this tool to compare home loan interest rates. But comparing home loan interest rates is not the only thing that a potential home loan borrower should look at. There are many other aspects of comparing a home loan and choosing the right one for you. In this article we cover what aspect of a home loan comparison should you look at, because ultimately it is really long term decision and the interest burden can jeopardize the financial planning. Sometimes the money saved on interest cost and other allied costs can make a huge difference in your well being at later stages in your life.

Why should you compare home loan online?

First step in home loan comparison would be to take the first cut rates and applicable charges. Most of these rates and processing fee displayed by these websites for comparison purposes is the applicable card rates. And most of the times the banks / housing finance companies offer a discount to the applicable card rates to good quality borrowers. Therefore the applicable home loan rate and processing fee could be much lower than the one displayed on the website.

What should you look beyond for home loan comparison?

Once you have the best home loan rate arrived after the comparison, the next step would be to look at the suitability of the bank to the transaction. E.g. banks like SBI, IDBI Bank and other PSU banks don’t fund the premium portion of the transaction in under construction properties. To take an example, suppose the original allottee booked an apartment with the final cost at Rs 75 lacs 4 years ago. His cost as per the builder buyer agreement would be Rs 75 lacs. Now during the last 4 years the price of this property appreciated and is now available for Rs 1.60 Crs in the resale market. A private bank like ICICI bank, HDFC Axis, PNBHFL etc can fund upto 75% of the market value of this property. Which means that to fund this purchase to a buyer in resale, a buyer if takes home loan from one of the above would have to pay Rs 40 lacs out of his pocket and the bank would be able to fund upto Rs 1.20 Crores. Whereas if the same customer approaches SBI or IDBI for home Loan, the SBI or IDBI would be able to fund only 80% of the original cost (as per the builder buyer agreement). Which means to buy this property in the resale market and taking a home loan from SBI would mean that the buyer would have to shell out Rs 1 Crores from his own pocket and the bank would only be able to fund upto Rs 60 lacs. Therefore even though the compared home loan quote from these banks could be lower, but these banks wouldn’t be able to fund this transaction. If a buyer would have approached any of these banks for a home loan then in that case he would have wasted a considerable amount of time chasing the home loan and would have less time to remedy this transaction.

Similarly in case of ready to move in property banks also fund Furniture and Fixture as a part of the transaction. The banks like ICICI Bank or HDFC would have a much higher flexibility compared to a PSU banks which have conservative yardsticks to fund additional costs. Therefore comparing home loan and getting the lowest quote is not the last solution, the funding arrangement should suit your type of transaction as well.

What are the features offered by the bank to look at while comparing your home loan?

One of the important features available these days is a linked current account with the home loan which can work as an overdraft account and save a borrower lot of interest. How this feature works is the bank opens a current account and whatever money is kept in that account, on a similar amount the interest is credited back to this account. Which means the interest is charged only on the net amount. I.e. the disbursed amount minus the amount available in the linked current account. The example below is for a home loan of Rs 1 Crores for 20 years at and ROI of 10.25%.  In this case the borrower would keep only Rs 2 lacs in the linked current account and would end up saving Rs 8.66 lacs which is equal to approx 9 EMIs and this is easy for a regular borrower.

Interest Savings on Linked Account, Home Saver etc

Interest Savings on Linked Account, Home Saver etc

What are additional costs to consider while comparing home loans?

Other than the comparing the ROI and processing fee, the other important factor would be to look at the date on which bank debits the EMI and what is the adjustment for interest and principal. Some lenders charge the EMI in the immediate next monthly cycle and the interest is adjusted for the whole month in advance. The borrower ends up paying more even if the same ROI is charged as compared to a bank which does the adjustment for interest towards the end of the month. In addition to this lenders also have a list of charges E.g. document retrieval charges, cheque bouncing charges, reset clause etc are other important factor to compare in a home loan from two different lenders.

How to choose the best home loan for you?

How to compare and choose the best deal for you? Having done the above analysis, and some studies online you should approach a multy brand service provider. Even if you are approaching the bank branch directly, you should do this for at least 2-3 lenders. Because generally the salesperson from lender would want you to avail the facility from his institution and wouldn’t give you adequate information about others even if the transaction cannot go through this lender. And ultimately besides you got the best deal but got stuck ultimately. Therefore choose wisely choose the right one for you.

Disclaimer:The contents of this article aren’t intended to serve as professional advice or guidance and the publisher takes no responsibility or liability, express or implied, whatsoever for any investment decisions made or taken by the readers of this Article based on its contents thereof. You are advised to verify the contents before taking any investment or other decision based on the contents of this Article. The article is meant for general reading purposes only and is not meant to serve as a professional guide for investors.

Home Loan Loans

15 Home Loan terms you must know

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15 Home Loan terms you must know before applying for a home loan

15 Home Loan terms you must know before applying for a home loan

15 Home Loan Terms you must know before applying for a home loan

The jargon of various home loan terms used by the home loan sales people sometimes becomes confusing. This is a list of 15 questions that you would come across during the home loan process that you must know before applying for a home loan. These terms have been put in simple easy to understand language from the layman’s perspective.

What is a pre – approval of Home Loan?

In case a customer wants to get a pre-approval of the loan done without first finalizing the property; he can do so by making the application in a similar fashion as a normal housing loan application. However some companies require a declaration from the customer that he is applying under the pre-approval and hasn’t identified the property. Wherever such declaration is not there; one can always write in bold letters that this application is for a sanction of the loan without finalizing the property.

What is an EMI?

EMI (Equated Monthly Instalment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of interest due as well as a portion repayable towards the principal, therefore EMI is principal plus interest. The interest is charged on the outstanding principal at the end of every month. There is a myth; many people tend to believe that the banks charge high interest in the beginning and low interest towards the end to charge more interest. The fact is if you calculate the interest charged at any given point in time would simply be the interest charged on the outstanding principal for that month. Since the principal outstanding during the first 6-7 years of a 20 years loan is very high the portion of interest in the EMI is also high.

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What is pre EMI?

In case of under construction properties; where  the possession of the property would be offered at a later date, to avoid the extra burden on the borrower, who is on a rented accommodation and is also simultaneously  paying the rent. The banks / HFCs offer the facility of deferring the EMI till possession or for a particular period. The payment of interest for such a period is called as the pre emi interest.

What are Daily Reducing, Monthly Reducing and Annual Reducing?

Annual reducing: In this system, the principal, for which you pay interest, reduces at the end of the year. Thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender through EMIs paid during the year. This means the EMI for the monthly reducing system is effectively less than the annual reducing system. EMI as a concept is based on monthly reducing only.

Monthly reducing: In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.

Daily Reducing: In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system.

What is a fixed rate of interest?

Fixed rate of interest means that the rate of interest remains unchanged for the specified duration of the loan. This means you do not benefit, if rates of interest drop in the market. Similarly you do not lose if rates of interest increase. Under fixed home loan rates also, banks/HFCs retain the right to increase the rate of interest after the prescribed interval. This provision is mentioned in the loan agreement. This is known as reset clause in the fine print.

What is a floating rate?

This is the rate of interest that fluctuates according to the market lending rate. This is also called as the adjustable interest rate in some cases. The adjustable interest rate is bench-marked to a Base rate by the banks and to PLR by the HFCs.

The benchmark base rate or the PLR changes as the interest rate changes by the RBI.

What is the reset clause?

Reset clause in a loan agreement is a clause which defines the interest rate reset time and other terms & conditions. This reset clause is generally set in fixed rate loans.

What is Base Rate?

Banks in India link all the lending to Base Rate. Base rate of a bank is the bench mark rate and all the lending is pegged to this rate. The base rate of a bank is determined by the cost of funds plus an interest margin. The cost of funds is supposed to be lower for a bank which has high current account & savings account balance (CASA balances). Banks charge a margin on the base rate for different products. E.g. SBI home loan upto Rs 75 lacs are available at 10.15% and the base rate of SBI is 10.00% currently. This means SBI is charging a margin of .15% for home loan on base rate. This margin would remain constant throughout the term of the loan.

What is Prime Lending Rate?

Housing Finance companies like LICHFL, HDFC & PNBHFL etc lend on Prime Lending Rate. Each HFC would have a different name for its PLR, but it means the same. E.g. LICHFL calls its PLR LHPLR and HDFC calls RPLR. The PLR is generally a high number and these companies give a discount to the PLR to arrive at the effective rate of interest to be charged to the customer. This discount is the single most important factor and the reason why the loan to an existing customer is at a higher rate and loan to the new customer would be at a lower rate. Because these HFCs have adopted this practice that they don’t reduce the PLR so quickly and give a higher discount to the new customers.

What is better PLR or Base Rate?

Base Rate is better for two reasons: 1) Banks have access to low cost funds in the form of CASA balances and 2) the margin charged on the Base Rate is generally a small number, and there is less flexibility with the bank to tweak it too frequently.

What is construction linked plan?

Under the construction linked payment plan, the buyer of the property is required to pay money in installments as the stage of the construction progresses. The Home loan so taken is also disbursed in stages and doesn’t put pressure of EMI on the borrower immediately. Therefore people living in rented accommodations can opt for this type of plan.

What is approved project funding?

For facilitating individual borrowers and to avoid inconvenience to the individual property purchasers the banks don’t ask for the complete set of the property papers of a particular project from individual borrowers, instead the builder is asked to provide such documents to the bank. The bank after doing its due diligence approves the project for funding. This is called as Approved project funding or generally referred to as APF. The builder generally approaches only 4-5 banks to get the project approved. However it doesn’t mean that the other banks cannot fund the project. The only difference would be that the individual borrower would have to run around and provide the documents to the banks. It would be ideal that a borrower approaches a bank which has already approved the project for funding to avoid the running around.

What is prorated Home loan?

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For young individuals in the early stage of their career, it is difficult to pay a large lump sum as a part of their contribution at the time of booking an under construction property. Therefore they can opt for funding their contribution in the same proportion as the bank’s contribution as the construction stage progresses. However some banks ask for a minimum 15% of the cost of the flat is too paid by the borrower upfront. The bank starts disbursing afterwards. However at any time the share of the HFC / Bank cannot exceed the percentage share by the borrower.

What is the Security required for home loans?

In most cases, the property to be purchased itself is the accepted as the security and is mortgaged to the lending institution till the entire loan is repaid. In case there is a problem with the creditworthiness of the customer or the property being financed is not fully technically compliant, the lending institution may ask for additional collateral as well. Some institutions may ask for additional security such as life insurance policies, FD receipts and share or savings certificates.

What is second charge?

In some cases employers such as banks / Govt institutions offer loans to their employees at very subsidized rates. However such loans don’t suffice; since the value of the property is much higher. Therefore the borrower requires a loan from some other bank / HFC as well. The property which has already been mortgaged to one institution if accepted as collateral by the second lender is called as the second charge. Banks / HFCs accept second charge from the central Govt Departments and some PSUs as well. One should clarify in advance before applying for a second home loan on the same property.

 

Home Loan Loan Against Property Loans

HDFC reduces the rate of interest for new customers

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Rate of interest on HDFC home Loan reduced

Home Loan Rates set to go Down

Home Loan Rates heading south

Monsoons are here so are the offers on Home Loan Rates. Home Loan and other Home Equity Products like Loan Against Property and Lease Rental Discounting are set to become cheaper. HDFC has reduced the Rate of interest for new borrowers of Mortgage products, effective 1st August 2014. HDFC has informed that these rates are for a limited period starting from 1st August 2014 to 30th September 2014.

Home loan rates for new customers have been reduced to 10.15% from 10.50% as applicable earlier. However the HDFC Prime Lending Rate also called as the RPLR remains unchanged at 16.75%. Which means the rate of interest for an existing customer of HDFC Ltd would continue to be the same. This disparity is on account of the discount that HDFC offers to its customers. HDFC previously was offering a discount of 6.25% on RPLR for home loan above Rs 75 lacs. The effective rate of interest charged by HDFC was 10.50% i.e. RPLR – 6.25% (16.75%-6.25%). Now this discount has been increased for the new customers from 6.25% to 6.60%, which means though the existing customers would continue to pay a higher rate as calculated by the applicable discount for borrower who have borrowed at different points in time and would remain unchanged. HDFC Ltd also gives the option of converting the rate of interest from the previous ROI to current rate, but the customer has to pay a marginal sum as conversion fee. Each borrower can check the conversion fee applicable to his loan after logging into his account.

The applicable processing fee and the rate of interest charged on fixed loans continue to be

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the same.

HDFC rate of interest for Home Loans to Resident Indian and NRI:

Any loan amount        : 10.15% (RPLR – 6.60%)

Rate of Interest Applicable for Plot Loans

        0-30 lacs                :10.15% (RPLR – 6.60%)        

      30.01 onwards        : 10.40% (RPLR – 6.35%)

HDFC has also reduced the ROI for Self Employed Non – Professionals (SENP) and the applicable ROI would be 10.15% for Home Loan amount upto Rs 75lacs and 10.25% for loan amount above Rs 75 lacs. Similarly the applicable rate of interest for PLOT loans for SENP would be 10.15% for loan amount upto Rs 30 lacs, 10.40% for 30 to 75 lacs bracket and 10.50% for above Rs 75 lacs. For SENP Value Plus loans the ROI charged would be 11.15%.

Also the rate of interest has been reduced on products like loan against property, lease rental discounting, purchase of commercial property etc.

ROI for Home Equity Products

ROI Home Equity Products

There are special discounts applicable to the rate of interest on Home Equity loans to the borrowers with good credit history and repayment track records. Applicable processing fee and other charges continue to be the same.

Home Loan Loan Against Property Loans

Home Loan Processing Fee

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Processing fees is an important cost factor while you are evaluating your Mortgage loan options. Like they say nothing comes free in this world. When you apply for mortgage loan like a home loan, loan against property or lease rental discounting banks engage various agencies like legal firm, valuation experts, field verification agencies etc to get various verification done. A legal firm does the title search of the property you would be buying and submits a report to the bank. A bank would only fund a property if you have or would be acquiring a clear marketable title to the property.  A valuation firm assesses the market value of the property and submits its assessment report to the bank. Banks also engage various agencies, who would get your residence verification / office verification and if doubtful they would also get the documents a potential borrower submits; verified. A lending institution also accesses your credit bureau report (CIBIL) and has to pay all of these agencies for verification. This cost is finally levied to the customer and is charged as a processing fee.

All these charges are levied to a potential borrower as a processing fee. Some banks quote a Zero processing fee, which is bank’s internal charge and charge separately for the legal and valuation fee. As a smart borrower if you do your homework well, you can save on these charges. Many banks from time to time keep coming out with the schemes with no processing fee. A careful evaluation about the processing fee and prepayment / foreclosure charges can save you a lot of money.

Login Fee: Login fee is the upfront fee, which is charged upfront irrespective of the fact whether a loan is sanctioned or not. Though this is a very small amount but is an important cost, because if the lending institution doesn’t sanction you a loan this fee is not refunded.

Processing Fee for Home Loan:

Many banks offer a fixed processing fee for salaried customers and fee based on the loan amount to the self employed borrowers. Generally banks charge a fixed fee of Rs 10000/- plus service tax for any loan amount above Rs 20 lacs for salaried borrowers. To the self employed borrowers the fee is levied anywhere between .50% to 1%.

Some banks also offer zero processing fee but charge a fee in the name of administrative charges or legal charges. Many banks like HDFC Ltd, ICICI Bank, Axis Bank etc don’t charge a separate fee or administrative charges / legal fee. You should ascertain fully as to what the total cost is associated. Check out the latest offers on home loan Processing Fee from different lending institutions.

Processing fee on home loan balance transfer is similar to the fee charges on home loan. Sometime banks also offer a discount on processing fee for home loan balance transfer.

Processing Fee for Loan against property

Most Banks charge a processing fee on Loan Against property irrespective of the borrower

reduce cost increase savings

Reduce Costs, increase savings

profile. Unlike Home Loan where the banks clearly differentiate between a salaried borrower and self employed borrower, in case of LAP Loan the processing fee is almost the same. The banks charge a processing fee anywhere between .50% to 1 % depending upon the lending institution and the total borrowing. Also unlike home loan there are pre-payment charges in case of loan against property and these charges vary anywhere between 2% to 4%. Therefore in case of LAP Loan the Processing fee is not the only important factor, but the pre-payment charges also plays a significant role. Check out the LAP interest rate for the latest rates on LAP including the processing fee and the pre-payment charges.

Processing Fee for Lease Rental discounting

The pre-payment charges / Foreclosure charges on LRD is quite similar to these charges on a LAP loan. Most of the lending institutions charge a similar rate of interest and other charges on a LRD Loan as to a LAP Loan.

Home Loan

Home Loan Rates During Festive Season 2013

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festival offers on home loan rates

Festive season discounts during the Indian Festivals like Navratri, Dussehra and Diwali are very popular in India. Real Estate companies are not only offering special discounts to the home buyers but are also attracting customers by offering goodies like Gold keys, LED TVs and other electronic products. Even Banks and housing finance companies aren’t far behind. Most of the Home Loan banks  and Housing Finance Companies have come out with the special schemes to attract the home buyers by offering special discounts on home loan rates during the Festive season 2013. This post takes a quick snapshot of what is on offer in the home loan market in india.

IDBI Bank Home Loan Rates

Special Attraction: No Processing Fee for all categories of borrowers, salaried or self employed, fresh home loan or home loan balance transfer during the festive season.

Home Loan Interest rates: Home Loan at Base Rate of 10.25% for all loan amounts.

IDBI Bank home loan is currently offering the best deal for Rs 30 lacs and above for all categories of borrowers. Most of the banks generally charge a Processing fee of .50% for self employed borrowers, but IDBI bank is charging zero processing fees even for self employed individuals for any loan amount. Given the high interest rates charged by various banks to the existing borrowers, IDBI home loan balance transfer and top-up scheme, which offers the top-up loan, up-to 100% of the original loan amount at home loan rates become a very attractive scheme. During the festive season this easy finance at low rates can come in handy for various kinds of borrowers. If you have a home loan which is more than 2 years old then you can have a re – look and evaluate shifting your home loan to IDBI Bank. Specially if you had taken a home loan from any of the foreign banks like Citibank, SCB or HSBC who have increased their base rate by up to 75 basis points during the recent past, it would make a lot of sense to evaluate shifting your home loan to IDBI Bank.

LIC Housing Finance Bhagyalaxmi Plus

LICHFL Bhagyalaxmi Plus

LICHFL BhagyaLaxmi Scheme Plus

LIC Housing Finance is offering an attractive fixed for 2 years scheme to women borrowers called as Bhagyalaxmi Plus at 10.10% for home loan up to Rs 75 lacs and 10.35% above Rs 75 lacs. For other category of borrowers LICHFL fixed for 2 years at 10.60% and 10.85%. Home loan from LICHFL is very attractive if you are looking for fixed rate of interest in the volatile markets and specially if a woman is a joint owner in the property and is also the first applicant in the loan application. LICHFL is also offering home loans fixed for 10 years at 11.50%.

Citibank fixed for 2 years scheme:

After giving a huge shock to existing borrowers last month by increasing the base rate and the corresponding rate of interest by .75%; Citibank is offering a fixed rate of interest for 2 years @ 10.25%. This fixed rate scheme is also available with Citibank fast track facility. The borrower can open a current account with Citibank under this facility and the current account is linked to the Home Loan. So whatever money a borrower keeps in that account in excess of Rs 1 lacs Citibank would offset the interest amount and credit back to the account which goes towards paying the EMI partly. Hence the principal repayment increases and loan tenor starts coming down.

ICICI Bank is offering lowest home loan rates in the upto 25 lacs

ICICI Bank is leading the below Rs 25 lacs category under the priority sector lending and is offering the home loan at lowest rates in the market at 10%. For 25 to 30 lacs category ICICI Bank charges 10.25% and above Rs 30 lacs 10.50%. ICICI Bank home loan has advantage over the others in terms of faster processing and swift turnaround time.

SBI Home Loan Rates

After remaining a leader in lowest rates on home loans; India’s largest lender State bank of India has kept its rates unchanged at 10.10% for up to Rs 30 lacs and 10.30% for above Rs 30 lacs category. SBI revised its base rate to 9.80% on 19th September 2013

The other major home loan providers like HDFC Ltd and Axis Bank have also reduced the rate of interest and kept at 10.25% and 10.50% in respective loan brackets. Most of the PSU Banks have kept their rates steady and are offering home loans at 10.25% to 10.50%.

Best Home Loan Rates

Best Home Loan Rates

To sum it up ICICI bank is the best rate for up to 25 lacs and SBI for 25 lacs to 30 lacs and IDBI Bank is best for 30 lacs and above category. And if you are looking for fixed then LICHFL fixed for 2 years or Citibank fixed for 2 years makes a lot of sense.

You may also be interested in other related posts here:

New Home buyer’s Guide

Type of home Loan