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Top picks from our Financial Expert
Most of us are conversant with traditional Home Loan Plans wherein we pay installment on our loan every month. But to your surprise...
Buying a home is a very significant investment for most of us. You would not like to take a risk with any inappropriate investment...
Does it make sense to reduce one burden by taking on another? This is the first question that would be top of mind when faced with ...
The home loan agreement is usually a 50 page document that most borrowers do not have the patience to study in detail...
Home loans are easy to come by these days. So, don’t fret over it. Focus on the documents you need to furnish while applying for a home loan...
Neeraj, a middle class sales and marketing professional based in Pune, purchased a decent abode in a metropolitan...
A decent home in the heart of a metropolitan, equipped with all the standard and luxury amenities, is perhaps the most cherished dream ...
Most of us are conversant with traditional Home Loan Plans wherein we pay installment on our loan every month. But to your surprise, many home loan providers have started offering different Home Loan variants with extra features and benefits. So as to attract new customers and grab more market share, the Home Loan lenders have started promoting a wide range of Home Loan products. Availability of various alternatives helps you to pick the best plan matching your requirements. If you are planning to avail Home Loan in the near future, then this article will help you to know the most popular Home Loan variants available in the market.
Home Loan Variants with assorted features & benefits
Apart from the traditional Home Loan products, there are some distinctive HL variants available in the market. A few are listed as under:
Home Loan OverDraft:
This is a unique product as the Home Loan is given in the form of an OverDraft account (i.e. account balance initially shows as negative) in the name of the borrower, who, under this Home Loan Scheme has the freedom to use this account as a savings plus OverDraft (OD) account. Bank provides the cheque book and net banking facility to its borrowers so that they can park the surplus funds in their OD account. The borrowers can also withdraw the funds as per their requirement. With the net banking facility, it is very easy to manage your Home Loan account. This product is extremely beneficial for those who sometimes have surplus cash and want to save on the interest payment on their home loan.
If you avail the traditional Home Loan plan , then you have to approach your lender each time, you plan to pre-pay your home loan. You might have to wait in the queue, complete the documentation and other formalities for pre-payment. Whereas, opting for a Home Loan OverDraft plan helps you to avoid all these hassles. Banks like SBI (SBI Maxgain) and Citi Bank (Home Credit Advantage) are offering OverDraft facility with their Home Loan products.
Home Loan for Women:
ICICI bank and SBI are offering special rate of interest (@10.10%) to new borrowers who are women. Along with this, a few Banks are also offering longer term (up to 30 years) to repay the loan which thereby reduces their monthly EMI. Moreover, you need not walk-in to the branch to get your loan sanctioned. ICICI Bank swanks to provide doorstep service at your comfort. So this Home Loan variant is best for working women who have other financial responsibilities and cannot afford to repay a bigger EMI every month.
Home Loan Top Up:
This is a top-up loan provided by a Bank/ lender to its existing Home Loan customers. When a borrower avails a Home Loan from any lender, then after successful repayment of his loan for minimum 12 months, he/ she gets eligible for additional loan against his existing property mortgaged with the Bank. This additional loan is called a top-up to existing Home Loan. The funds from this type of loan can be availed for personal use like purchase of car, furniture, Children’s marriage or education, medical expenses and even for business requirements. Other lenders normally fund up to 80-90% of original loan amount whereas ICICI Bank extends the loan up to 100% and IDBI bank lends even more than 100% of the original loan amount under special circumstances.
Step Down Loan Facility:
After successful repayment over a time period, the borrowers are offered an option to reduce their EMI under this loan type. Axis Bank’s Empower Home Loan is an example of Step down loan facility. Axis Bank has designed this product for self-employed professionals who repay their loan installments regularly without delay. This is an instant loan offered by Axis Bank to those who have a good banking/ repayment track. In addition, the borrowers get 3 assured rate reductions on maintaining a good repayment track with the Bank for 24, 36 and 60 months from the date of first disbursement for availing the 1 st , 2 nd and 3 rd rate reduction. In other words, Axis Bank pays loyalty bonus to its borrowers.
Home Loan Variants with ROI (Rate of Interest):
Following are a few lenders that are providing the best rates on their home loans. From the below table, we can make out that most of the lenders are offering same range of interest. However, if you have a good repayment track record and a good banking history, then you can negotiate with the lender for lower rate of interest. Most of the lenders provide discounts to their existing customers with good banking record.
|Lender Name||Maximum Funding (Loan to Value of property)||Maximum Term||Variable Rates|
|HDFC Limited||Up to 80%||30 years||10.50% – 11.25%|
|ICICI Bank||Details not available||30 years||10.15% – 11.25% (10.10% for Women)|
|Axis Bank||Up to 85%||30 years||10.25% – 12.25%|
|SBI||Up to 90%||30 Years||10.15% – 10.30% (10.10% for Women)|
|Citi Bank||Up to 80%||25 Years||10% – 11.25%|
|IDBI Bank||Up to 90%||30 Years||10.25% – 13.25%|
|HSBC Bank||Up to 80%||25 Years||10.50% – 12%|
Note: The above mentioned is the rate of interest as on May 29th, 2014. As the interest rates fluctuate from time to time, the borrower is however, suggested to check the current prevailing rate before applying for a loan.
Buying a home is a very significant investment for most of us. You would not like to take a risk with any inappropriate investment. During this project of buying a house, the procurement of home loan is equally important, as selecting a property is. In fact, for most of us, the decision of purchasing a property is based on the amount of home loan that we can avail. Getting a Home Loan might appear as an extensive project. But if you follow a few tips discussed in this articles, then you can smoothly run through the complete process without any hassles. This article shall help the investors especially the first time home buyers to know what exactly they need to do to become home loan ready.
The process of becoming Home Loan ready starts 6 months prior for those who never bothered to be financially disciplined. Follow these simple steps as soon as possible to inculcate financial disciple in your life.
1. Clean up your Credit Report
The first and the foremost point that all loan providers, refer to before lending, is your Credit Report. All the lenders expect you to have a clean credit history with a good credit score of 650+. Make sure to check your CIR (Credit Information Report) as well as your Credit Score online ATLEAST 6 months prior to applying for loan. This will provide you sufficient time to set your score right if there is a problem. And give you confidence if you have a good Credit Score. You can buy your CIBIL TransUnion credit report (including credit score) online for Rs.470 only.
Tip: Pay off all your delinquent accounts, late payments etc. and start making regular payments for your Credit Cards and loan EMIs at least 6 months before availing home loan.
2. Pay off existing debt:
If you are have availed multiple loans, then try to pay off these loans before you apply for home loan. As having several loans might affect your loan eligibility, few Banks however, along with your home loan, provide a scheme of debt consolidation also. But this is subject to your monthly income. As any other EMIs that you are paying right now, gets factored while calculating your loan eligibility. The lesser EMIs you pay each month, more is your loan eligibility based on your income.
3. Improve your Banking Habits:
Whenever you apply for any loan, the bank account statement is one of the most important documents that lender asks. Through your Bank Statement, the lenders verify the banking habits, lifestyle (easily noticeable if you use your debit card frequently) and your repayment behaviour. The lender expects you to have a good credit balance every month (at least equivalent to the EMI that you will repay for your Home Loan). Please ensure that there is no cheque bouncing especially due to “Insufficient Funds”. However, other cheque rejection reasons like “Signature Mismatch” are still acceptable as an exception. But such instances should not exceed twice in last 6 months to 1 year. The lenders generally ask for last 6 months Bank Statement, if you are salaried, and last 1 year statement, if you are self-employed.
4. Keep your documents in place:
When you apply for Home Loan, following documents need to be submitted to the lender:
|Self Employed Professionals||Self Employed Businessman|
|Application form with photograph||Application form with photograph||Application form with photograph|
|Identity and Residence Proof||Identity and Residence Proof||Identity and Residence Proof|
|Latest Salary-slip||Education Qualifications Certificate and Proof of business existence||Education Qualifications Certificate and Proof of business existence|
|Form 16||Last 3 years Income Tax returns (self and business)||Last 3 years Income Tax returns (self and business)|
|Last 6 months bank statements||Last 3 years Profit /Loss and Balance Sheet||Last 3 years Profit /Loss and Balance Sheet|
|-||Last 6 months to 1 year bank statements||Last 6 months to 1 year bank statements|
On the basis of above documents, the lender can offer in-principal approval for your loan application. That is, the loan is sanctioned subject to positive property verification.
In addition to the above documents, you need to submit the copy of all property papers that you desire to purchase. It is always recommended to verify the complete chain of property documents available with the seller for at least last 13 years, before entering into “Agreement to Buy”. The Banks, generally, do not process the loan application without the “Agreement to Buy/ Sell”. If you are not confident on the property chain, it is always advisable to consult a property lawyer well in advance. The lawyers, analyse the chain of the property and help you in making the decision to buy or reject the property. They also help in execution of the sales/ purchase transaction.
5. Office and Residential Stability:
The lenders, along with verifying your income, banking and property papers, they also verify your job and residential stability at current address. This is done to avoid the risk of a fraud or any desertions later during repayment of loan. Hopping the job frequently might get you into trouble while you apply for loan. Generally, a stability of at least 6 months is desired both at residence as well as work place.
6. Apply for Pre-Approved Loan:
If you intend to buy a property within a couple of months, then you can apply for pre-approved home loan with the Bank. As mentioned above, most of the Banks, these days, sanction a loan amount that can be extended to you, even before you have zeroed in the right property for you. As an extension to this service, many lenders like ICICI Bank and HDFC Ltd. help their customers to find their dream home. For instance, HDFC has started an online portal www.hdfcred.com wherein all the projects approved by HDFC have been listed. The borrowers can get their loan pre-approved and can then start looking for a home. This also enables you to be more precise with your budget for buying the property.
7. Understand the Loan Process of lenders:
Whenever you apply for a loan, be prepared for lot of queries, phone calls and different visitors walking in on behalf of the Bank/ lender. The loan providers follow a process wherein they outsource most of the verification process to third party vendors. After verifying their identity cards, you can address to their queries. Your loan application is processed and approved/ declined by the Credit department of your lender that generally takes 4 to 8 working days to make a decision on your loan application. Once the loan is approved, then your sales officer guides you on further process of completing rest of the formalities.
8. Do an online research:
As you get prepared for availing a Home Loan, do not forget to do an online research on the best rates and schemes offered by different lenders. There are different Home Loan products available in the market as per your requirements. For example: some lenders offer a product “Home Loan OverDraft” that is best for those who wish to make pre-payment of their loan. Although, RBI has mandated all the lenders to waive off the pre-payment penalty charges. But still, having a Home Loan OD (OverDraft) saves you from the hassles of approaching the lender for pre-payment, standing in a queue, filling up form and rest of the formalities. It is a unique product that gives you freedom to transfer surplus funds to your HL (Home Loan) account online to save on the interest repayment. At the same time, it also allows you to withdraw some funds from your HL OD account.
Does it make sense to reduce one burden by taking on another? This is the first question that would be top of mind when faced with the question of whether to refinance an existing home loan . Given the fact that a home loan is the biggest reason for cash outflow in most Indian households, this decision has to be taken after a lot of thought. Here is some food for thought to help you arrive at the best decision.
Refinancing a loan can give multiple benefits depending on the situation of your current personal finance
- Get you a lower interest rate thus reducing your EMI and monthly burden
- Give you the option to go for lower tenures and be out of the burden soon
- Reduce your EMI by going in for longer tenures
- Shift from a Floating rate to fixed rate or vice-versa depending upon interest rate trends.
Wow! With so many benefits, I should immediately go and refinance my loan! On second thoughts, should I?
Every home loan buyer will agree that it is a paper work loaded process to get the loan, as all the previous procedures have to be repeated afresh. Add to this the many levels of small print and jargon and it gets more confusing. This one fact alone can trouble you while deciding whether to go for a refinance or not. Here are some facts to help you take the decision.
Refinancing refers to the replacement of a loan from one entity, with a new loan from another in order to gain some benefits. The word refinance though could seem a bit confusing as there is no reworking on your old loan but you simply take a new loan in order to repay the old one.
How do I know if “my” situation warrants going in for a refinance?
The fundamental behind every personal finance decision has to be cash flow. This same principle needs to be applied to your decision. Life is a lot simpler with online tools readily available. A simple “refinance calculator” search will give you some great tools, which will help you know with clarity as to how much lesser or how much more you will pay by deciding to go for refinance.
These calculators have multiple options to try out every scenario. You can choose your tenure, interest rate etc and find out the outflow for each scenario.
Refinance – Yes! When? -If any scenario gives you a positive saving of over 15,000/-, then that would be the ideal choice. The Rs 15000 benchmark is to cover up all the miscellaneous costs that will be involved including your time spent.
Refinance – Maybe, When?- Taking a refinance to get a lower EMI at the cost of a higher net outflow can be harmful in the long term as you will have to pay more interest (negative cash) over the period. But it also depends on your current ability to service the loan. If you feel that the cash saved every month on a lesser EMI can help you lead a better life, then it could make sense.
Refinance- Never- When? If the refinance is going to result in a net outflow of more than 15% of the outflow of current loan, it is better to stay away from the refinance.
How Aparna took her decision regarding Refinance?
Aparna had taken a home loan of Rs 2,5,00,000/- for a 25 year tenure at a fixed rate of 14%. She had already paid the EMI regularly for 5 years when, she happened to go to a loan mela. Dinesh, a sales manager offered her a refinance at an interest rate of 13%. The offer of 2% lesser combined with the fact that her EMI would be lesser made Aparna think of the offer seriously. She met her personal finance advisor to take an informed decision utilizing an online calculator (refer pictorial alongside).
Aparna’s current principal outstanding was Rs. 24,20,066/- this was the amount that Dinesh was ready to fund as a new loan.
Aparna had three choices:
1. Lower rate, 20 Years tenure (Lower EMI) – from the calculator she could see that if she reduces her EMI by around Rs.1700 every month and also saves Rs.2,99,257 in interest over the next 20 years.
2. Lower rate, 15 year tenure (Higher EMI, Lower months to pay) – This results in a marginal increase of Rs 526/- but saves her Rs 15, 92,377/- over a period of 15 years.
3. Lower rate, 25 year tenure (Lower EMI) – This results in reducing the EMI by Rs 2800 but an extra interest outflow of over Rs 10 Lakh.
Aparna’s Choice: Based on the calculations Aparna and her financial advisor decided to not only take the refinance option but also to go for a lower tenure.
The home loan agreement is usually a 50 page document that most borrowers do not have the patience to study in detail. However all such agreements have a few tricky clauses that protect the lending institution and may compromise the interest of the borrower! Thus one needs to be aware of these clauses and the means to deal with them. Some of such tricky clauses are listed below with a few suggestions to deal with them.
Assignment to third parties: Most of the HFC mention in the home loan agreement that they can without the permission of the borrower assign their rights to any third party for the purpose of collection and recovery of outstanding dues. The typical statement in the clause will read somewhat like “the bank may assign any of its rights or obligations herein without any approval or consent of the borrower.” However this an unfair clause that the borrower must discuss with the banker at the time of signing and get the required amendment made.
Notification Clause: In the majority of the agreement formats there is a clause that the borrower shall notify the lending institution of any changes in his personal status such as employment or marriage well in advance. The clause “well in advance” is quite ambiguous and can be used by the bank to its advantage while declaring a default. Thus the borrower must insist on getting this amended to a more tangible figure that is acceptable to both the parties at the time of signing the agreement.
Cross Default: this is another gray area where the borrower is deemed to have defaulted in the home loan repayment in case he defaults in servicing any other loan elsewhere. Since the two payments are independent they should not be cross considered for the purpose of default definition. The clause can be eliminated by bargaining hard with the HFC at the time of taking the loan.
Great care should be taken at the time of signing the agreement to scrutinize the document for such ambiguous and tricky clauses that may compromise the interest of the borrower later. In case the borrower finds any of these clauses unacceptable he may reject the agreement or renegotiate for an appropriate one with the HFC.
Home loans are easy to come by these days. So, don’t fret over it. Focus on the documents you need to furnish while applying for a home loan .
We give you a standard list of documents your bank will ask for. Besides this you need to submit details of the property or home you are obtaining the loan for.
Tip: Check with your Bank or Non-Banking Financial Companies to figure out which of the following documents you need to submit, as the requirements differ from bank to bank.
1. Identity proof
– Driving license
– Voters ID
– PAN card
– Ration card
– Employee ID
– Bank passbook
– Letter from a recognized public authority or public servant verifying your photograph
– Confirmation letter from your employer or another bank verifying your photograph
2. Address proof
– Driving license
– Voters ID
– Ration card
– Bank passbook or Bank account statement
– LIC policy/ receipt
– Utility bill – telephone, electricity, water, gas (less than 2 months old)
– Letter from any recognized public authority verifying residence address of the customer
– Letter from your employer
3. Age proof
– Driving license
– Bank passbook
– PAN card
– Birth certificate
– 10th standard mark sheet
Income proof and property proof vary for a salaried individual and a self-employed individual.
a. Self Employed/Businessmen
– A brief introduction of Business/Profession
– Balance Sheet, profit and loss account statement of income, proof of income tax returns for the last 3 years certified by a CA
– Receipts of advance tax payments if any made
– A photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories Act
– Registration Certificate for deduction of Profession Tax
– Certificate of Practice
– Receipts of Bank loans
– Proof of investments (FD Certificates, Shares, any other fixed asset)
b. Salaried individuals
– Income Proof (any one of the following):
Latest Pay slip
Pay slip (Last 2 months) with salary account bank statement
Certified letter from Employer
IT returns ( for three years )
– Investment proof (FD certificates, shares, any fixed asset etc.)
– Documents supporting the financial background of the borrower (liabilities and assets if any)
5. Property documents
If a flat is purchased from a builder, you need the following property documents:
– Original copy of your agreement with the builder
– 7/12 extract – This is issued by the concerned land authorities giving details such as the survey numbers, area, date from which current owner is registered as owner etc.
– Property register card, which is obtained from the City Survey Department
– N.A. permission for the land from the collector, if its agricultural – If the land is agricultural and is being utilized for residential/ commercial/industrial use, then such agricultural land has to be converted to non-agricultural land and a Non-Agriculture Order has to be obtained from the Collector of the district where the property is located.
– Search Report and Title Certificate – A search report and title certificate can be obtained from an advocate who will conduct a survey of the title of the property by visiting the office of registrar. A legal opinion can avoid any legal hassles later and is mandatory to be filed with the agreement for sale.
– Development agreement between the owner of land and the builder
– Copy of order under the Urban land Ceiling Act
– Copy of building plans sanctioned by the competent authority
– Commencement certificate granted by the Corporation
– Building completion certificate
– Latest receipts for taxes paid towards the land or property or flat to be purchased
– Partnership deed or memorandum of association of the builders firm
If a flat is purchased from a Cooperative Society, you need the following property documents
– Original share certificate of the Society
– Allotment letter from the Society in your name
– Copy of the lease deed, if executed
– Certificate of the registration of the society
– Copy of the bye laws of the Society
– No objection certificate from the Society
– 7/12 extract or property register card in the Society’s name
– Copy of N.A permission for the land from the collector
– Search Report and Title Certificate
– Copy of order under the Urban Land Ceiling Act
– Copy of the building plans sanctioned by a competent authority
– Commencement certificate granted by Corporation
– The latest receipts of taxes paid for the property
– Original Agreement to assign / Deed of assignment
If you are constructing on your own land, then you will need the following property documents.
– Original sale deed of land and extract of Index II
– 7/12 extract or property register card in your name
– Copy of N.A. permission for land from the collector
– Search and title report
– Copy of tax paid under Urban Land Ceiling Act (obtained from Commissionerate of Urban Land Ceiling and Urban Land Tax)
– Copy of the building plans sanctioned by a competent authority
– Building permission granted by the Corporation
– The latest receipts of taxes paid for your land
– Estimate of the cost of construction certified by the architect
Neeraj, a middle class sales and marketing professional based in Pune, purchased a decent abode in a metropolitan by securing a home loan worth Rs. 24 Lakhs from a leading financier. Divided into easy monthly installments, Neeraj was reducing his liability quite comfortably. Being able to increase his bank balance to Rs.8 Lakh, Neeraj found himself in a dilemma of whether to invest his hard-earned money for the future or prepay a major chunk of his home loan. Living under the notion of heavy prepayment penalties, Neeraj let his instincts prevail and opted to channelize his surplus funds towards an unhealthy investment and ended up on the losing side. Had he been aware of the changed prepayment rules and acted smartly, he would have successfully used his surplus funds to reduce his burden.
There is an interesting irony when it comes to home loans . Till the time people don’t have such a liability, they yearn to get one at the earliest possible and fulfill their dream. However, once they apply for home loan and secure the required funds, repaying it in a timely manner becomes the top listed priority in life, even if that means compromising with their standard of living. With the prepayment option now in the picture, the repayment process seems even more challenging than before. Prepaying a part of the home loan is certainly a prudent decision. The final decision will definitely rest with the borrower, who must take into account the associated benefits and the hidden costs, before jumping the prepayment bandwagon. Do remember prepayment charges according to the RBI mandate are applicable only on fixed rate home loans in most banks.
Why is Prepayment a Good Option?
One of the primary benefits associated with loan prepayment is the significant reduction in the interest outgo. When one prepays a certain portion of the mortgage loan, the outstanding balance from the principal amount is reduced, which consequently helps in cutting down the interest payout. Indirectly, this helps in bringing down the original value of the home by a substantial amount. If selling the property is on the cards in the future, one can easily and quickly recover the original cost and make profits from a bigger property purchase.
What are the available options?
When people consider the option of prepaying a debt, they have two options at their disposal. The bank allows them to either reduce the amount of their monthly EMI and maintain the tenure, or have the tenure reduced by lowering the number of monthly installments. Retaining the tenure and reducing the amount of monthly EMI certainly help in improving the cash flow. While, on the other hand, reducing the loan period and maintaining the same EMI would equip them with the power to enjoy interest savings over a period of time. One just needs to assess the options according to personal convenience and make an informed decision.
How much will it cost you?
The financiers make their money in the form of interest, service charges and other kinds of fees charged on loans and advances given to the customers. It goes without saying that banks will make profit only if the loan accounts remain open for a great deal of time. The banks can’t sojourn the right of the borrowers to prepay their loans. However, at the same time, it would certainly mean upsetting the overall profits of the bank. This is the reason why banks levy penalties on the borrowers for compensating their lost profits. The penalty fee charged on prepayment varies from one bank to the other.
Here is a tally of prepayment penalties charged by some of the top home loan providers in the market.
|ICICI Bank(Zero charges on floating rate loans)||
|State Bank of India||0% prepayment penalty irrespective of the period of account or source of funds.|
|Punjab National Bank||2%, only in case the account is taken over by other bank or financial institution.|
As on April 6, 2014
The Final Call
Though the home loans come with long repayment periods, it doesn’t mean that they have to be dragged for decades. If one is sitting on a strong pile of money, channeling it towards well-calculated prepayments would be a wise move. At the end of the day, it is the dismissal of unnecessary EMI burden that helps in maintaining a healthy cash flow over the period of time.
A decent home in the heart of a metropolitan, equipped with all the standard and luxury amenities, is perhaps the most cherished dream of every individual. There are times when people have to leave their dream behind and move ahead, or at least, put it aside for the time being, in case of a financial crunch. This is where the role of banks and financial institutions comes into play, which helps people fulfill their dream by providing adequate home finances.
However, with the Indian rupee still flirting with the American dollar, the interest rates continue to fluctuate and affect the overall financial standing of the borrowers. Parinita, a middle-class working woman based in Ahmedabad, decided to apply for home loan at floating rates for purchasing a decent apartment. Owing to the recent fall in the Indian rupee, her lender increased the interest rates, thereby increasing her financial burden further. Having a healthy amount of savings in the bank, Parinita let her avaricious instincts supersede and invested the sum in mutual funds. To her surprise, things changed drastically and she had to face a great deal of trouble in servicing the EMIs. Had she channeled her surplus funds towards partial repayment of home loan , she wouldn’t have found herself in such a quandary.
Part prepayment is a facility offered by banks that most borrowers tend to be ignorant about. For most borrowers, this option only seems relevant when the interest rates have increased significantly, or the EMIs have gone haywire, which is of course not a correct way to use this option. People must surely consider the facility of part prepayment as something, which, when done occasionally, relieves them from the interest burden over a period of time.
What is Part Prepayment?
Partial prepayment of the home loan is an extra payment made over and above the ongoing EMIs. The basic purpose of making occasional part payments is to reduce the principal amount and the overall interest burden, rather than reducing the number of EMIs. Recently, to ease the repayment process for the borrowers, the RBI and the National Housing Bank have released a notification to the banks, discarding the practice of charging penalties on prepayment of EMIs. This has certainly helped the individuals to save good money on repaying their debt over a period of time.
How can you save money through partial repayment?
As a normal thumb rule, the longer the home loan tenure, the greater will be the interest burden exerted on the borrower. Partial prepayment is an effective way of cutting down the interest obligation by paying an additional sum of money along with the usual EMI payments. This certainly helps in reducing the amount of outstanding principal, thereby bringing down the home loan tenure and the overall interest burden of the borrowers. As an added advantage, any amount of money directed towards prepayment of principal loan amount qualifies for being deducted under section 80C of the Income Tax Act. For a person, who is not fully utilizing the permissible deduction of Rs.1 Lakh, this might be a useful addition to the deductions head in the ITR.
Partial prepayment of home loans is also accompanied by several other benefits, including the facility of withdrawing any surplus amount from the loan account, if not required. However, this might mean reducing the advantage of low interest rates that normally accompany home loan prepayment. The facility of withdrawal can be enjoyed at a cost equivalent to 25-50 basis points, which is certainly more in comparison to the regular home loan accounts. As of now, this offer is provided by only a few selected banks in India, with SBI (SBI Max Gain), HSBC (Smart Home), and Standard Chartered Bank (Home Saver/Home Credit) being the top lenders.
Essential Tips to Follow
There are some important tips that borrowers must follow wisely to gain maximum advantage of this facility of partial prepayment of the home loan .
|Bank||Part Prepayment Charges|
(Zero charges on floating rate loans)2-4% on outstanding amount + service tax + surcharge on the fixed rate home loans Standard Chartered
(Zero charges on floating rate loans)2% of outstanding principal or the amount prepaid.State Bank of India0% prepayment penalty irrespective of the period of account or source of funds.Punjab National Bank2%, only in case the account is taken over by other bank or financial institution.
Charu, a Kolkata based engineer, in order to fulfill her long-cherished dream of owning a house, decided to apply for home loan . Tired of knocking the doors of several financiers, Charu chose one having convincing salespersons, without really conducting any prior research. As a result, she has to deal with several ordeals while repaying her debt, including dealing with scores of hidden charges, inflexible loan options and heavy penalties.
Though financial insight proves to be helpful, it is not required so often. Consumers search for the most reputable home loan providers and often end up getting trapped in the wordy circles of the best salesperson. It, thus, becomes important to do your homework and take every factor into consideration before opting for a particular lender.
Importance of Taking a Home Loan from a Reliable Lender
Stringent terms and conditions and absurd policies are a trademark of a financier that every potential borrower must avoid. It is only a reliable lender who would offer the needed flexibility when it comes to the terms and conditions of the loan. Apart from that, only a reliable bank would provide superior customer service and be willing to go down that extra mile for keeping its customers satisfied. Thus, it is wise to check the reputation of the lender if one doesn’t hold any relation with the bank.
Factors to Consider
Considering every possible, decision-affecting factor, planning out everything and following it systematically is the key to a smooth, hassle-free journey to owning your dream abode. There are numerous factors that help make a better decision when selecting a home loan provider.
How much should you pay?
The cost of taking a home loan would certainly vary from one bank to another. It depends upon the decision making abilities of the borrowers whether securing a home loan would prove to be an economical affair or a cost laden one. However, there are certain things that one must weigh carefully at the cost front.
|ICICI Bank||0.50% – 1% of the amount of loan or Rs.1500 (Rs.2000 for Delhi, Mumbai and Bangalore), whichever is higher, plus service tax and surcharge, as applicable.|
|HDFC Bank||0.50% of the loan amount plus service tax and cess, as applicable.|
|State Bank of India||
|Punjab National Bank||
|Axis Bank||Up to 1% of the loan amount, subject to minimum of Rs.10000|
As on April 7, 2014
Making the Choice
Different lenders use different yardsticks for measuring the eligibility of the borrowers. Why shouldn’t borrowers consider doing research and compare several competitive features of home loans offered by different lenders? It is better to have the policies, facts, terms and conditions clarified well in advance before locking in a seemingly ideal home loan with any lender.