With interest rates on home loans gradually declining over the past half year and NCR flooded with affordable housing projects, the time seems to be ripe for buying a property.
Once you zero in on the project of your choice, the next question arises – how to secure housing loan? Though most of the builders offer housing loan facilities through their financial partners, but it is always advisable to take a decision with an open mind after exploring various options available in the market.
Housing loans are provided by both public as well as private sector banks. Some of the public sector banks in this field are - State Bank of India, Punjab National Bank, Bank of Maharashtra, Allahabad Bank, Central Bank of India, Corporation Bank, Bank of India, UCO Bank, Union Bank of India, Bank of Baroda, Dena Bank, Oriental Bank of Commerce, Vijaya Bank etc. Some private sector banks are ICICI Bank, HDFC Bank, HSBC Bank, Axis Bank, Deutsche Bank, Dhanlaxmi Bank etc. But besides public and private sector banks, several specialized financial institutions like LIC Housing, PNB Housing Finance, First Blue Home Finance, Tata Capital Housing Finance Ltd etc also provide housing loans.
Most of the banks offer housing loans on fixed or floating rate of interest. For a fixed rate loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. If a bank offers a Loan which is fixed only for a certain period of the tenure of the loan, please try to elicit information from the bank whether the rates may be raised after the period (reset clause). You may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts. Hence, the EMI of a fixed rate loan is known in advance. This is the cash outflow that can be planned for at the outset of the loan. If the inflation and the interest rate in the economy move up over the years, a fixed EMI is attractively stagnant and is easier to plan for. However, if you have fixed EMI, any reduction in interest rates in the market, will not benefit you.
Contrary to this, the EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. The floating interest rate is made up of two parts: the index and the spread. The index is a measure of interest rates generally (based on say, government securities prices), and the spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc. The amount of the spread may differ from one lender to another, but it is usually constant over the life of the loan. If the index rate moves up, so does your interest rate in most circumstances and you will have to pay a higher EMI. Conversely, if the interest rate moves down, your EMI amount should be lower.
Since floating rate keeps changing with the market scenario. At times, in the short term floating rates may seem more attractive and cheaper but it is always advisable to go for fixed rates if the duration of the repayment is more than five years.
Unlike developed countries like USA or UK, swing in interest rates for housing loans in India is much steep and often cyclic in nature. So if you are planning to take long term housing loan then you must make some effort to research changes in the housing loan interest rates over at least past ten years.
It may be noted that EMIs are inversely proportional to the tenure of the home loan, the longer the tenure, the lesser is the EMI and the shorter the tenure, the higher is be the EMI.
Some banks also offer their customers flexible repayment options. Here the EMIs are unequal. In step-up loans, the EMI is low initially and increases as years roll by (balloon repayment). In step-down loans, EMI is high initially and decreases as years roll by.
Step-up option is convenient for borrowers who are in the beginning of their careers. Step-down loan option is useful for borrowers who are close to their retirement years and currently make good money.
Borrowers benefit more from a loan that's calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.
Now the question arises what security can your bank ask for? The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.
Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely).
Before we conclude, here are some tips on how to formulate your strategy for procuring housing loan
- Don’t hurry – since haste makes waste, give yourself sufficient time. Don’t hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees.
- Obtain information from several banks – as you know home loans are available from mainly two types of lenders--commercial banks and housing finance companies. Different lenders may quote you different rates of interest and other terms and conditions, so you should contact several lenders to make sure you’re getting the best value for money.
- Find out amount of down payment and other costs - find out how much of a down payment you are required to pay, and find out all the costs involved in the loan (including processing fees, administrative charges and prepayment charges levied by banks). Knowing just the amount of the EMI or the interest rate is not good enough. Similarly, ask for information on loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and take an informed decision.
Presently State Bank of India, ICICI, HDFC and LIC Housing are offering home loans at lowest interest rates between 10 – 10.25%. Dhanlaxmi Bank is charging maximum interest rates between 11.5 – 11.75%. Between SBI and Dhanlaxmi Bank there are plenty of options. You can choose your bank as per your loan requirement, annual income and repayment capacity, expected repayment tenure, various administrative charges etc. But be careful before entering into any agreement. Always remember – precaution is better than cure.
For More Information Visit Us- http://unnatifortune.com/About_us.php
Once you zero in on the project of your choice, the next question arises – how to secure housing loan? Though most of the builders offer housing loan facilities through their financial partners, but it is always advisable to take a decision with an open mind after exploring various options available in the market.
Housing loans are provided by both public as well as private sector banks. Some of the public sector banks in this field are - State Bank of India, Punjab National Bank, Bank of Maharashtra, Allahabad Bank, Central Bank of India, Corporation Bank, Bank of India, UCO Bank, Union Bank of India, Bank of Baroda, Dena Bank, Oriental Bank of Commerce, Vijaya Bank etc. Some private sector banks are ICICI Bank, HDFC Bank, HSBC Bank, Axis Bank, Deutsche Bank, Dhanlaxmi Bank etc. But besides public and private sector banks, several specialized financial institutions like LIC Housing, PNB Housing Finance, First Blue Home Finance, Tata Capital Housing Finance Ltd etc also provide housing loans.
Most of the banks offer housing loans on fixed or floating rate of interest. For a fixed rate loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. If a bank offers a Loan which is fixed only for a certain period of the tenure of the loan, please try to elicit information from the bank whether the rates may be raised after the period (reset clause). You may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts. Hence, the EMI of a fixed rate loan is known in advance. This is the cash outflow that can be planned for at the outset of the loan. If the inflation and the interest rate in the economy move up over the years, a fixed EMI is attractively stagnant and is easier to plan for. However, if you have fixed EMI, any reduction in interest rates in the market, will not benefit you.
Contrary to this, the EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. The floating interest rate is made up of two parts: the index and the spread. The index is a measure of interest rates generally (based on say, government securities prices), and the spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc. The amount of the spread may differ from one lender to another, but it is usually constant over the life of the loan. If the index rate moves up, so does your interest rate in most circumstances and you will have to pay a higher EMI. Conversely, if the interest rate moves down, your EMI amount should be lower.
Since floating rate keeps changing with the market scenario. At times, in the short term floating rates may seem more attractive and cheaper but it is always advisable to go for fixed rates if the duration of the repayment is more than five years.
Unlike developed countries like USA or UK, swing in interest rates for housing loans in India is much steep and often cyclic in nature. So if you are planning to take long term housing loan then you must make some effort to research changes in the housing loan interest rates over at least past ten years.
It may be noted that EMIs are inversely proportional to the tenure of the home loan, the longer the tenure, the lesser is the EMI and the shorter the tenure, the higher is be the EMI.
Some banks also offer their customers flexible repayment options. Here the EMIs are unequal. In step-up loans, the EMI is low initially and increases as years roll by (balloon repayment). In step-down loans, EMI is high initially and decreases as years roll by.
Step-up option is convenient for borrowers who are in the beginning of their careers. Step-down loan option is useful for borrowers who are close to their retirement years and currently make good money.
Borrowers benefit more from a loan that's calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.
Now the question arises what security can your bank ask for? The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.
Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely).
Before we conclude, here are some tips on how to formulate your strategy for procuring housing loan
- Don’t hurry – since haste makes waste, give yourself sufficient time. Don’t hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees.
- Obtain information from several banks – as you know home loans are available from mainly two types of lenders--commercial banks and housing finance companies. Different lenders may quote you different rates of interest and other terms and conditions, so you should contact several lenders to make sure you’re getting the best value for money.
- Find out amount of down payment and other costs - find out how much of a down payment you are required to pay, and find out all the costs involved in the loan (including processing fees, administrative charges and prepayment charges levied by banks). Knowing just the amount of the EMI or the interest rate is not good enough. Similarly, ask for information on loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and take an informed decision.
Presently State Bank of India, ICICI, HDFC and LIC Housing are offering home loans at lowest interest rates between 10 – 10.25%. Dhanlaxmi Bank is charging maximum interest rates between 11.5 – 11.75%. Between SBI and Dhanlaxmi Bank there are plenty of options. You can choose your bank as per your loan requirement, annual income and repayment capacity, expected repayment tenure, various administrative charges etc. But be careful before entering into any agreement. Always remember – precaution is better than cure.
For More Information Visit Us- http://unnatifortune.com/About_us.php