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A
Summer Training Project Report
On
“Comparative Study
of FINANCIAL INSTITUTIONS
Offering Home Loans”
IN
CONTENTS
• Acknowledgement
• Executive Summary
• Company Profile
• Objective of the study
• Major players in the field of housing finance
• Details of loan transfer cases studies (Analysis)
• Tend analysis of financial
Institution offering home loans
Preface
Industrial interface through project is compulsory
for the fulfilment of MBA degree course, so that student
are able to realize the practical experience of corporate
world through project, we come to understand the between
theories and real aspects of business.
I feel pleasure in presenting this report title
“FINANCIAL INSTITUTIONS OFFERING HOME
LOANS” which is detailed collection and survey of HDFC
Bank and other competitors.
Study of market share is very essential for an
organization to position its product in the market
successfully.
I expect that the comparative analysis of offering home
loan by different financial institutions, and various data are
beneficial to my company. The conclusions are drawn and
recommendations have been put better of the performance
of HDFC Bank.
ACKNOWLEDGEMENT
I am very thankful to Mr. Anshul Shrivastva
(officer-recoveries) for giving me valuable suggestions and
ideas for completing the project report. I am also grateful to
Mr. Prabhat Rao (Branch Manager, Delhi) for his help
and keep interest in project.
I am grateful to Mr. pramod garg my project guide
who provided me valuable guidance and should a great deal
of enthusiasm and commitment for this project, without his
guidance this project might not have reached the present
stage.
All the faculty member of Sunder Deep College of
Management Technology, Ghaziabad and all the concerned
persons contacted under the summer project report.
Executive
Summary
EXECUTIVE SUMMARY
Housing finance is one of the industries which are driven by ups and downs
in the real state industry. Although there has been an upsurge in the demand for
the home loans in the recent past, it has not translated into a stupendous
performance by the housing finance companies (HFC’s).the housing finance
industry is important from the point of view of over all development of the
economy .Housing is being increasingly viewed as being important for over all
infrastructural development in the economy. The national housing policy
reflected the trust ,the government wished to give to the housing sector and
pointed out that housing was not merely a consumption expenditure ,but also a
productive investment which would provide economic activity and create a
base for attaining several national policy goals such as providing shelter and
raising the quality of life . It specifies the interest rate to be followed in lending
and borrowing, income recognition & prudential norms, borrowing limits &
audits to the finance cos .In spite of such figures there is an urging need on the
part of management to keep close look on financial institutions offering loans.
Comparative study of financial institutions that is exactly what our project
aimed at. To give our project a more structured look we had taken certain
parameters .This provides us a clear picture regarding the financial institutions.
In addition to the above proper analysis was done with the help of certain
financial tools.
Company PROFILE
OF
H.D.F.C
PROFILE OF H.D.F.C
H.D.F.C was set up on 17th October, 1977 by I.C.I.C.I. out of the consideration
that a specialised institution was needed to channel household savings as well
as funds from the capital market into the housing sector. H.D.F.C. has emerged
as the largest mortgage finance institution in the country. The primary objective
of H.D.F.C is to enhance residential housing stock and promote home
ownership. One of its major objectives is to increase flow of resources for
housing through the integration of housing financial institutions with the
domestic market.
Marketing effort
Marketing efforts and initiatives at HDFC LTD have always revolved around
the customer. The objective is to reach out to the customer and provide him/her
with all housing related solutions. Thus HDFC LTD has right since inception
positioned it self not just as a company providing finance to customers, but a
company that also provides loan counselling, technical and legal assistance and
other property related solutions. Credit appraisal skill and legal and technical
expertise has been built over the years. These set of skills, supplemented with
the vast database and trained personnel is today proving to be one of HDFC
LTD’ strongest assets.
Total approvals during the year stood at Rs.9, 041.25 crores as against
Rs.6879.77 crores in the previous year, representing a growth of 31%. Loan
disbursements during the year were Rs.7, 616.56 crores against Rs.5, 803.01
crores in the previous year representing a growth of 31%.
Subsidiaries and Associates
Housing is the core business of HDFC LTD. while the main focus is to grow
the housing portfolio, organically and inorganically, in order to capitalise on
HDFC strong brand value and maximise returns for shareholders, HDFC LTD
has made investments in various group companies. These group companies
have strong synergies with HDFC LTD and such diversification will enable
HDFC LTD to offer a wide gamut of financial services and products to
customers. Investments made in the group companies are from borrowed funds,
where there is an interest charge debited to the profit and loss account, with out
a corresponding revenue flow in the initial years. While these investments are
long-term in nature, the businesses have tremendous potential, thereby
enhancing the valuations of HDFC. The shareholding of HDFC in its subsidiary
and associate companies as at March 31, 2003: are given:- HDFC Developers
Limited, HDFC Investments Limited, HDFC Holdings Limited, HDFC Trustee
Company Limited, HDFC Chubb General Insurance Company Limited, HDFC
Realty Limited, HDFC Asset Management Company Limited, GRUH Finance
Limited, Intelenet Global Services Limited, Credit Information Bureau(India)
Limited, HDFC Securities Limited, HDFC Bank Limited.
Risk Management
HDFC manages various risks associated with the mortgage business. These
risks include credit risk, liquidity risk and interest rate risk. HDFC manages
credit risk through stringent credit norms. Liquidity risk and interest rate risks
arising out of maturity mismatch of assets and liabilities are managed through
regular monitoring of the maturity profiles.
The NHB has issued guidelines to HFC's on prudential norms for income
recognition provisioning, asset classification, provision for Bad and Doubtful,
Capital adequacy and concentration of credit / investment. HDFC's position
with respect to the guidelines is as follows:-
• HDFC's capital for the purpose of determine the capital adequacy
companies entirely of Tier 1 Capital. The Tier was Rs. 2,066.71 Crores.
In accordance with the norms prescribed by NHB, HDFC's capital
adequacy is at 14.05% of risk weighted assets.
• Assets are classified as standard, Sub-Standard, doubtful and loss assets.
Any asset which is not standard asset is a non-performing asset. The
principal loans outstanding(along with Preference Shares and
Debentures for financial real
• Estate projects) , where payments were in arrears for over six months as
of march 31,2000,amounted to Rs. 98.71crores and constituted 0.90% of
the portfolio.
OBJECTIVE OF
THE STUDY
• To assess the long term as well as short term liquidity position of the
firm.
1. Net Sales
2. Net Profit
3. Net Worth
1. NET SALES
In the financial year 2003 – 04 , HDFC Ltd. recorded the highest net sales of
Rs. 2690.47 crores followed by LIC Housing Finance Ltd. with net sales of
Rs.873.26 crores,ICICI Home fin.co.ltd with Rs.191.96 crores, CANFIN
HomesLtd. Rs. 138.94 crores and SBI Home Finance Ltd. Rs.39.36 crores.
2. NET PROFIT
In the year 2003 – 04 , HDFC Ltd. recorded the highest net profit of Rs. 580.01
crores followed by LIC Housing Finance Ltd.with net profit of Rs.147.54
crores,ICICI Home fin.co.ltd Rs.9.58 crores, CANFIN Homes Ltd. with Rs.
16.63 crores and SBI Home FinanceLtd. Rs.-90.19 crores.
3. NET WORTH
In the year 2004–05, HDFC recorded the highest net worth of Rs. 2702.84
crores followed by LIC Housing Finance Ltd. with net worth of Rs. 737. 23
crores, ICICI Home fin.co.ltd Rs.161.88 crores, CANFIN Homes Ltd. Rs.
113.05 crores and SBI Home Finance Ltd.Rs.-154.78 crores.
ANALYSIS
ANALYSIS (LOAN TRANSFER)
Q1. What is the reason / benefit that influences your choice of the financial
institution for a housing loan ?
ANALYSIS
From the above given data we can conclude that out of a sample size of 25 ,
majority, that is 40% of the respondents are influenced by interest rates,28% by
interest rates and easy availability of the loan, 4% look out for various schemes,
and 12% are influenced by both interest rates and schemes available.
Q2. Allocate Your preferences in ranking order which makes you decide about
a financial institution for a housing loan .
ANALYSIS
From the above graph and data it can be said that 40% of the customers give
their first priority to rate of interest, 28% rank interest rates / easy availability
as their priority,12% each are affected by advertisements and interest rates /
schemes, and 4%,3% and 1% give their first preference to easy availability,
scheme and repayment period.
a. Interest Rates
b. Repayment Period
c. Customer Care
d. Transaction Period
Q.4) What is the reason of your loan transfer from HDFC Ltd. ?
ANALYSIS
Out of a sample size of 25 , 40% of the respondents said that they shifted to
other financial institutions because of Higher rate of interest charged in HDFC
LTD, 16% transferred because they did not get the full amount they wanted as
loan, 16% said they were not given relevant information time to time by the
HDFC LTD staff , 8% said that disbursement period was too long and 20% said
that EMI was calculated on Annual Rest basis rather than on Monthly rest
basis.
Q5. In what terms / services do you find the other institutions (in which
your loan is
ANALYSIS
From the above given data we can conclude that 20% out of a sample size of
25, said that services of other financial institutions are better than HDFC LTD,
44% said that they shifted to other institutions because of low interest rate as
compared to HDFC LTD, 24% said that customer care services are better as
proper information is given and customers are informed personally about the
new schemes and 12% said they shifted because they got the desired loan
amount sanctioned.
ANALYSIS
From the above given data we can conclude that 40% of the respondents said
nothing can be done now when They have already Shifted to other financial
Institutions, 24% said HDFC LTD should improve its customer care services,
16% said that monthly rest option should be introduced, 12% said services
should be improved and 8% said that the desired loan amount should be
sanctioned.
Q7. Are you satisfied with services of the financial institution you are currently
dealing with?
ANALYSIS
Out of the sample size of 25 , 60% of the customers said that they are satisfied
with the services of the financing institutions they are currently dealing with
but still 40% of the respondents said that services of HDFC LTD were better as
compared to other institutions.
From the above data we can conclude that majority of customers that is 44%
have shifted to ICICI Home fin. co. ltd the reason being low interest rates, 16%
have transferred to SBI and PNB, and 8 % have shifted to BOB, 12% have
shifted to LIC and rest 4% to other financial institutions like SYNDICATE
bank, STANDARD CHARTERED,ALLAHABAD BANK etc.
99 NA NA 0 0
00 NA NA 0 0
01 57.75 1.93 100 100
02 191.96 12.64 332.39 655
ANALYSIS
From the graph and the data table we can arrive the conclusion that on the
whole, there was a continuous increase in volume as well as profit before tax of
financial institutions except SBI home finance Ltd. not only the client was
arrested but positive growth was also visible from the year 1998 to 2003.
But the figure of the SBI home finance Ltd when compared with the figure of
other financial institutions reveal that the sales have reduced year by year. The
sales of the financial institutions have continuously over a period of five years
commencing from 1998. The over all analysis of the financial institutions
shows that the financial institutions are doing well and financial position is
bound to be good.
RESULT
AND
SUGGESTIONS
RESULT AND SUGGESTIONS
On the basis of the ratio analysis and trend analysis it can be said that the
position of the HDFC Ltd is sound from the point of view, of leverage,
profitability, and solvency. On the other hand interest coverage ratio and fixed
assets turnover ratio of HDFC Ltd is showing and increasing position, of
course, never falling below the previous year. This means that firm is
maintaining its liquidity and long term solvency position of the firm seems to
be stronger than other financial institutions. The gross profit ratio of HDFC Ltd
has also increase which reflects better managerial and operational picture. The
HDFC Ltd. is showing a study and upward trend of percentage sales and the
trend percentage of profit before tax which is growing year by year. Finally we
want to give some suggestions on the basis of comparative study of financial
institution offering home loans.
• People who deal with customers should have full knowledge about the
housing finance industry.
• The area where we lack is the area of Advertising HDFC Ltd should do
more organized communication between the costumer and the branch
offices.
2. From the different financial institutions we could not get the data of
ending year 2005 so i am not able to comparative study on the ending
year 2005.
3. During the analysis i have taken those financial institutions which have
the same accounting policies.
Objectives of NHB
5. to coordinate with LIC, UTI, GIC and other financial institutions in the
discharge of its overall functions and
6. To act as an agent of the central /state government (s) or RBI/any
authority authorized by RBI.
Section 24(1) of the Income Tax Act allows deduction of interest on borrowed
capital from the Gross Annual Value of the house on accrual basis. Any interest
paid on the loan borrowed for the purpose of constructing/ buying or upgrading
the house for which the annual value is assessed, is allowed as deduction. Also,
any interest on the amount borrowed during the pre-construction period
(starting form the date of borrowing and ending on March 31st or the date of
completion of the construction, which ever is earlier) is allowed to be deducted
in five successive years.
Problems
Possible solutions
The Following are the terms and conditions applicable to the basic Housing
Loan product only. These are likely to vary with respect to the different types
of Housing Loans.
The above terms and conditions are generally true for most HFIs with respect
to Housing Loans. However, The specific terms and conditions vary with
respect to specific HFIs.
Credit Documentation
What are the typical credit documents that need to be submitted to the HFI?
1. Income documents
2. Proof of employment
3. Employer’s details (In case of private limited companies)
4. Proof of age
5. Proof of residence
6. Proof of name change (If applicable)
7. Proof of investments (If required)
8. A copy of the marriage certificate is required by some HFC’s
Income Documents
Proof of Employment
• Passport
• Voter’s ID card
• PAN card
• Ration card
• Employer’s Identity card
• School leaving certificate
• Birth certificate.
• PAN card
• Ration card
• Passport
• Rent agreement, if you are staying currently on rent
• Bank pass book
• Allotment letter from your company if you are residing in company
quarters.
• Bank statement for the last six months of all operating and salary
accounts
• Bank statements for the last six months of all current accounts, if self-
employed
• Any other photocopies of investments held, if required by the HFI.
Legal Documentation
What are the typical legal documents that need to be submitted to the HFI ?
Given below is a list of legal property documents that need to be submitted to
the HFI for mortgage of your property. The name and the list of documents
vary from state and also depend on the property being financed. A broad
outline of documents required is given below. For a detailed the documents are
required to be submitted, for a property in Maharashtra.
The above documents are only indicative in nature and do not cover the entire
list. It may also be noted that in a resale case, the previous chain of agreements
also need to be taken.
All the different kinds of charges mentioned below may not be levied by all
HFIs. You will need to check the different charges that are levied by your HFIs
before availing of a loan. The different kinds of charges applicable to Home
Loans are listed below.
Pre-disbursement charges
1. Processing fees.
2. Administrative fees.
3. Rate of Interest.
4. Legal charges
5. Technical charges.
6. Stamp duty and registration charges.
7. Personal Guarantee form charges
Post-disbursement charges
Pre-disbursement charges
o Legal charges: Some HFIs levy legal charges that they incur on
getting your property documents vetted by their panel of lawyers.
• Cheque Bounce Charges: In case the Cheque through which you make
a payment to HFIs gets dishonoured, some minimum charges are levied
by the Bank. The same are recovered from you.
• PDC swapping charges: In case, you wish to swap the PDCs given by
you to the HFI for your EMI repayments, some HFIs charges a flat fee
for the same.
All the columns in the application form are meant to provide vital information
that the prospective lender uses to evaluate your creditworthiness. Do not leave
out any important details about your income, your address (both temporary &
permanent) and about your past or existing relationship with the lender. All this
information has also to be supported by documents. Lying in the application
form amounts to fudging documents.
Don’t ever fudge salary slips or income statement. Your loan officer handles
hundreds of loan cases. The chances are, he knows ever trick in the book before
you could even think of one. Fudging salary slips is a serious offence. It is
fraudulence of a high order. Don’t ever do it .not only will you not get this
loan, you can even be blacklisted by not only this lenders too (given the amount
of information-sharing between companies).
Loan officers are notoriously conservative. The greater the pile of documents
related to your case in their files, the more comfortable they feel. You should
always put your foot sown when a loan officer asks for more guarantors or asks
you to bring another co-applicant. The loan officer could be convinced of your
case but may be merely trying to protect himself from all possible eventualities.
If you follow his dictates. You are killing the prospects of the co-applicant to
procure a loan for herself in the future.
Your loan officer is only interested in seeing the adequacy of your income. This
emerges clearly out of the income documents you submit with your loan
application. So an effort to project al lifestyle merely to impress him is a define
no-no. It could even backfire on you if he feels that you are living beyond your
means. Remember, he can reject your loan application on this ground. If you
ever blew your month’s salary on your favourite perfume or that gorgeous
pashmina shawl, please don’t tell him.
Your bank statement speaks volumes about your spending habits. It mirrors
your spending behaviour. It provides your loan officer with a comprehensive
view of how you manage your money. If there are too many cheques bounced
or returned check entries in your bank statement, be prepared with a convincing
explanation and papers to prove it. Generally, though, there should not be any
Cheque returns or bounced cheques. It lowers your creditworthiness and could
result in lower or no borrowing.
You perhaps fees that your loan application is not strong enough to get you the
loan amount you are asking for. And you probably think that you can grease the
palm of the loan officer to enhance your loan eligibility. Can’t even think about
it. Even if you got lucky and your loan officer was the bad apple in the
company’s basket (it could happen), your loan is reviewed by two or
sometimes three other people. You were not planning to bribe all of them, were
you?
APPENDIX
APPENDIX
Financial results of the financial institutions for the year ended
FAQ
FAQ
• Salaried Individuals
• Self-Employed Individuals
• Partnership Firms
You can apply the minute you've decided to buy or construct a house! That's
right, no bureaucratic waiting periods here! In fact, some HFCs (Housing
Finance companies) even assist clients in locating suitable properties through
their dedicated in-house teams. While you're in the process of identifying and
selecting your property, you can get an in-principal approval. This is valid for 3
months during which the interest rates at which the loan can be taken are
locked in. Just keep in mind, however, that all this depends on whether the
property you've chosen is acceptable to the finance company, to enable them to
create a valid mortgage against it.
Nothing could be easier! Pick up the prescribed form for loan applications from
your HFC office or download it from the company website. Fill in all the
details and submit it along with the application fee mentioned. Besides the
application fee, you will have to pay a non-refundable processing fee, which
will be around 0.3-1% of the loan applied for. Once you accept the terms of the
loan offer made to you by the HFC, you will be charged a minimal
administrative fee - another 0.5-1% of the loan amount sanctioned. And that's it
- you're on your way to buying that dream home for your family!
Remember: if you are not the only person who will own the property you plan
to buy, the other proposed owners will also have to sign as co-applicants. That
however does not mean that all co-applicants have to be co-owners.
Just a point to keep in mind, some HFCs charges a commitment fee of 1% per
annum on the amount of the loan yet to be drawn. This fee starts being
applicable nine to twelve months from the day you accept the loan and
continues to be charged till you avail of it fully.
Fortunately, not much! After all the relevant documents have been thoroughly
checked and all other formalities such as payment of margin money (your
contribution) etc., are completed, your loan will be disbursed in one or two
weeks, at the most. And just in case you're wondering - your contribution is the
total cost of the property minus the amount of the loan!
Well, depending on which category you belong to, you need to meet the
following basic requirements –
• The age of the individual, at the time of applying for the loan, should not
be less than 21 years and not more than the retirement age at the end of
the loan tenor. For a self-employed person, this outer age limit can be
extended to 65 years.
• The individual should be employed for the last 3 years.
The individual should be a resident of the city where the HFC has a collection
center.
A businessman should be able to prove his financial soundness over the last 3
years.
To put it in a nutshell –
• Proof of Identity
• Proof of Residence
• Proof of Income.
Generally speaking, you can borrow a maximum of 80-85% of the cost of the
property (this includes stamp duty and registration charges). However, do
remember that this limit is also linked to your paying capacity. Usually the
installment-to-income ratio (IIR) ranges between 25-50% of a person's total
income. Yet another factor would be the upper ceiling on the amount that the
HFC itself can lend. So depending on how much you earn and how much the
HFC is able to lend - the maximum amount would vary from person to person.
10. How will the HFC decide the loan amount I am eligible for?
Good question! Let's see - the most basic criterion will be your repayment
capacity! That in turn will depend upon –
• Your income,
• Its stability and continuity,
• Your age,
• Your educational qualifications,
• The number of dependents you have,
• Your spouse's income,
• Your assets and liabilities,
• Your savings history.
Other factors which would influence the amount of loan granted would be –
• The purpose for which you're taking the loan (purchase, construction,
extension or renovation of the house property),the time you need to
repay it.
To put it simply, what the HFC is concerned with while determining loan
eligibility - is that you should be able to repay the loan - comfortably!
11. Now if you're wondering how the HFC calculates your monthly income:
here's a close look at how it all adds up!
The HFC takes into account all your recurrent credits i.e.:
• Basic Salary, HRA, and other allowance apart from LTA and medical
any rental income that you are getting.
• The amount you save on rents thanks to your moving from a rented
house to your own house.
In short, for salaried people, the calculation will be, in the form of a simple sum
–
Once the EMI capacity of the person has been estimated and the tenure of loan
repayment is known, the HFC decides on the loan amount it can provide. This
is done with the help of an EMI table.
As you can see, it's all very scientific and sensible, so you don't have to worry
your own head too much!.
That's as far as detailed calculations goes. However some HFCs have schemes
for professionals like CAs, Doctors, MBAs and Architects which are
delightfully termed 'plain vanilla deals'! In these cases the amount of loan is
simply 1-2 times the gross receipts of the said professional.
To get finance, the property you choose has to be acceptable to the HFC. The
age of the property should not be more than 25 years and the title to the
property should be clear and unencumbered. In other words, there should be no
hidden snags or doubtful ownership claims for the property loan to get a go-
ahead!
13. Can I get a loan for commercial property, like offices etc.?
Yes, you certainly can but in that case, the loan to property-value ratio is much
less than in the case of a residential property.
Yes, you can get a home improvement loan for internal and external repairs
(waterproofing, roofing, painting, plumbing, electrical work, tiling, flooring
etc.) and other structural improvements.
The improvements have to be those that will increase the life of your home,
contribute towards a better living environment and at the same time, add to the
value of your house. To get such a loan, you need to submit an estimate from
your architect to the HFC. However, you must remember that the maximum
loan amount and the maximum loan tenor allowable is much less in this case
than if you were buying or constructing a brand new house.
Yes, very much so. In many states in India, the Agreement for Sale between the
builder and the purchaser is required by law to be registered. You are advised,
in your own interest to lodge the Agreement for Sale at the office of the Sub-
registrar appointed by the State Government under the Indian Registration Act,
1908
In fact, the Union cabinet decided to make registration of immovable property
compulsory and restrict it to the area where the property is located in order to
streamline the system, curb malpractices and black money generation, and plug
huge revenue leakages. As a result of this order, 'benami' purchases and illegal
transfers on power-of-attorney basis, both common practices in cities like
Delhi, will hopefully be controlled and reduced to some extent.
Yes, you will have to ensure that the property is duly and properly insured for
fire and other appropriate hazards, as required by the HFC during the period of
the loan and will have to produce evidence each year and/or whenever required
by the HFC. The HFC will be the beneficiary of the insurance policy. This is an
added cost that will add to the final cost of purchase of the property - so don't
forget to account for it when you're planning your house!
No. After the measure taken by the union cabinet to make the registration of
immovable property mandatory, the Housing Finance companies would not be
able to grant a loan for property held on a power-of-attorney basis.
If you are an individual - your spouse, your parents, or even your children can
be your co-applicants and their incomes can be clubbed with your income to
enhance the amount of loan you are eligible for. It makes sense therefore, that
the co-owner of a property has to be a co-applicant, but a co-applicant need not
be the co-owner of the property. If you are a partnership or a private limited
company, any one of the directors or partners can be your co-applicant
22. What are the various costs that have to be paid to the Housing Finance
company to avail of a home loan?
After all, you need to know what you're going in for! Well, the various charges
involved in availing a housing loan are –
• Interest cost
the interest cost for the finance provided.
• Processing, Overhead and Administrative Charges
these are one-time payments made for initiating the process of a housing
loan. They are generally taken as a percentage of the loan amount,
subject to a maximum and minimum amount.
• Pre-Payment Charge
these are the charges that are levied for pre-paying the loan.
Commitment Charge
This charge is levied on the un-drawn amount of the loan. The period for which
it is levied commences after a breathing period of a few months from the date
of sanction. The charge is levied after this period till the borrower withdraws
the funds.
Interest rates range between 12.5-14.5% and vary depending on the loan
amount and the period of repayment.
Before you agree to a re-payment structure, here are the pros and cons of them
all –
Daily Reducing
In this case, reducing principal repayments are credited at the end of every day
Monthly Reducing
Here, whatever you repay on your principal is credited at the end of every
month, and interest is calculated on the outstanding principal remaining. Since
you end up paying interest on the reduced principal every month as compared
to interest
On the outstanding principal at the end of every year in the case of annual
reducing, this tends to be the most beneficial structure, and is indeed what most
people go for!
Annual Reducing
Under this arrangement, interest is calculated on an annual basis on the
outstanding at the beginning of the year. The EMI therefore becomes 1/12th the
Equated Annual Installment.
25. Can I get the benefit of reduced interest rates in the intervening period or
the during the balance tenure of my loan?
Yes you can, but only if you have opted for the floating rate being offered by
some of the big HFCs.
Simply what you can offer as guarantees to the HFC! As you will see, there are
various types of securities acceptable –
In most cases, the property itself, bought or intended to be bought, becomes the
security and is mortgaged to the lending institution till the entire loan is repaid.
Some companies require additional security such as life insurance policies, FD
receipts, share or savings certificates.
A loan in which the principal on which you pay interest reduces with every
monthly payment you make. Like we mentioned earlier, this is the most
beneficial type for the borrower!
Under this scheme, the principal reduces only at the end of the year. Therefore,
you continue to pay interest on a portion of the principal which you've already
actually paid back to the lending company. In effect, you end up paying more
under the Annual Reducing Loan as compared to a Monthly Reducing Loan
A fixed rate of interest means that the rate of interest on the loan amount
remains unchanged for the entire duration of the loan agreement, irrespective of
changes in the interest rates in the economy. Therefore, if you opt for a fixed
rate of interest you will not be able to benefit if interest rates are falling! On the
other hand, if the rates are rising, you end up paying more than you had
bargained for! So you see, it's one of those double-edged decisions!
33. What are the tax benefits that are applicable to Home Loans and Home
Extension Loans?
Every Home Loan customer is eligible for tax benefits under Section 24 of the
Income Tax Act.
Wow, looks like you're liquid! Yes, you can pay your loan ahead of schedule.
However, you must consider that Housing Finance companies charge a fee for
early redemption of loans. This fee can vary between 1-2% of the loan amount
being prepaid.
Bibliography
Bibliography
• Center for Monitoring Industrial Economy
• Books
• Web – Sites
• www.etinvest.com
• www.hdfcindia.com
• www.indiainfoline.com
QUESTIONNAIRES
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