Moving into ones own home is a joy, which is to be felt, not explained

WHAT IS A HOME

LOAN ?

Home Loan is a Secured Loan. Also known as Mortgage Loan. Most popular & widely preferred loan. Tenor usually 15 to 20 years

TYPES OF HOME LOAN

1.

2.

3.

4.

5.

Home Purchase Loan: This is the basic type of a loan which has the purpose of purchasing a new house. Home Improvement Loan: This type of loan is for the renovation or repair of the home which is already bought Home Extension Loan: This type of loan serves the purpose when the borrower wants to extend or expand an existing home, like adding an extra room etc. Home Construction Loan: This type of loan taken when the borrower wants to construct a new house. Land Purchase Loan: It is that loan which is taken to purchase a land for construction & investment purposes.

TYPES OF HOME LOAN cont.

4.

Home Conversion Loan: It is that loan wherein the borrower has already taken a housing loan to finance his current home, but now wants to move to another home. The Conversion Housing Loan helps the borrower to transfer the existing loan to the new home which requires extra funds, so the new loan pays the previous loan & fulfils the money required for new home.

5.

Loan Switch: Transferring outstanding loan balance from one housing finance company to another, which may offer a better rate.
Bridge Loan: This type of loan helps finance the new home of the borrower when he wants to sell the existing house, this is normally a short term loan to the borrower & helps during the interim period when he wants to sell the old house & want to buy a new one, It is given till the time a buyer is found for the old house.

6.

DOCUMENTS REQUIRED IN HOME LOAN

Generally the documents required to process a loan application are almost similar across all the banks; however they may differ with various banks depending upon specific requirements. Following documents are required by financial institutions to process the loan application:

Age Proof Address Proof Income Proof of the applicant & co-applicant Last 6 months bank A/C statement Passport size photograph of the applicant & co-applicant

In case of Salaried Employee -- Employment certificate from the employer -- Copies of pay slips for last few months and TDS certificate -- Latest Form 16 issued by employer -- Bank statements

In case of Self-employed -- Copy of audited financial statements for the last 2 years -- Copy of partnership deed if it is a partnership firm or copy of memorandum of association and articles of association if it is a company -- Profit and loss account for the last few years

HOME LOAN CRITERIA BY VARIOUS BANKS

The borrowers eligibility of getting a housing loan depend upon his/her repayment capacity & the banks establish this repayment capacity by considering various factors such income, spouse's income, age, number of dependants qualifications, assets, liabilities, stability and continuity of occupation and savings history.

ASSESSING BORROWERS ELIGIBILITY

IIR : It is Instalment to Income Ratio

LCR : It is Loan to Cost Ratio. Cost means the Agreement Value of the Property

IIR = Loan Installment X 100 Net Adjusted Salary

LCR = Loan Amount X 100

Agreement Value of the Property

For Salaried Borrowers, Acc. to National Housing Bank (NHB) Rule, the IRR should not exceed 33.33%

Earlier, the cos. financed 100% of the cost of construction, but now it ranges from 70%-90% of the cost of construction

COMPUTATION OF EMI

Equated Monthly Installments (EMI) refers to the monthly payment towards interest and principal made by a borrower to a lender. EMI is calculated using a formula that considers .
Loan

Amount (L) Interest Rate (i) Loan Period in months (n)

Home Loan EMI = L.i (1+ i )n (1+ i )n - 1

TAX BENEFIT OF HOME LOANS

Home loan repayment has two components principal and interest, and both of these are treated differently for calculating tax benefits. The principal part is covered under Section 80C and the interest part is covered under Section 24L Briefly, the limit for tax benefit on principal repayment is Rs. 1 lakh under Section 80C and is clubbed with other instruments you may have bought for tax benefit under that section and the limit for interest repayment is Rs. 1,50,000 and thats not clubbed with anything else.

FORECLOSURE CHARGES

(or PREPAYMENT PENALTY)

Good news for Loan Switch : As per latest RBI guidelines, banks will not levy any foreclosure charges or prepayment penalty on home loans that are on floating interest rates. However, for fixed-rate loans, banks will continue to charge the prepayment penalty unless the amount is paid out of the borrowers own funds

CURRENT SCENARIO

Around 80% of the outstanding home loans of banks are on floating rate basis and the lenders are increasingly focusing on the floating rate to protect themselves from interest rate fluctuations. 5.5% - Indias GDP growth during April- June qtr. With interest rates remaining high and real estate prices rising further, the growth in housing loans has declined.

INTEREST RATES OFFERED BY VARIOUS BANKS

Acting under the finance ministrys instructions, PSU banks have announced a reduction in its interest rate on housing loans by 25 basis points.

Banks also levy processing fees which can range from 0.25% to 1%(max.)

THANK YOU
- A Presentation By ABIR WADHWA