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• What are the types of home loans available ?
• What is an EMI ?
• How is an EMI calculated ?
• What are the incentives offered by lending institutions ?
• What are the eligibility conditions for a home loan ?
• What are the interest rates offered for home loans? What are: Daily Reducing, Monthly Reducing and Yearly Reducing ?
• What is the best way to select the cheapest home loan ?
• What is a fixed rate of interest ?
• What is a floating rate ?
• What are the other costs that usually accompany a home loan ?
• What are the repayment period options ?
• How do HFCs decide on the loan amount ?
• Are securities required for home loans ?
• Do I require a guarantor to get a home loan ?
• What is the right time to apply for a home loan ?
• What is the time required for loan application approval ?
• What is the time required for loan disbursement ?
• Can I make joint applications for home loans ?
• What are the tax benefits of home loans ?

 

    There are a variety of home loans available. They are:

1. HOME PURCHASE LOAN
   This is the common loan for purchasing a home.
2. HOME IMPROVEMENT LOAN
   This loan is given for implementing repair works and renovations to your home.
3. HOME CONSTRUCTION LOAN
   This loan is available for the construction of a new home.
4. HOME EXTENSION LOAN
   Given for expanding or extending an existing home. For example, addition of an extra room, etc.
5. HOME CONVERSION LOAN
   Available for those who have financed the present home with a Home Loan and wish to purchase and move to another home for which some additional funds are required.Through a Home Conversion Loan, the  existing loan is transferred to the new home, including the additional amount required, eliminating the need for pre-payment of the previous loan.
6. LAND PURCHASE LOAN
   Sanctioned for purchase of land, for both home construction or investment purposes.
7. BRIDGE LOAN
   The Bridge Loan is designed for people who wish to sell the existing home and purchase another. The bridge loan helps finance the new home, until a buyer is found for the old home.
8. BALANCE TRANSFER LOAN
   Balance Transfer loans help you pay off an existing home loan with a higher interest rate,
   and avail of a loan with a lower rate of interest.
9. REFINANCE LOAN
   This loan helps you pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present home.
10. STAMP DUTY LOAN
    This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of a property.
11. LOANS TO NRIs
    This loan is tailored for the requirements of NRIs wishing to build or buy a home in India.

EMI (Equated Monthly Installment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of a portion of the interest as well as the principal.

    EMI Formula : l x r [(1+r)n /(1+r)n-1 ] x 1/12
        l = loan amount
        r = rate of interest
        n = term of the loan

1. Some of the lending institutions sanction the loan without requiring you to identify property as a prerequisite .
2. Free accident insurance
3. Discounts
4. Waiving of pre payment penalty
5. Waiving of processing fee
6. Free property insurance

    To qualify for a home loan, most of the lending institutions in India require you to be:

1. An Indian resident or NRI

2. Above 21 years of age at the commencement of the loan.

3. Below 65 when the loan matures

4. ther salaried or self employed

 
Interest rates are different from institution to institution and generally range from about 9.25% to around 12 %. The interest on home loans in India is usually calculated either on monthly reducing or yearly reducing balance. In some cases, daily reducing basis is also adopted.
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. This means the EMI for the monthly reducing system is effectively less than the annual reducing system.
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.

Keep the loan period constant and calculate the total amount paid for the home through the different loan options available.

Some institutions have a fixed rate of interest, which means the rate of interest remains unchanged for the entire duration of the loan. This means you do not benefit, even if rates of interest drop in the market.

This is the rate of interest that fluctuates according to the market lending rate. This means you stand the risk of paying more than you budgeted for in case the lending rate goes up.

Home loans are usually accompanied by the following extra costs:

1. Processing Charge: It’s a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount.The loan amount required by you cannot be less than the processing fee.

2. Pre-payment Penalties: When a loan is paid back before the end of the agreed duration, a penalty is charged by some banks/companies, which is usually between 1% and 2% of the amount being pre-paid.

3. Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.

4. Miscellaneous Costs: It is quite possible that some lenders may levy a documentation or consultant charges.

5. Registration of mortgage deed.

Repayment period options range generally from 5 to 15 years.

Usually, most companies give up to a maximum of 85% of the cost of the house. The 15%, sometimes called ‘seed money’, will have to be provided by the loan applicant. The amount, for which the applicant is eligible, is determined by the age, income, no. of dependents, monthly outgoing and repayment capacity. This varies from case to case.

 

In most cases, the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some institutions may ask for additional security such as life insurance policies, FD receipts and share or savings certificates.

 

Some institutions ask for 1 or 2 guarantors, others require no guarantor at all.

Loans may be applied for before or after selection of property. The loan amounts are sanctioned in principle to let buyers know what amounts they can avail of. This helps them decide their budgets and purchasing power. Actual disbursements are made after satisfactory verification of all necessary documents and completion of specific procedures.

About 0-15 days.

On an average, loans are disbursed within 3-15 days after satisfactory and complete documentation and completion of all relevant procedures, including proof that 15% of the cost has been paid upfront to the seller of the property.

Most institutions are willing to consider the joint incomes of the applicants for deciding the loan amount. Some institutions do not require the co-applicants to be co-owners of the property to be purchased.

 

Both principal as well as interest of home loans attract tax benefits. Section 88 of the Income Tax Act allows a 20% rebate on the principal repaid, subject to a principal ceiling of Rs.10,000 per annum. For loans availed of after April 1, 1999, a deduction on interest paid with a ceiling of Rs.1,50,000 is allowed. This amendment was made in the February 2001 budget to be effective from April 1, 2001. For loans availed of before April 1999, a deduction on interest paid, with a ceiling of Rs.30,000, is allowed.
                    Home loans taken to repay existing home loans are not eligible for tax benefit.