CHAPTER 1AN INTRODUCTION

Housing is a primary human need next in importance only to food

and clothing. A first priority for a youngster who begins life is

therefore to plan for a house. This takes precedence over other

household expenditure and creature needs. Housing, however, is

a major expenditure and cannot be funded out of a family's normal

monthly income or savings. The prospective homeowner must look

for a loan substantial in size and so structured that he can repay it

over a longer period of time, in many cases almost one's entire

working life.

Loan is offered to a borrower to purchase or build a new house on

the basis of his/her eligibility and the bank's lending rules. One of

the important basic human needs is shelter. House is the ultimate

dream of every middle class family. Government gave

encouragement for house finance subsidiaries by offering number

of tax concessions to individuals. With the overall encouragement

given to this sector, a number of players entered in housing

finance.

One of the most important benefits of taking a home loan is the

interest rate that is allowed on the home loan. Fixed and variable

interest rate options are also available for home loans. Many

financiers also offer home improvement loans at the same interest

rate as they offer the home loans.

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ABOUT THE REPORT

TITLE OF THE STUDY:

The present study is titled as “A PROJECT REPORT ON ICICI

HOME LOANS”. The study is made with special reference to

……bank……branch

OBJECTIVE OF THE STUDY:

The following are the objective of the present study:

1. The main objective of doing this project is to study the

corporate culture

2. To analyze Indian home loan market and its growing trends

3. To analyze various methods of operating a home loan

4. To gain knowledge about various home loan products

5. To know various rates available while providing home loan.

Data and Methodology: For the purpose of the present study both primary and

Secondary data were used.

Primary data collected from bank visits, interviewing with

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staff etc. secondary data collected from books, websites and

newspaper.

LIMITATION OF THE STUDY:

The present study has got all the limitations of case study

method of data collection.

Chapter Layout :

Chapter Particulars

1Introduction to the title and the project

2 Profile of the bank

3 Theoretical view of home loans

4 Analysis of the study

5 Conclusion to the project

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A THEORETICAL VIEW-HOME LOAN

The section 5 (b) of the Banking Regulation Act 1949 defines

Banking as," Accepting for the purpose of lending or investment

of deposits of money from the public, repayable on demand or

otherwise and withdrawable by cheque, draft or otherwise."

A "home loan" is a credit to a consumer for the purchase or

transformation of the private immovable property he owns or

aims to acquire secured either by a mortgage on immovable

property or by a surety commonly used in a Member State for

that purpose."

A home loan requires you to pledge your home as the lender's

security for repayment of your loan. The lender agrees to hold

the title or deed to your property until you have paid back your

loan plus interest. In simple words a home loan is a fund or the

loan which the buyer has taken from any financial institution or

bank to purchase a new home at an agreed rate of interest

specified during the contract.

Home loan is the finance borrowed from a bank or financial

institution to buy or modify a residential real estate property.

Any Resident or Non-resident individual who is planning to buy

a house in India can apply for a Home loan. If you have decided

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to buy a property in the near future you can even apply for a

loan before you select your property. SCHEMES OF HOME LOANS:

1) Home loans for construction of new house / flat, purchase of old house/ flat, etc:

Initially, lenders approved a home loan for family/own residence

only. After gaining experience and more importantly to be

competitive, lenders now approve loans even when the

applicant has more than one house or flat/apartment. Today

there is no general restriction on the number of houses owned

by an individual. The only stipulation is that the home loan funds

should not be used for commercial purposes.

2) Home extension loan:

These loans are given for expanding or extending an existing

home. These are some of the instances for which you could

take an Extension Loan.

• To construct an additional room or floor by getting additional

FSI granted.

• Using grills or sliding windows to enclose the balcony.

• Construction of a garden or garage in the building vicinity.

3)Home improvement loan:

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Home improvement loans for repairs /renovation including

waterproof, plumbing, compound wall, digging of well/tube-well,

flooring/tiling, additions like built-in cupboards /shelves, internal

repairs including replacing doors/windows, etc. A loan for

purchase of household furniture including space-saving

furniture (kitchen racks, cupboards, etc) may also be sanctioned

as a home improvement loan.

4)Home loan for purchase of housing site:

Here again, initially many banks did not approve such loans.

However, market forces have now made this a universal feature

of the home loan market. However, care has been taken in

structuring the schemes for avoiding financing for purchase of

land for speculative lation purposes.

5)Home equity loans:

A home equity loan (sometimes abbreviated HEL) is a type of

loan in which the borrower uses the equity in their home as

collateral. These loans are sometimes useful to help finance

major home repairs, medical bills or college education. A home

equity loan creates a lien against the borrower's house, and

reduces actual home equity.

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Home equity loans

Home loan for purchase of housing

site

Home improvement

loan

Home extension

loan

Home loans for

construction of new

house / flat

SCHEMES OF HOME

LOAN

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Rate of Interest:

The lender decides the rate of interest chargeable on the home

loan, taking the following into consideration:

1. Cost of funds:

The cost of funds is different for each lender, depending upon

the mix of liabilities, liability-raising costs (based on the image of

the bank in the market) and with different costs in different

maturity buckets.

2. Tenor of the loan:

Generally, banks have borrowed funds with maturities up to 5

years, and some capital fund surpluses, which may be available

for allocation to home loan assets.

3. Capital allocation costs:

Banks are required to allocate capital based on the risk weight

of each class of asset taken on to the balance sheet.

4. Costs of administering the specific scheme.

5. Swap costs, other funding costs

6. Profit margin

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7. Tenure of the loan is an important factor in pricing the loan

8. Special considerations like group lending, which may bring down the administration or monitoring costs.

9. Competition: The lender may have to levy interest at market rates, even if

his cost plus margin is higher than competition.

SECURITY:1) A simple registered mortgage or equitable mortgage on the

property acquired out of the loan is taken as security. This is

the primary security for the loan.

2) In case of flats of a group housing society, triparilite

agreement shall be entered into.

3) In case of jointly owned properties, it should be ensured that

all the co-owners and co - Applicants execute the documents.

STEPS INVOLVED IN GETTING HOME LOAN:

STEP 1: Submit an Application form along with relevant documents:

The finance company will process customer’s application to

check the loan eligibility based on the persons income and

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personal profile. Usually an up front (non –refundable fee) of

about 0.5-1% of the loan amount must be paid before

processing begins.

STEP 2: Verification of the property and supporting documents:

(Usually takes 5-7 working days after Step1)

A company representative may visit the property as well as the

residence to vary information submitted in the persons

application form. Further, a property valuation maybe carried

out by the company to determine the maximum amount they are

willing to lend you. Any references submitted by the person in

the Application Form may also be contacted. The person may

be personally interviewed and any further clarifications in the

documents submitted maybe sought.

STEP 3: Sanction of the loan:

(Usually on the 7th working days after Step 1

A sanction letter is issued which the customer will have to sign.

This letter will contain the amount and the terms of the loan.

Some companies specify the period for which the loan sanction

is valid. The person will have to pay a Commitment fee

(normally 1% of the unutilized loan amount) if you do not draw

on the entire sanctioned amount before that period.

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STEP 4: Submission of the original Property documents and signing

the loan

Agreement

(Usually on the 8-10th working days after Step 1)

The customer will be required to leave the title deed of the

property with the company as a security for the loan. He will be

required to go to the company’s office to execute the legal loan

papers.

STEP 5: Disbursal of the Loan Cheque

(Usually on the 10 –15 working days after Step 1)

The person can draw the loan in parts depending on the stage

of construction of the building. Until such time that the entire

sanctioned amount is NOT drawn, you will pay a simple interest

on the Actual Amount drawn (without any principal repayments).

The EMI payments will commence only after the entire

Sanctioned Loan Amount is drawn.

EQUATED MONTHLY INSTALLMENTS (EMI):

The monthly repayment by the applicant is related to his cash

flow. There is an element of interest and of principal in the

monthly payments. The interest payable over the period of the

loan is calculated and added to the loan amount to arrive at the

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total payable amount .this amount, divide by the total number of

monthly installments is called equated monthly installment

(EMI).

CHARGES IN HOME LOAN:

Acquiring a Home Loan doesn’t only involve the cost of home

loan interest rates but it also includes other charges & fee

accompanying at various stages of taking the Home loan. You

must consider all these charges while comparing the cost

structure across banks. Following is the detailed fee structure

incurred by banks at different loan stages:

• Processing Charge:

It is a fee payable at the time of submitting the loan application

to the bank which is normally non-refundable. The fee ranges

between 0.5 per cent and 1 per cent of the loan amount.

• Administrative Fee:

It is a fee incurred by banks at the time of loan sanction; there

are few banks who have removed this fee so you must check it

with all the banks.

• Prepayment Penalties:

When the borrower pre-pays the loan before the loan tenure,

banks charge a penalty which usually varies between 1 per cent

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and 2 per cent of the pre-paid amount.

• Legal Charges:

Banks also incur some charges from the customer for legal and

technical verification of the property.

• Delayed payment Charges:

When there is a delay in the payment of your EMI, banks

charge a late payment fee from the borrower which normally

ranges from 2% to 3% of the EMI.

• Cheque bounce charges:

Banks charge between Rs. 250 and Rs. 500 for every bounced

cheque towards the loan payment because of lack of funds in

your account.

POINTS CONSIDERED BY BANK WHILE GRANTING HOME LOAN:

The borrower’s eligibility of getting a home 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 ,

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assets, liabilities, stability and continuity of occupation and

savings history.

IMPORTANT POINTERS IN HOME LOAN:

• Increase your Loan eligibility

• Credit History:

Your chances of getting a home loan are increased if you have

a good credit history which is known by banks by checking the

borrower’s Cibil score. Now it is very hard to get a loan from

another bank when you already have a bad debt with one bank.

• Clubbing of income:

Your eligibility to take a home loan will augment when you club

your income with your spouse’s income, bank in this case will

calculate your eligibility on the basis of the clubbed income of

both the applicants. You can club incomes of spouse, children &

parents staying with you and having regular income.

• Enhance your loan tenure:

Longer is the loan tenure, lower will be the EMIs which further

increases the repayment capacity of the borrower & in turn

enhances the loan eligibility.

• Step-up Loan:

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In this type of loan EMI's remain low in the beginning &

increase gradually as and when the borrower’s spending power

increases. Therefore lower EMI's in the initial years enhances

the borrower’s ability to pay & further increases the loan

eligibility

• Increase the down payment:

You must know that in a home loan bank finances only 85 to

90% for the property & the rest amount has to be funded by the

borrower. You should increase the down payment if you have

more than required amount which will mitigate your debt

considerably.

TAX BENEFITS IN HOME LOAN:

Past record:

The home loan borrower enjoys Tax Benefits on both Interest

paid & the Principal re-paid. Under Section 24(d) of Income

Tax, the deduction of interest payable on the home loan is up to

a maximum of Rs. 1, 50,000.

Under Section 80(c) of Income Tax, Principal amount for the

repayment of loan along with other savings & investments is

eligible for tax deduction up to a

Maximum limit of Rs. 1, 00,000.

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Recent changes:

According to the new policy changes of the direct tax code bill

introduced in the parliament in the month of august 2010 only

upto Rs 1.5 lakh deduction is allowed on the interest paid on

the housing loan and there is no deduction available on the

principal amount. So if your equated monthly installment is Rs

1.50 lakh, comprising interest and principal outgo of RS 75000

each, you can avail deduction of only the interest.

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CONCLUSION

The home loan market in India has grown at a rapid and

alarming rate of over 40% over the period of the last four years.

And from the reports from some of the industry experts, it is

evident that there is very little chance that there will be any

significant decline in growth rates in the future. Therefore it

becomes important at this point in time to examine the key

factors that have been instrumental in triggering this high

growth period. There are several reasons that can be

considered as having attributed to the growth of the home loan

market. On the demand side, the first and the most important

factor for the growth has been faster rise in incomes as

compared to property prices, thus making housing more

affordable.

Most of the housing finance companies in India have introduced

several new home loan products in order to meet the needs of a

wide variety of customers. The various home loan schemes

have their different interest rates in the market. The customer

can choose those schemes which he feels is good for him and

have the capacity to repay it on that specified time period. If

unwavering liability is what suits your profile, then fixed interest

rate home loan should be the natural choice. On the other

hand,

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if you can handle risks and are willing to go the extra mile to

benefit from any further fall in interest rates, floating rate home

loans will be best suited for you.

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