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    Marketing and management of financialservices project on

    Recent trends inhome loans in India

    SEC-C

    PGDM (2008-10)

    Submitted By:Submitted To:

    Aditi Khanna (FT-08-778)

    Prof. Anand Rai

    Deepshikha Mahajan (FT-08-642)

    Hitali Makkar(FT-08-657)

    Kanika Anand (FT-08-667)

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    Kratika Bhaskar (FT-08-671)

    ACKNOWLEDGEMENT

    With profound sense of gratitude and regard, we

    express our sincere thanks to our guide and

    mentor Prof. ANAND RAI for his valuable guidance

    and the confidence he instilled in us, that helpedus in the successful completion of this project

    report. Without his help, this project would have

    been a distant affair.

    His thorough understanding of the subject and

    professional guidance was indeed of immense help

    to us. His motivation and constant mentoring hashelped us in the completion of the project.

    Mutual understanding and co-operation between

    the group members is highly appreciated.

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    Index

    Topics

    1. Introduction

    2. Lock in facility by banks

    3. Steps to find out the best lender for you

    4. Some important terms

    5. Comparing different lenders

    6. Refinancing

    7. Recent trends of home loans

    8. Role of banks

    9. Interest market in 2009

    10.Home loans in india

    11.Reserve bank of india

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    12.New RBI Directives

    13.Repayment option

    14.Development financial institution

    15.Prime lending rate

    INTRODUCTION

    Currently, the leading cause of boom in Indias financial system is that an

    individual can easily obtain loans at interest rates. There are a number of

    banks, which provide loan and credit and against all. Government also

    motivates people to obtain loans for specific purposes. The government

    encourages people to obtain housing loans by providing tax advantages.

    The banking structure in India is very important. Commercial banks in the

    country can be classified in to scheduled banks and contingencies. The

    commercial banks are included in the Second Schedule of the Reserve Bank

    of India (RBI) Act, 1934. Only those banks are included in the calendar which

    meet the criteria established under the Law of empty Article 42 (6) (a).

    Banks in India are classified as public sector banks, private sector banks and

    foreign banks. The private sector banks are still classified under the old

    private sector banks and new private sector banks.

    The banking structure in India is simply superb and to obtain bank loans in

    India is easier. Bank loans in India are offered by all banks, whether private

    or public banks. The bank loans in India are in great shape because they

    offer all types of loans. The loans are an important part of our lives. When we

    build a new house or if we want to go for higher education or if you want to

    buy a vehicle and other expensive products, it requires an enormous amount

    of money and that's when bank loans in India come to our aid. The India

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    Bank loans scheme allow customers or people to borrow money from banks

    which are essentially short term in nature. The Indian systems of bank loans

    provide home loans, personal loans, mortgages, loans and education. If you

    are planning a trip abroad, or if you want to buy a share in the property

    market, systems of loans are available for these purposes.

    Home Loans

    Bank loans in India are several types. One of the most common types is

    home loans offered by banks. Everyone dreams of owning his own land and

    property one day and to turn this dream into reality is what the system of

    home loans do in India. Real estate in India is currently one of the hottest

    investments options in Asia. Prior to five years, the real estate segment in

    India was neither organized nor were there too many large institutions in the

    construction industry. But now with an organized finance sector and with the

    increase in transparency levels, it has become easier to create financing

    vehicles.

    The decrease in housing loan interest rates and an increase of disposable

    income has contributed largely to an increased demand in the residential

    segment. In spite of a rise in home loans interest rates and qualitative

    sanctions being levied by the RBI on banks, buying interest has not waned

    because home loans are still cheaper than ten years ago.

    As the realty prices in India skyrockets, housing complexes mushrooming andcity landscapes becoming unrecognizable, the growth across all real estate

    segments and experts estimate that demand will remain steady at the

    currently high levels because of the improving economic environment and

    the real estate sector is expected to grow 30% every year. This rising

    property prices encourage banks and financial institutions to lend more with

    the increase in collateral values. Although the home loan providers have

    hiked their rates twice in less than three months, home loans continue to be

    nearly 45 per cent cheaper than what they were in early 2001. Because if

    statistics are referred to, the interest rates which now range between 9-10

    per cent, are still much lower than what they were ten years ago, at 16-17

    per cent.

    Thus it is very important to go through the main features offered by these

    Indian banks for home loans. Housing loans offered by banks are of different

    types.

    http://www.indianground.com/real_estate_india.aspxhttp://www.indianground.com/investments.aspxhttp://www.indianground.com/home_loans.aspxhttp://www.indianground.com/home_loans/homeloans_interest_rates.aspxhttp://www.indianground.com/home_loans/homeloans_india.aspxhttp://www.indianground.com/investments.aspxhttp://www.indianground.com/home_loans.aspxhttp://www.indianground.com/home_loans/homeloans_interest_rates.aspxhttp://www.indianground.com/home_loans/homeloans_india.aspxhttp://www.indianground.com/real_estate_india.aspx
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    Home Purchase Loans Home Construction Loans Home Improvement Loans Home Extension Loans Home Conversion Loans

    Land Purchase Loans Stamp Duty Loans Bridge Loans Balance Transfer Loans Refinance Loans Loans to NRIs

    Home Purchase Loans:This is the basic home loan for the purchase of a new home.

    Home Construction Loans:

    This loan is available for the construction of a new home on a said property.The documents that are required in such a case are slightly different fromthe ones you submit for a normal Housing Loan. If you have purchased thisplot within a period of one year before you started construction of yourhouse, most HFCs will include the land cost as a component, to value thetotal cost of the property. In cases where the period from the date ofpurchase of land to the date of application has exceeded a year, the landcost will not be included in the total cost of property while calculatingeligibility.

    Home Improvement Loans:

    These loans are given for implementing repair works and renovations in ahome that has already been purchased, for external works like structuralrepairs, waterproofing or internal work like tiling and flooring, plumbing,electrical work, painting, etc. One can avail of such a loan facility of a homeimprovement loan, after obtaining the requisite approvals from the relevantbuilding authority.

    Home Extension Loans:An extension loan is one which helps you to meet the expenses of anyalteration to the existing building like extension/ modification of an existinghome; for example addition of an extra room etc. One can avail of such a

    loan facility of a home extension loan, after obtaining the requisite approvalsfrom the relevant municipal corporation.

    Home Conversion Loans:This is available for those who have financed the present home with a homeloan and wish to purchase and move to another home for which some extrafunds are required. Through a home conversion loan, the existing loan is

    http://www.indianground.com/home_loans.aspxhttp://www.indianground.com/home_loans.aspxhttp://www.indianground.com/home_loans/homeloans_faq_indian.aspxhttp://www.indianground.com/home_loans.aspxhttp://www.indianground.com/home_loans.aspxhttp://www.indianground.com/home_loans/homeloans_faq_indian.aspx
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    transferred to the new home including the extra amount required,eliminating the need for pre-payment of the previous loan.

    Land Purchase Loans:This loan is available for purchase of land for both home construction or

    investment purposes

    Stamp Duty Loans:This loan is sanctioned to pay the stamp duty amount that needs to be paidon the purchase of property.

    Bridge Loans:Bridge Loans are designed for people who wish to sell the existing home andpurchase another. The bridge loan helps finance the new home, until a buyeris found for the old home.

    Balance-Transfer Loans:Balance Transfer is the transfer of the balance of an existing home loan thatyou availed at a higher rate of interest (ROI) to either the same HFC oranother HFC at the current ROI a lower rate of interest.

    Re-finance Loans:Refinance loans are taken in case when a loan for your house from a HFI at aparticular ROI you have taken drops over the years and you stand to lose. Insuch cases you may opt to swap your loan. This could be done from eitherthe same HFI or another HFI at the current rates of interest, which is lower.

    NRI Home Loans:This is tailored for the requirements ofNon-Resident Indians who wish tobuild or buy a home or property in India. The HFCs offer attractive housingfinance plans for NRI investors with suitable repayment options.

    On would be entitled for home loans in the range of Rs 5 lakh to a maximumof Rs 1 crore, based on the repayment capacity, previous credit history andthe cost of the property. The bank may provide a maximum of 85% of thecost of the property or the cost of construction as applicable and 75% of thecost of land in case of purchase of land. The repayment capacity iscalculated taking into account factors such as:

    Age Income/Salary Qualifications Dependant/(s) Assets/Liabilities Credit History Stability / continuity of your employment/business

    http://www.indianground.com/nri/nri_investments_in_india.aspxhttp://www.indianground.com/nri/nri_investments_in_india.aspxhttp://www.indianground.com/nri/nri_investments_in_india.aspxhttp://www.indianground.com/nri/nri_investments_in_india.aspx
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    Income of co-applicant/(s)

    Taking home loans these days has become simpler. With the RBI regularlybring down interest rates; taking home loans have become extremely easy.Housing loans which were 16.5% to 18% a few years ago fell by 11.5% to

    13%. With interest rates going down, people increasingly number apply totake these loans. Some of the leading banks offering home loans in India,including ICICI Bank, IDBI Bank, HDFC Bank State Bank, Bank of Baroda,Kotak Bank, SBI, Standard Chartered Bank and Axis Bank.

    INTEREST RATES PROVIDED BY VARIOUS BANKS

    Finance InstitutionLoan Period

    (in years)Fixed

    EMI / Lakh

    (INR)Floating

    EMI / Lakh

    (INR)

    Bank of Baroda

    Up to 5 9.00 2076 8.00 2028

    6 to 10 9.25 1230 8.25 1227

    11 to 15 9.50 1044 8.25 970

    16 to 20 9.50 932 8.50 868

    State Bank Of India

    Up to 5 9.50 2100 8.75 2064

    6 to 10 9.75 1300 9.25 1280

    11 to 15 - - 9.25 1029

    16 to 20 - - 9.75 949

    HDFC

    Up to 5 11 2175 9.50 2101

    6 to 10 11 1375 9.50 1294

    11 to 15 11 1137 9.50 1045

    16 to 20 11 1033 9.50 933

    http://www.guide2homeloan.com/loans/hfcs/bob-housing-finance.aspxhttp://www.guide2homeloan.com/loans/banks/state-bank-of-india.aspxhttp://www.guide2homeloan.com/loans/hfcs/HDFC.aspxhttp://www.guide2homeloan.com/loans/hfcs/bob-housing-finance.aspxhttp://www.guide2homeloan.com/loans/banks/state-bank-of-india.aspxhttp://www.guide2homeloan.com/loans/hfcs/HDFC.aspx
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    ICICI Bank

    Up to 5 10.75 2162 9.50 2101

    6 to 10 10.75 1364 9.50 1294

    11 to 15 10.75 721 9.50 1045

    16 to 20 10.75 1016 9.50 933

    LIC Housing Finance

    Up to 5 10.50 2149 9.50 2100

    6 to 10 11 1373 9.50 1294

    11 to 15 11 1137 9.50 1044

    16 to 20 11 1032 9.50 932

    PNB Housing Finance

    Up to 5 9.00 2076 10.50 2150

    6 to 10 9.00 1267 10.50 1350

    11 to 15 9.25 1030 10.50 1106

    16 to 20 9.50 933 10.50 999

    The above table illustrates the comparison between the interest rates fromvarious Housing Finance Companies and banks.

    It can be seen that if one wishes to go for floating loans, the bank whichgives the best deal as far as the interest rate is concerned is HDFC followedby PNB Housing Finance with the lower rates.

    As you know, there are quite a few hidden prices involved as well,so ,one needs be very vigilant while approaching a bank for a loan,because, the best rate may not be the best deal always.

    Lock-in facility by banks

    A lock-in, also called a rate-lock or rate commitment, is a lenders promise to hold a certaininterest rate and a certain number of points for you, usually for a specified period of time, while

    your loan application is processed. (Points are additional charges imposed by the lender that are

    usually prepaid by the consumer at settlement but can sometimes be financed by adding them tothe mortgage amount. One point equals one percent of the loan amount.) Depending upon the

    lender, you may be able to lock in the interest rate and number of points that you will be charged

    when you file your application, during processing of the loan, when the loan is approved, or later.

    http://www.guide2homeloan.com/loans/hfcs/ICICI.aspxhttp://www.guide2homeloan.com/loans/hfcs/lic-housing-finance.aspxhttp://www.guide2homeloan.com/loans/hfcs/pnb-housing-finance.aspxhttp://www.guide2homeloan.com/loans/hfcs/ICICI.aspxhttp://www.guide2homeloan.com/loans/hfcs/lic-housing-finance.aspxhttp://www.guide2homeloan.com/loans/hfcs/pnb-housing-finance.aspx
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    A lock-in that is given when you apply for a loan may be useful because its likely to take your

    lender several weeks or longer to prepare, document, and evaluate your loan application. During

    that time, the cost of mortgages may change. But if your interest rate and points are locked in,you should be protected against increases while your application is processed. This protection

    could affect whether you can afford the mortgage. However, a locked-in rate could also prevent

    you from taking advantage of price decreases, unless your lender is willing to lock in a lowerrate that becomes available during this period.

    It is important to recognize that a lock-in is not the same as a loan commitment, although some

    loan commitments may contain a lock-in. A loan commitment is the lenders promise to makeyou a loan in a specific amount at some future time. Generally, you will receive the lenderscommitment only after your loan application has been approved. This commitment usually will

    state the loan terms that have been approved (including loan amount), how long the commitment

    is valid, and the lenders conditions for making the lSoan such as receipt of a satisfactory titleinsurance policy protecting the lender.

    Oral or written lock-in agreement?Some lenders have preprinted forms that set out the exact terms of the lock-in agreement. Others

    may only make an oral lock-in promise on the telephone or at the time of application. Oralagreements can be very difficult to prove in the event of a dispute.

    It is wise to obtain written, rather than verbal, lock-in agreements to make sure that you fully

    understand how your lenders lock-ins and loan commitments work and to have a tangible recordof your arrangements with the lender. This record may be useful in the event of a dispute.

    Charges of a lock-inLenders may charge you a fee for locking in the rate of interest and number of points for your

    mortgage. Some lenders may charge you a fee up-front, and may not refund it if you withdraw

    your application, if your credit is denied, or if you do not close the loan. Others might charge the

    fee at settlement. The fee might be a flat fee, a percentage of the mortgage amount, or a fraction

    of a percentage point added to the rate you lock in. The amount of the fee and how it is charged

    will vary among lenders and may depend on the length of the lock-in period.

    Types of lock-in

    Locked-In Interest Rate--Locked-In Points: Under this option, the lender letsyou lock in both the interest rate and points quoted to you. This option may be

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    considered to be a true lock-in because your mortgage terms should not increase abovethe interest rate and points that youve agreed upon even if market conditions change.

    Locked-in Interest Rate--Floating Points. Under this option, the lender letsyou lock in the interest rate, while permitting or requiring the points to rise and fall (float)

    with changes in market conditions. If market interest rates drop during the lock-inperiod, the points may also fall. If they rise, the points may increase. Even if you floatyour points, your lender may allow you to lock-in the points at some time beforesettlement at whatever level is then current. (For instance, say youve locked in a 10percent interest rate, but not the 3 points that went with that rate. A month later, themarket interest rate remains the same, but the points the lender charges for that ratehave dropped to 2. With your lenders agreement, you could then lock in the lower 2points.) If you float your points and market interest rates increase by the time ofsettlement, the lender may charge a greater number of points for a loan at the rateyouve locked in. In this case, the benefit you might have had by locking in your ratemay be lost because youll have to pay more in up-front costs.

    Because practices vary, you may want to ask your lender whether there are other options

    available to you.

    Duration of a lock-in

    Usually the lender will promise to hold a certain interest rate and number of points for agiven

    number of days, and to get these terms you must settle on the loan within that time period. Lock-ins of 30 to 60 days are common. But some lenders may offer a lock-in for only a short period of

    time (for example, 7 days after your loan is approved) while some others might offer longer lock-

    ins (up to 120 days). Lenders that charge a lock-in fee may charge a higher fee for the longerlock-in period. Usually, the longer the period, the greater the fee.

    The lock-in period should be long enough to allow for settlement, and any other contingencies

    imposed by the lender, before the lock-in expires. Before deciding on the length of the lock-in to

    ask for, you should find out the average time for processing loans in your area and ask yourlender to estimate (in writing, if possible) the time needed to process your loan. Youll also want

    to take into account any factors that might delay your settlement. These may include delays that

    Floating Interest Rate--Floating Points. Under this option, the lender lets you lock in

    the interest rate and the points at some time after application but before settlement. If you

    think that rates will remain level or even go down, you may want to wait on locking in a

    particular rate and points. If rates go up, you should expect to be charged the higher rate.

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    you can anticipate in providing materials about your financial condition and, in case you are

    purchasing a new house, unanticipated construction delays. Finally, ask for a lock-in with as few

    contingencies as possible.

    Expiry of the lock-in period

    If you dont settle within the lock-in period,you might lose the interest rate and the number of

    points you had locked in. This could happen if there are delays in processing whether they are

    caused by you, others involved in the settlement process, or the lender. For example, your loanapproval could be delayed if the lender has to wait for any documents from you or from others

    such as employers, appraisers, termite inspectors, builders, and individuals selling the home. On

    occasion, lenders are themselves the cause of processing delays, particularly when loan demandis heavy. This sometimes happens when interest rates fall suddenly.

    If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and

    points. If market conditions have caused interest rates to rise, most lenders will charge you more

    for your loan. One reason why some lenders may be unable to offer the lock-in rate after theperiod expires is that they can no longer sell the loan to investors at the lock-in rate. (When

    lenders lock in loan terms for borrowers, they often have an agreement with investors to buy

    these loans based on the lock-in terms. That agreement may expire around the same time that the

    lock-in expires and the lender may be unable to afford to offer the same terms if market rateshave increased.) Lenders who intend to keep the loans they make may have more flexibility in

    those cases where settlement is not reached before the lock-in expires.

    Steps to find out the best lender for you

    1. Compare fees as well as interest rates

    Comparing loans based on their annual percentage rate (APR) is a good place to start, but it's

    not enough. In the case of a mortgage, to get a more accurate breakdown of costs, ask the

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    various lenders for a formal "good faith estimate" of all the fees you'll incur with your loan -- this

    is a standard form lenders must provide you that is more detailed than the overview you'll get

    with an offer. Also, ask about potential charges that may not appear on that list, such as

    prepayment penalties. You're not just comparing numbers here: determine how honest and

    upfront you feel the lender is being, and don't use a lender that you feel is evading your

    questions.

    2. Consider your individual circumstances

    Bigger lenders aren't necessarily better than smaller ones, especially if you have unusual

    circumstances. For example, some lenders specialize in loans for people with poor credit, while

    others may have more options for those with small down payments. If you have special

    borrowing needs, look for a lender with experience working with people in similar situations.

    3. Look at the range of loan types available

    There are more loan options available than ever before, so take advantage of all that choice.

    Look for a lender who offers a wide variety of loan types, from conventional fixed-rate andadjustable-rate to newer ones such as hybrid ARMs and option ARMs. Your lender should be

    able to match you with a mortgage that's right for your financial situation and risk tolerance.

    4. Evaluate the level of customer service

    When you're comparing offers, ask each lender about their policy regarding locking in their

    quoted rates and see whether there is a fee. Also, ask them to amend one of the terms (such as

    a payment cap) and see how willingly they agree. You're looking for flexibility and

    responsiveness. And also note how well they listen to you. If you ask for a 30-year fixed-rate

    mortgage, they ought to present that as an option, not push you toward something different,

    such as an interest-only loan. If you're not getting good service from a lender who is competingfor your business, you're not likely to get it after you've agreed to work with them.

    5. Check out the lender's reputation

    Word of mouth is important in every business, including the loan market. If you've never worked

    with a particular lender, you'll want to find out the opinion of people who have.

    Some important terms

    Purchase Points

    Purchase points, also known as a "buy-down" or "discount points," are an up-front fee paid to

    the lender at closing to buy-down or lower your interest rate over the life of the loan. Each point

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    is equal to one percent of your total loan amount. If you have a $100,000 loan, one point would

    equal $1,000. The more points you buy, the lower your interest rate, but the more money you'll

    need at closing.

    How do you decide whether you should buy points and if so, how many? Well, the decision

    should be based on how long you plan on living in your home and what you can afford to pay

    each month toward your mortgage. If you plan on living in your home for more than five years,

    it's probably a good idea to purchase points. The longer you live in your home, the more you can

    save on interest over the life of the loan.

    Interest Rate

    When you get a mortgage, you are charged an interest rate.this is the rate which the lender

    charges you for using their money to buy a home. It determines how much your monthly

    payments will be. Generally speaking, the higher the interest rate, the higher your monthly

    payment.

    Mortgage interest rates change constantly.daily, even hourly. If you speak to a lender and arequoted a specific interest rate, that's not to say you'll necessarily get that rate when you close on

    your loan. Not unless you formally lock-in that rate with the lender.locking in an interest rate will

    guarantee you get your loan with a particular interest rate. Lenders will allow you to lock in for

    15, 45 or 60 days. But the longer you lock in, the more expensive it will be, since it's more of a

    risk to lenders.

    Fees

    There are always fees associated with getting a mortgage, these fees cover the cost of

    processing and underwriting the loan. These fees can include charges for ensuring the title to

    the home is free and clear; paying for a land survey; or paying for a home appraisal which givesyou the estimated value of the property (lenders require an appraisal to close on your

    mortgage).

    Deciding which mortgage to get may depend on what each lender does because different

    lenders may charge different amounts. Some may charge lesser closing fees to lure you in, but

    may charge you a higher interest rate, which means you may pay more in the long run. But

    everyone has different needs.you may or may not be able to afford to pay more at closing and

    are willing to pay more over the long term.

    Before it comes time to close, do your homework, make sure there are no hidden fees, and ask

    your lender lots of questions so that you understand all the costs involved with your mortgage.

    How to Compare Loans among DifferentLenders?

    Comparing loans of different lenders is often the most difficult part ofmortgage shopping.

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    Firstly, it is important to keep in mind that mortgage packages consist ofmore than interest rates. They consist of a quoted rate, points and closingcosts.

    Points are an up-front fee paid to the lender at closing. Each point equals one

    percent of the loan amount. Points are charged, or paid, to lower or increasethe rate on the loan. Most lenders will allow you to choose amongst a varietyof rate and point combinations for the same loan product. Therefore, whencomparing rates of different lenders, make sure you compare also theassociated points. Closing costs typically consist of loan related fees, titleand escrow charges, government recording and transfer charges and canadd thousands of dollars to the cost of your loan. When comparing lenders itis important to compare loan related fees (i.e. the fees which lenders chargeto process, approve and make the mortgage loan), since the other fees aretypically independent of the lender.

    Secondly, when comparing loans of different lenders you need to thoroughlyinvestigate and compare all loan features: maximum LTV, mortgageinsurance payments (if any), credit and cash reserve requirements,qualifying ratios, etc.

    Thirdly, for each loan you are comparing find out the lock-in period, duringwhich the interest rate and points quoted to you will be guaranteed. Lock-insof 30, 45 and 60 days are common. Some lenders may offer a lock-in for onlya short period of time (15 days, for example). Usually, the longer the lock-inperiod, the higher the price of loan. The lock-in period should be long enoughto allow for settlement before lock-in expires.

    Finally, make sure that you are comparing the interest rates on the sameday. Rates change daily, if not a couple of times a day.

    So, what is the best way to compare loans among different lenders?

    First of all when you compare different lenders you should compare loanproducts of the same type (e.g. 30-year fixed). It does not make sense tocompare different types of loan programs (e.g. 30-year fixed vs. 15-yearfixed).

    To compare loan products of the same type among different lenders:

    1. Fix all lenders at one interest rate and lock-in period.

    You have to compare different lenders on the same rate (e.g. 6.5%) and lock-in period, otherwise you will be comparing apples and oranges.

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    Most lenders can offer you a variety of rate and point combinations for thesame loan product and allow you to choose the lock-in period.

    2. Add up the total lender fees for that rate including points and loan relatedfees. There are a number of different fees paid in connection with loan, and

    some lenders have different names for them. One lender might offer towaive one fee and then add another one. So when comparing loans ofdifferent lenders you should look at the total sum of ALL loan related fees.These fees can include processing and underwriting fee, mortgage insurancepremium, appraisal fee, the cost of a credit report, tax service fee,application, commitment, wire transfer fee, etc. Points can include discountand origination points and have to be converted into dollar amounts.

    3. The lender that has lower lender fees has a cheaper loan than the lenderwith higher fees.

    Example:

    For a loan amount of 200,000 on a 30 year fixed rate mortgage:

    Lender A is offering you a rate of 6.375% with 0 points, 6.25% with 0.5points, and 6.125% with 1 points. He also charges $450 in loan related fees.

    Lender B offers you 6.25% on the same loan with 0.375 points, 6.125% with0.875 points, and 6.000% with 1.375 points and charges $680 in loan relatedfees.

    Both lenders are quoting rates on a 45 day lock. Which lender has the betterdeal?

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    Lender A

    Rate

    Points

    6.125

    1.000

    6.250

    0.500

    6.375

    0.000

    30-Year Fixed RateMortgage

    Loan Amount:$200,000

    Lock-in Period: 45 days

    Lender B

    Rate

    Points

    6.000

    1.375

    6.125

    0.875

    6.250

    0.375

    Loan Fees:$450

    Loan Fees:$680

    To get an interest rate of 6.125% lender A would charge you:

    $450 + 1.000% * $200,000 = $450 + $2,000 = $2,450

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    and lender B would charge you:

    $680 + 0.875% * $200,000 = $680 + $1,750 = $2,430

    So lender B probably has the better deal.

    REFINANCING

    Refinancing means repaying an existing home loan before its tenure with themoney from a new loan taken under new terms and conditions.

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    Reasons Why People Go for Refinancing:1. Interest rates in the economy have fallen and it makes sense to retire theold high cost fixed rate loan with a new fixed rate loan at the lower rate. Youcan do this provided rates have fallen enough to cover your prepaymentpenalty and the up front costs of initiating a new loan (like processing fee,

    administrative fee etc.)

    2. If you plan to sell the home during the tenure of the original loan you willneed to terminate the loan borrowing the remaining principal amount againstthe home equity or from the potential buyer.

    3. Changing from an adjustable-rate mortgage to a fixed-rate mortgageIf you have an adjustable-rate mortgage, or ARM, your monthly paymentswill change as the interest rate changes. With this kind of mortgage, yourpayments could increase or decrease.You may find yourself uncomfortable with the prospect that your mortgage

    payments could go up. In this case, you may want to consider switching to afixed-rate mortgage to give yourself some peace of mind by having a steadyinterest rate and monthly payment. You also might prefer a fixed-ratemortgage if you think interest rates will be increasing in the future.Tip: If your monthly payment on a fixed-rate loan includes escrow amountsfor taxes and insurance, your payment each month could change over timedue to changes in property taxes, insurance, or community association fees.

    4. You can lower your monthly installment payments by extending the tenure

    of the new loan. In order to improve your monthly cash flows you can prepay

    an existing loan with 5 years to go by taking a new 15 year loan for the

    remaining principal amount.

    5. Getting cash out from the equity built up in your home

    Home equity is the money -value difference between the balance you owe onyour mortgage and the value of your property. When you refinance for anamount greater than what you owe on your home, you can receive thedifference in a cash payment (this is called a cash-out refinancing). Youmight choose to do this, for example, if you need cash to make homeimprovements or pay for a childs education.Remember, though, that when you take out equity, you own less of your

    home. It will take time to build your equity back up. This means that if youneed to sell your home, you will not put as much money in your pocket afterthe sale.If you are considering a cash-out refinancing, think about other alternativesas well. You could shop for a home equity loan or home equity line of creditinstead. Compare a home equity loan with a cash-out refinancing to seewhich is a better deal for youWhat is no-cost refinancing?

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    Lenders often define no-cost refinancing differently, so be sure to askabout the specific terms offered by each lender. Basically, there are two waysto avoid paying up-front fees. The first is an arrangement in which the lendercovers the closing costs, but charges you a higher interest rate.

    Are you eligible to refinance?

    Determining your eligibility for refinancing is similar to the approval processthat you went through with your first mortgage. Your lender will consider

    your income and assets, creditscore, other debts, the current value of the property, and the amount youwant to borrow. If your credit score has improved, you may be able to get aloan at a lower rate. On the other hand, if your credit score is lower now thanwhen you got your current mortgage, you may have to pay a higher interestrate on a new loan.Lenders will look at the amount of the loan you request and the value of yourhome, determined from an appraisal. If the loanto- value (LTV) ratio does notfall within their lending guidelines, they may not be willing to make a loan, ormay offer you a loan with less-favorable terms than you already have. Ifhousing prices fall, your home may not be worth as much as you owe on the

    mortgage. Even if home prices stay the same, if you have a loan thatincludes negative amortization (when your monthly payment is less than theinterest you owe, the unpaid interest is added to the amount you owe), youmay owe more on your mortgage than you originally borrowed. If this is thecase, it could be difficult for you to refinance.

    Things to be kept in mind before going for Refinancing

    Refinancing your home mortgage can come with some great perks. If you do

    it with no money out of pocket, you can skip one to three mortgage

    payments. You can save money on your payment or pay off your entire

    mortgage faster when you have better terms. Here are a few things to payattention to when you refinance your mortgage loan, to make sure that you

    dont overlook anything that you might regret, or that can cause you

    problems later:

    1. Compare loans before deciding

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    Shop around and compare all the terms that different lenders offerbothinterest rates and costs. Remember, shopping, comparing, and negotiatingcan save you thousands of dollars. Lenders are required by federal law toprovide a good faith estimate within three days of receiving your loanapplication. You can ask your lender for an estimate of the closing costs for

    the loan. The estimate should give you a detailed approximation of all costsinvolved in closing. Review these documents carefully and compare thesecosts with those for other loans. You can also ask for a copy of the HUD-1settlement cost form one day before you are due to sign the final documents.Tip: If you want to make sure the interest rate your lender offers you is therate you get when you close the loan, ask about a mortgage lock-in (alsocalled a rate lock or rate commitment). Any lock-in promise should be inwriting. Make sure your lender explains any costs or obligations before yousign.

    2. Take care of the additional costs involved

    3. Apply for a pre-approval to many different lenders to make sure you are

    getting the lowest rate possible. When you do this, make sure that with the

    initial pre-approval application, the lender is not pulling your credit history.

    You will want to reserve your credit pull for the lender that you are most

    likely to work with. You can decide that after you have gone through the

    preliminary pre-approval process with a few lenders. Each time your credit is

    pulled, it docks your credit score just a little. If you have too many inquiries,

    it could keep you from refinancing your mortgage loan with the lowest rate

    possible. When you pre-apply for home mortgage loans online, most lenders

    or mortgage service companies will not initially pull your credit. Check forinformation about this on their website. They will usually tell you whether or

    not they are going to pull your credit. Also, if on the application you do not

    give them your social security number, they cannot pull your credit. If, on the

    application, they ask you to describe your credit, they are probably not

    pulling your credit.

    4. When evaluating different lender offers, in the mortgage loan pre-approval

    process, pay closest attention to the interest rates they are offering & the

    closing costs. These are the two biggest factors that will help you figure outwhich lender is right for you. If one of these two factors is too high, it could

    offset the benefit of refinancing for you.

    5. Get your interest rate and closing costs in writing as soon as you decide

    on a lender to work with. Get your lender to give you a commitment in

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    advance of all of the costs that will be involved with your loan. Find out if the

    refinance loan you are getting has a pre-payment penalty as well.

    Sometimes lenders will leave out important information like this, if they think

    it might scare you away from refinancing with them.

    6. Make sure that your original mortgage does not have a pre-paymentpenalty or early payoff penalty of any kind. Sometimes people will get into

    their mortgage with the mortgage having a pre-payment penalty and they

    will not even know about it. Pre-payment penalties usually range from 6

    months to 3 years with a penalty for an early payoff. The penalty is usually

    about the amount of 6 months worth of your mortgage loan interest, but this

    varies. You would have to be able to have some significant payment and

    interest savings on your refinance loan to justify refinancing a mortgage loan

    with a pre-payment penalty.

    What Is a Mortgage Prepayment Penalty?

    A prepayment penalty is a provision of your contract with the lender thatstates that in the event you pay off the loan entirely, you will pay a penalty.Penalties are usually expressed as a percent of the outstanding balance attime of prepayment, or a specified number of months of interest.

    Usually, prepayment penalties decline or disappear with the passage of time.

    Seldom do they apply after the fifth year. Partial prepayments of up to 20%of the balance usually are allowed in any one year without a penalty. Apenalty that applies to a home sale as well as a refinancing, is a "hard"penalty; if it applies only to a refinancing, it is a "soft" penalty.

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    Recent trends of home loan in India

    In order to understand the recent trends we need to know or understand

    various factors. These factors play vital role in Indian home loan market.These include interest rate on which banks provide home loan, tax rebate on

    home loan and its impact. Apart from this to understand the recent trend we

    need to compare the trends of home loan of different years. Here we have

    compared the interest and other market trends of year 2009 with 2007-08.

    This kind of comparison gives the result which helps us to understand the

    trends of market of any industry. Apart from the impact of present and past

    economic ups and down also affect the trends. Today the US slowdown is the

    major issue which has affected almost all the industry. So we have also

    discussed this issue in terms to define trend of home loan market in India.

    Impact of slowdown on home loan market

    in India

    The fear of a recession looms over the United States. And as the clinch goes,

    whenever the US sneezes, the world catches a cold. This is evident from the

    way the Indian markets crashed taking a cue from a probable recession in

    the US and a global economic slowdown. U.S slowdown has affected almost

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    all sectors not only in US but to all over the world. Indian economy has also

    been affected by this slowdown because India is a growing country and

    almost in all sectors various multinational companies have major

    contribution. So the role of this slowdown is a major issue to be discussed

    while talking about Home Loan Market in India.

    Bankers who were earlier falling over each other to dole out home loans,

    even for soft furnishings, have suddenly become choosy. Banks like SBI, ICICI

    Bank, UTI Bank, IDBI Bank and leading mortgage firm HDFC are now

    apparently making a conscious attempt to curb their aggression in the home

    loan market.

    Situation is like that if a customer who recently approached a private sector

    bank for a home loan of about Rs 10 lakh for a tenure of 15 years found, to

    his shock, that the eventual loan disbursement was just Rs 5 lakh.

    Most bankers aren't willing to confirm any slowdown in their home loanportfolio. On record, they attribute the marginal dip in home loan

    disbursements to the recent hike in interest rate.

    Privately, however, they have a different story to tell. "The slowdown in the

    home loan market for select players like ICICI Bank was evident from January.

    ICICI Bank's average home loan disbursement in a month is around Rs 2,500

    crore in a month, which has come down to almost Rs 2,000 crore in March,"

    said a private sector banker. ICICI Bank officials denied any slowdown in their

    home loan portfolio and they say that the recent dip in interest rates has had

    some impact on disbursals. However, in absolute terms, it is still low. Eventhis slowdown the deposit growth for the sector as a whole is around 17%,

    while credit is growing at almost 28%, forcing banks to become selective.

    Institutions now charge a floating rate of 8 to 8.25 per cent on home loans

    above Rs 20 lakh. Initial estimates by bankers suggest that the increase in

    rate for home loans and other segments would be around 25-50 basis points

    (0.25% to 0.5%). Even as the provisioning requirement has gone up around

    60 basis points, the hike in interest rates may be lower as the impact would

    be felt for the first year. It would also depend on how well capitalized the

    banks are as the rise in provisioning and risk weightage would affect the

    return on equity for banks. Weaker banks and banks with a large portfolio of

    these loans are likely to be more affected and may hike rates first.

    Home loan growth of disbursals were at 20 per cent in 2007-08 according to

    a study by the credit rating agency CRISIL, a Standard & Poors company.

    This rate is lower than the 30 per cent annual increase seen in the past three

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    years, but in absolute terms represents a substantial expansion. The slower

    growth reflects the impact of rising property prices and interest.

    Role of banks

    The high level of competition being witnessed by the Indian home loan

    market is evident from the fact that a slash in interest rates by one company

    is emulated by its competitors. ICICI Bank and SBI are the leaders in the

    home loan segment among banks, while HDFC and LIC Housing Finance are

    front runners among HFCs.

    On the rate cut war, FICCI said, The advantage banks have in terms of

    access to cheaper funds over HFCs has helped them in reducing interest

    rates on loans.

    The FICCI survey also maintained that most of the housing loans were in theregion of Rs 5-10 lakh, with tenure of 10-15 years.

    The lack of long-term funds was the main constraint for the housing sector.

    The sector also continues to be hit by a lack of foreclosure norms for HFCs.

    Interest and market trends in year 2009

    Home loan interest rates, especially on new home loan accounts, startedsoftening from the beginning of this year when the Reserve Bank of India(RBI) announced sharp cuts in the repo rate and cash reserve ratio (CRR).The RBI started slashing the key policy rates since October last year, aftertaking into account the worsening liquidity situation of banks here. Thecentral bank has reduced its key policy interest rates (repo and reverse repo)and reserve ratio (CRR) four times in the last six months.

    The cut in the repo rate meant commercial banks would have funds availableat a lower cost. On the other hand, the cut in the CRR meant banks wouldhave to keep less money with the RBI and hence they had more money tolend. Analysts believe that interest rates have not yet bottomed out andthere will be further cuts in borrowing rates over the next few months.

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    While the interest rate cut expectation is a thing of the past, the question iswill it go back to the old levels of 7-8 percent which contributed to a propertyboom? Consensus is already building up for the fact that we are headedtowards a low interest rate regime in the coming couple of years, in line with

    global trends. In the case of the domestic economy, the trigger for lowinterest rates has already happened on the deposit front with banks reducingthe rate by 1-2 percent in the last few weeks. Now, the deposit rate hascome down to single digit even with respect to long term deposits (on 3-5years) and that would mean banks have access to cheaper funds. Withinflation too sliding down at a rapid pace, there is hope for continuance of acheaper rate regime.

    Following in State Bank of Indias (SBIs) footsteps, other state-run banksmay also come out with scheme offering home loan at a fixed rate of 8%.The Indian Banks Association (IBA) would review the response of borrowers

    towards the SBI scheme after three weeks and if it finds that there has beena good response, other banks will follow suit.Last week, SBI had announced that it would offer home loans at a flat rate of8% to all borrowers and would freeze this rate for one year. The chairman ofone of the major banks, who asked not to be named, said SBI can afford tolend at such cheap rate as it has one of the best current and savings account(CASA) deposit ratio. CASA deposits are the cheapest source of funds for abank and a high CASA deposit ratio brings down their average cost of funds.This in turn helps the bank in offering cheaper credit while maintaining theirnet interest margin (NIM). NIM is the difference between the rates at whichbanks borrow and lend.

    State-owned banks started cutting their home loan rates after country'slargest lender; State Bank of India froze its new home loan rates at eight percent for one year recently. In that:

    Public-sector lender, Central Bank of India has frozen lending rates onnew housing loans up to Rs 20 lakh at eight per cent for a period ofone year.

    Citibank said that it will lower its home loan rates by 50 basis points.

    HSBC, which has considerably scaled down lending activity, refused tocomment on its future course of action saying it did not make forwardlooking statements.

    Despite repeated monetary policy measures initiated by the Reserve

    Bank of India to step up credit flow, foreign banks and private players,such as ICICI Bank, have not lowered lending rates.

    In all we can say that The interest rates of home loans are expected to go downeven further according to analysts who foresee a cut down in the rates by

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    the RBI in the wake of the decision taken by US Federal Reserve to cut itsrates by a significant margin.

    Interest rate and market trends of last

    two years

    In early 2007 the Reserve Banks (RBI) quarterly reviewed on 31st July of themonetary policy, analysts felt that the moderate inflation can put a break onthe interest rate hikes and may $even result into a cut in the prevailing homeloan rates in India. There might be some activity to reduce the liquidityahike in the cash reserve ratio (CRR) is a possibility.

    Many bankers had of the opinion that the interest rates in the country haspeaked and there were indications that the central bank might not behawkish that time and more so with inflation falling from over 6% in April to4.27% for the week ended July 7.

    Weakening in the interest rates was scheduled and this is predicted to bemore market-led than regulator-driven. The policy will be substantially intactand the interest rates will soften with deposit rates reducing to single-digits.The Reserve Bank of India (RBI) raised CRR by 50 basis points to 7%. Butmost of the leading banks and Housing Finance Companies (HFCs) were notexpecting to increase the lending rates, including home loan rates, to go up.

    At the same time, there was very little to no chance that the banks will lowerthe home loans rates. This news comes as something unexpected for a largenumber of borrowers who had expected the interest rates to come down

    after the revision of the credit policy.

    Customers were skeptical that a hike in CRR may result in an increase in theEMI especially when the floating rates on home loans in India has increasedby 400 basis points from 7.5-8% to 11.5-12% over the past two years.Depending on the absorptive capacity of the banks and HFCs, it had bedecided later whether there would be an increase in the rates.

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    Tax rebate on home loans means that you can save significant part of your

    tax liability if you have taken a home loan. It works in following manner:

    Interest paid on the home loan

    As per Sec 24(b) of the Income Tax Act, 1961 a deduction up to Rs. 150,000

    can be claimed. This deduction is claimed towards the total interest that we

    pay on the home loan towards purchase or construction of house property

    while computing the income from house property.

    The interest payable before you acquire home or start the construction work

    would be deductible in five equal annual installments commencing from the

    year in which the house has been acquired or constructed.

    In case of self- occupied property, this deduction is allowed only for one such

    self - occupied property. The interest towards home loan taken for purchase,

    construction, repairs, renewal or reconstruction of house property is eligiblefor deduction under section 24(b).

    As per the newly introduced Sections 80C read with section 80CCE of the

    Income Tax Act, 1961 the principal repayment up to Rs. 100,000 on your

    home loan will be allowed as a deduction from the gross total income subject

    to fulfillment of prescribed conditions. Let us consider a hypothetical

    example.

    Your taxable Income: Rs 5,50,000

    Principal repayment for the same year: Rs 1,10,000 and Interest payable for

    the year: Rs 1,60,000

    Total Deductions allowed: Rs 2,50,000 (Rs 1,50,000 towards interest payable

    & Rs 1,00,000 for principal repayment of the loan)

    Thus, your taxable income will reduce to Rs 3,00,000 ( Rs 5,50,000 - Rs

    2,50,000 ).

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    HOME LOAN IN INDIA

    Whether you are Non Resident Indian or Resident of India, and you are

    thinking to start your journey of buying a new house, looking to move to a

    new house, investing in property or are looking forward to refinance,Consider answering these questions to yourself:

    Which type of home loan should I prefer?

    Will it be the best scheme that will be fitting my budget?

    Can any insurance plan cover for an unpaid monthly due?

    These are just a dash of the questions to be answered when considering

    taking the plungeinto the loan journey. The different home loan types are

    hereby presented to you to make your journey that more smoother or stepby step, safer and comfortable. Yet, Got a fix on fixed rate or variable rates,

    offset accounts, lines of credit or bridging loans!!

    With so many real estates sites coming up in Indian market, finding an ideal

    house isn't that big a issue nowadays, when you can virtually see all across

    the home you need to purchase by the various real estate simulation

    programs and videos available, but you still need to purchase it, right? To

    really say "own" it. A home loan, also popularly identified as a mortgage, is

    an easier financial option to own a house. Once you've decided to endeavor

    on a home loan, there are so many things that you need to be informed with.Not only is it going to be an emotional experience, it is also going to be a

    very informative monetary journey, as you will be dealing with the whole

    caboodle of the mortgage process along the way. There are thousands of

    home loan companies waiting to provide you with your financial needs. Part

    of the success of this whole financial move is partly in your hands, the

    greater part relies on the efficiency of your chosen mortgage company.

    HOME LOAN INTEREST RATES

    The following table illustrates the comparison between the interest rates

    from various Housing Finance Companies and banks.

    As is apparent from the table, one can get the best fixed loans deals for a

    period of 0-20 years from the Bank of India, expect of course, when the

    loan period is between 6-10years, where Punjab National Bank would let you

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    have the best deal as far as the percentage of interest is concerned. Again, if

    one wishes to go for floating loans, the bank which gives the best deal as far

    as the interest rate is concerned is HDFC followed by PNB Housing Finance

    with the lower rates.

    As you know, there are quite a few hidden prices involved as well, so, pleasebe very vigilant while approaching a bank for a loan, because, the best rate

    may not be the best deal always.

    THE RESERVE BANK OF INDIA (RBI)

    It has in the latest directive asked the Indian banks to be more "fair and

    transparent" while signing their agreements with the consumers. This hascome following complaints from various consumer sections regarding home

    loans.

    Households should get credit counseling before signing any loan agreement.

    In such case, banks should give credit counseling to customer before giving a

    loan. Any non-governmental organization can also give independent credit

    counseling to small borrowers.

    Consumers often complain of not receiving benefits of falling interest rates

    as banks tie their floating rate loans with its PLR and even when rates fall,

    the banks kept the PLR unchanged. But when interest rates are hiked, the

    banks increase the benchmark rate, thus making customers pay a higher

    rate and consequently increase the number of EMIs too. The RBI has asked

    the banks to mend rules for the same.

    Individual borrowers should ask for the exact tenure and EMI while taking a

    fixed rate loan. The RBI has also resolved to look into all consumer

    complaints if it is bought to the regulator's notice.

    The IRDA (insurance regulator) has powers to take action against banks if a

    customer feels cheated while buying an insurance product. On its regulatory

    role, the RBI is trying to maintain a balance between the extent of freedom

    granted to the banks and the objectives of governance.

    RBI has made it mandatory for all banks - including private and foreign banks

    - to offer a passbook to their customers with the address and telephone

    number of the nearest branch.

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    Customers have often been harassed by banks' call centers where there is no

    accountability of the query made. The "do not call" registry has also been

    flouted by banks as customers are bombarded with unnecessary product

    offerings. The RBI has directed the Indian Banks' Association to come out

    with a single "do not call" registry or when a customer adds his name to a

    single bank registry it should then stop unsolicited calls from all banks.

    On rising credit card frauds and wrong statements given by the banks, the

    RBI has asked the customers to approach the ombudsman to redress their

    problems. This way the RBI feels would inculcate more consumer friendly

    practices among Indian banks.

    HOME LOAN ELIGIBILITY FOR INDIAN

    RESIDENTS

    It depends upon the repayment capacity of the loan applicant. The maximum

    loan that can be sanctioned varies with the banks and other housing finance

    companies (HFC) and generally, the maximum loan amount granted is 80 to

    85% of the cost of your home. Home loan eligibility corresponding to

    repayment option is based on the following factors. Even though, the

    eligibility criteria may vary according to the HFCs regulations.

    Home loan Eligibility Criteria

    Age

    (Minimum)21 Years

    Age

    (Maximum)58(salaried)

    60(Public

    limited/Government

    Employees)

    65 (self employed)

    Qualificatio Graduation

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    n

    Income

    Stable source of

    income and saving

    history

    Dependents

    Number of

    dependents, assets,

    liabilities

    Other

    income

    sources

    Spouse's income

    As home loan rates increase, the loan eligibility for a borrower becomes

    stiffer. In such a scenario, some home loan borrowers might have to re-

    evaluate their options (in terms of loan amount) on account of the neweligibility criteria. Home loan eligibility can be enhanced by:

    i) Increasing the Home loan tenureOne of the basic process of enhancing the home loan eligibility is by opting

    for a higher tenure. This is so because the EMI, which an individual has to

    pay, starts to decline as the tenure increases while the interest rate as well

    as the principal amount remains the same. What changes though, is the net

    interest outgo, which rises with a rise in tenure. And since the individual is

    paying a lower EMI now, his 'ability to pay' and therefore his loan eligibilityautomatically increase.

    ii) Repaying other outstanding loansThere might be adverse effect on home loan eligibility for individuals with

    outstanding loans like car loans or personal loans. Industry standards

    suggest that existing loans with over 12 unpaid installments are taken into

    account while computing the home loan borrower's eligibility. In such a

    scenario, individuals have the option of prepaying in part/full their existing

    loans. This will ensure that their eligibility for the home loan purpose isunaffected.

    iii) Clubbing of incomesHome loan eligibility can also be enhanced by clubbing incomes of spouse,

    children (son or daughter) staying with the applicant and having regular

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    income and even earning parents (father or mother) living with the applicant.

    The eligibility in such cases, will be calculated on the clubbed income of both

    the applicants enhancing the individual's eligibility to the extent of the co-

    applicant's income.

    iv) Step-up loanIndividuals can also enhance their loan eligibility by opting for step-up loans.

    A step-up loan is a loan wherein an individual pays a lower EMI during the

    initial years and the same is enhanced during the rest of the loan tenure.

    HFCs usually consider the lower EMI of the initial years to calculate his loan

    eligibility while the initial lower EMI helps increase the individual's 'capacity

    to borrow'.

    v) PerksSalaried individuals must ensure that variable sources of income likeperformance-linked pay among others are taken into consideration while

    computing their income. This in turn will imply that the loan amounts they

    are eligible for stand enhanced as well.

    However, potential investors and borrowers must work out solutions best

    suited for their profile after speaking to their home loan consultant and only

    then consider acting on the options discussed. Because, increasing loan

    eligibility can have an impact on other aspects of their financial planning.

    NEW RBI DIRECTIVES FOR HOME LOAN

    The Reserve Bank of India (RBI) has in the latest directive asked the Indian

    banks to be more "fair and transparent" while signing their agreements with

    the consumers. This has come following complaints from various consumer

    sections regarding home loans.

    Households should get credit counseling before signing any loan agreement.

    In such case, banks should give credit counseling to customer before giving a

    loan. Any non-governmental organization can also give independent credit

    counseling to small borrowers.

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    Consumers often complain of not receiving benefits of falling interest rates

    as banks tie their floating rate loans with its PLR and even when rates fall,

    the banks kept the PLR unchanged. But when interest rates are hiked, the

    banks increase the benchmark rate, thus making customers pay a higher

    rate and consequently increase the number of EMIs too. The RBI has asked

    the banks to mend rules for the same.

    Individual borrowers should ask for the exact tenure and EMI while taking a

    fixed rate loan. The RBI has also resolved to look into all consumer

    complaints if it is bought to the regulator's notice.

    The IRDA (insurance regulator) has powers to take action against banks if a

    customer feels cheated while buying an insurance product. On its regulatory

    role, the RBI is trying to maintain a balance between the extent of freedom

    granted to the banks and the objectives of governance.

    RBI has made it mandatory for all banks - including private and foreign banks

    - to offer a passbook to their customers with the address and telephone

    number of the nearest branch.

    Customers have often been harassed by banks' call centers where there is no

    accountability of the query made. The "do not call" registry has also been

    flouted by banks as customers are bombarded with unnecessary product

    offerings. The RBI has directed the Indian Banks' Association to come out

    with a single "do not call" registry or when a customer adds his name to a

    single bank registry it should then stop unsolicited calls from all banks.

    On rising credit card frauds and wrong statements given by the banks, the

    RBI has asked the customers to approach the ombudsman to redress their

    problems. This way the RBI feels would inculcate more consumer friendly

    practices among Indian banks.

    REPAYMENT OPTIONS

    Every housing finance companies or banks have customized repayment

    options to suit every individual's requirement and also repaying capacity with

    some tax benefits. They have thereby come up with more flexible and

    Multiple Repayment Option. A few among them are.

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    Step-up Repayment Facility

    The objective of step-up repayment is to provide the borrower with a

    repayment schedule, which is linked to expected growth in income. It not

    only helps a customer get a larger amount of loan as compared to the loan

    under the normal housing loan; but the customer can avail of a higher

    amount of loan and pay lower EMIs in the initial years, which is subsequently

    accelerated proportionately with the assumed increase in his income.

    Flexible Loan installments Plan

    This repayment option offers a customized solution to suit the needs ofcustomers whose repayment capacity is likely to alter during the term of the

    loan. In cases when a borrower is nearing retirement, the loan is structured

    in such a way that the EMI is higher during the initial years and subsequently

    decreases in the latter part proportionate to the reduced income of the

    customer. This option helps such customers combine the incomes and take a

    long term home loan where in the installment reduces upon retirement of the

    borrower.

    Tranche Based EMICustomers purchasing an under construction property, need to pay interest

    (on the loan amount drawn based on level of construction) till the property is

    ready. Tranche Based EMI is a special facility offered by some banks to help

    customer save this interest. Customers can fix the installments they wish to

    pay till the property is ready. The minimum amount payable is the interest on

    the loan amount drawn. Anything over and above the interest paid by the

    customer goes towards principal repayment. The customer benefits by

    starting EMI and hence repays the loan faster.

    Accelerated Repayment Scheme :-

    Accelerated Repayment Scheme offers you a great opportunity to repay the

    loan faster by increasing the EMI. Whenever you get an increment, increase

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    in your disposable income or have lump sum funds for loan prepayment, you

    can benefit by - Increase in EMI means faster loan repayment, saving of

    interest because of faster loan repayment or invest lump sum funds rather

    than use it for loan prepayment. The return from the investments also gives

    you the comfort of paying the increased EMI.

    Balloon Payment

    Balloon Payment is an augmentation tool offered by the financial institutions,

    which helps in increasing the loan eligibility of the customer withoutincreasing the EMI by assigning securities like National Savings Certificate

    (NSC), LIC policies etc. The present value of the maturity amount of assigned

    securities is combined with the loan amount to arrive at the enhanced loan

    eligibility. Under this facility, the EMI is calculated on the net loan amount

    (i.e. total loan less the present value of the maturity value of the securities).

    HOME LOANS TENUREHome loan tenures fixed by RBI are available up to a term of 15 years. Some

    financial institutions have home loan tenures in the range extending up to

    20, 25 and 30 years if the applicant fulfils certain criteria. However, you

    cannot opt for a term that extends beyond your attaining retirement age or

    60 years of age (whichever is earlier):

    Type ofProperty

    Salarie

    d

    Self-

    Employ

    ed

    Residential15

    years

    10

    years

    Plot of Land10

    years

    10

    years

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    Against

    Existing Plot

    of Land

    15

    years

    10

    years

    DOCUMENTATION

    Documentation refers to the specific documents to be submitted by Resident

    Indians as they apply for home loan. These documents are very much

    necessary for the financial institutions to avoid any dispute and uncertainty.

    The documents to be provided by the resident Indians include income proof,

    property documents and personal identification documents, etc. which of

    course varies based on the borrowers financial status and the type of loan

    you want to avail. And of course every resident Indian should follow some

    eligibility criteria before apply Home Loans in India.

    However, there are some standard documents made mandatory for a loan

    applicant to produce such as the loan applicant's profile, earning life of the

    applicant and present financial status proof etc.

    The Applicant's Profile refers to the bio-data of the applicant, mentioning his

    address, age, family background and detail information.

    The Earning Life of the Applicants' proof clarifies the capability of the loan

    payment.

    The Present Financial status gives the present capability of handling the own

    contribution and other expenditures. This includes the mortgage to be

    deposited against the loan amount.

    HOME LOAN TYPES

    Owning a piece of land or property is a lifetime dream for every individual.

    There are many home loans provider in the market to make your dream

    come true. But before you opt for any home loan provider, you need to

    consider certain factors related to property that you are interested in buying

    and also about the salient features offered by a home loan provider and also

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    study some Home Loans and Home Insurance FAQs which helps in applying a

    Home Loan in India.

    And the most important thing is you should know about each and every term

    related with Home Loans before applying for a Loan. It is always advisable to

    consult a home loan expert or consultant before applying for a home loan orpurchasing a property.

    You can take different types of home loans like Bridge Loans, Home

    construction Loans, Home Equity Loans, Home Extension Loans, Home

    Improvement Loans, Land Purchase Loans etc for different schemes available

    in the market. There are different types of home loans tailored to meet your

    needs.

    Home Purchase Loans: These are the basic forms of home loans used for

    purchasing of a new home.

    Home Improvement Loans: These loans are given for implementing repair

    works, healing and renovations in a home that has already been purchased.

    Home Construction Loans: These loans are available for the construction of a

    new home.

    Home Extension Loans: These loans are given for expanding or extending an

    existing home. For eg: addition of an extra room etc.

    Home Conversion Loans: These loans are available for those who havefinanced the present home with a home loan and wish to purchase and move

    to another home for which some extra funds are required. Through home

    conversion loan, the existing loan is transferred to the new home including

    the extra amount required, eliminating the need of pre-payment of the

    previous loan.

    Land Purchase Loans: These loans are available for purchasing land for both

    construction and investment purposes.

    Bridge Loans: Bridge loans are designed for people who wish to sell the

    existing home and purchase another one. The bridge loans help finance the

    new home, until a buyer is found for the home.

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    DEVELOPMENT FUND INSTIUTIONS(DFIS)

    NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD)

    It credit functions include providing credit to agriculture, small and village

    and cottage industries through banks by way of refinance facilities to

    commercial banks, RRBs, Coop Banks, Land Development Banks and other

    Financial Institutions like KVIC. Its developmental functions are co-ordination

    of various institutions, acting as agent of Govt. and RBI, providing training

    and research facilities. The regulatory functions include inspection of RRBs

    and Coop Banks, receipt of returns and making of recommendations for

    opening new branches.

    EXPORT IMPORT BANK OF INDIA

    It undertakes following kind of functions:

    -direct finance to exporter of goods.

    -direct finance to software exports and consultancy services.

    -finance for overseas joint ventures and turnkey construction project

    -finance for import and export of machinery and equipment on lease basis

    -finance for deferred payment facility

    -issue of guarantees-multi-currency financing facility to project exporters.

    -export bills re-discounting

    -refinance to commercial banks in India.

    SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

    Its functions include:

    -administration of SIDF and NEF for development and equity support to small

    and tiny industry.

    -providing working capital through single window scheme

    -providing refinance support to banks/development finance institutions.

    -undertaking direct financing of SSI units.

    -coordination of functions of various institutions engaged in finance to SSI

    and tiny units.

    NATIONAL HOUSING BANK (NHB)

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    Its functions are:

    -promotion and development of housing finance institutions.

    -refinance to banks and other housing finance institutions for credit facilities

    granted by them for housing.

    -inspection of books of accounts of housing finance institutions

    -technical, administrative and advisory assistance to housing finance

    institutions.

    -providing underwriting and guarantee facilities to housing finance

    institutions.

    -arranging financing and resources for institutions engaged in housing

    facilities.

    -advising Central and other govt. in the matter of housing and housing

    finance.

    -collection and publication of information and data relating to housingfinance.

    -maintaining control over corporate housing finance institutions.

    INDUSTRIAL INVESTMENT BANK OF INDIA (formerly IRBI)

    Its earlier functions were to provide finance for industrial rehabilitation and

    revival of sick industrial units by way of rationalization, expansion,

    diversification and modernization and also to co-ordinate the work of other

    institutions for this purpose. agricultural and rural requirements.

    INDUSTRIAL FINANCE CORPORATION OF INDIA Ltd (IFCI)

    Its functions include:

    -direct financial support (by way of rupee term loans as well as foreign

    currency loans) to industrial units for undertaking new projects, expansion,

    modernization, diversification etc.

    -subscription and underwriting of public issues of shares and debentures.

    -guaranteeing of foreign currency loans and also deferred payment

    guarantees.

    -merchant banking, leasing and equipment finance.

    INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA

    (ICICI)

    It functions include:

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    -assistance to industrial undertakings for new projects, expansion,

    modernization, diversification etc. in the shape of rupee loans or foreign

    currency loans.

    -Subscription and underwriting of capital issues

    -Guaranteeing the payment for credits.

    -Merchant banking, equipment leasing and project counseling.

    INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)

    Its functions include:

    -direct loans (rupee as well as foreign currency) to industrial undertakings as

    defined in the Act to finance their new projects, expansion, modernization

    etc.

    -soft loans for various purposes including modernization and under

    equipment finance scheme-underwriting and direct subscription to shares/debentures of the industrial

    companies.

    -sanction of foreign currency loans for import of equipment or capital goods.

    -short term working capital loans to the corporate for meeting their working

    capital requirement.

    Of late, with the reforms in the financial sector, IDBI has taken steps to re-

    shape its role from a development finance institution to a commercial

    institution. It has floated its own bank IDBI Bank as also a Mutual Fund.

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    Prime lending Rate

    This is the benchmark interest rate on the basis of which financial institutions

    decide the interest rates on the various loan products.

    Cash Reserve Ratio (CRR)

    It is the percentage of cash deposits that banks need to keep with the RBI onan everyday basis. Increasing the CRR also means banks have lesser money

    to lend. The RBI adjusts the CRR to change the amount of liquidity in the

    financial system, which helps to keep the inflation within reasonable limits.

    Also, when CRR is increased, the interest rates also increase as the amount

    of liquidity in the financial system decreases. RBI has made frequent CRR

    cuts in the recent past to inject liquidity into the financial system. This is

    expected to impact the interest rates bunched with other favorable aspects

    for home loan applicants.

    Repo Rate

    This is the interest rate at which RBI lends money to the banks whenever

    they need to borrow funds from the RBI. When the repo rate decreases its

    good news for the banks as they can avail more funds at a lower interest rate

    and vice versa.

    Reverse Repo Rate

    This means just the opposite! Here, the RBI borrows funds from the banks

    and when the Reverse Repo Rate increases banks are very happy to lend

    money to RBI because of the attractive interest rates RBI offers to obtain theloans.

    SLR (Statutory Liquidity Ratio) Rate

    Every commercial bank needs to maintain a certain amount of funds in some

    form, which includes cash, gold, government bonds etc. before they can

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    provide credit to its customers. This measure helps RBI have a control over

    the banks credit expansion, keeping it realistic.

    The collective impact of all these rates influence the liquidity in the financial

    system and lead to an increase or decrease in PLR, which in turn affects loan

    lending rates.