Housing Loan – 5 Weird Reasons to Finalize the Bank or HFC

Housing Loan is a long term commitment. Even if you go by an average tenure of 8 years, still housing loan can impact your finances if your choice is wrong. Let me be very honest and candid on reviews of home loan providers. You will not find consensus good reviews about any of the Housing Loan providers. At the same time, it is a personal experience and depends on a lot of factors. I shared pre home loan review of top 5. Now you must be wondering, how to finalize a housing loan provider. I suggest you go through the “Home Loan” section on this blog. Through various posts, i have shared the points to be considered by potential borrowers. All points are situational in nature and there is NO standard process. You always need to compromise on few points depending on case to case basis.

Based on my experience, i can say that time pressure plays an important role in the selection of housing loan provider. After the token money is paid or sale agreement is signed, the seller gives max 2-3 weeks’ time to the buyer to process housing loan. It is not a sufficient time to take the right decision. Therefore, the borrower is running against the time & may take a hasty decision. In my opinion, the buyer can try to close the deal as soon as possible. On papers, he should insist on at least 45 days to 60 days’ time to process housing loan.

I come across multiple reasons from my readers for availing a Housing Loan from a particular bank or HFC. My personal favourite reason is a reason given by the borrower who availed housing loan from LICHFL. The reason given by him was that since he had LIC Life insurance policy, therefore, he availed loan from LICHFL. It is not his mistake but the salesperson of LICHFL told him that loan is easily approved for borrowers with LIC policy :). Personally, i find some of the reasons very weird or illogical. Though the borrower may be right in his/her approach but personally i feel that every decision should be logical and well thought through. I am listing down five such reasons.

Housing Loan – 5 Weird Reasons to Finalize the Bank or HFC

1. Processing Fees is waived off: In my opinion, this is the biggest marketing gimmick. I always suggest looking at bigger picture. The processing fees are normally 0.5% – 1% of loan amount or Rs 10,000+taxes. Some banks charge Rs 5,000+taxes and balance in other heads. Therefore, including the entire home loan hidden charges total is between 20k to 25k.

As a marketing promotion, the bank will waive off processing fees. Trust me; waiver of processing fees has high perceived value in the mind of a borrower. Let me fix this misconception. Assuming, i am availing housing loan of 50L at 9.55% for 20 years. My EMI will be approx. Rs 46,750. You can do these calculations through EMI Calculator.  Assuming my home loan run for the entire tenure. On a housing loan of 50L, i will pay an interest of whooping Rs 62, 34,396 i.e. 62L. In other words, my interest payout will be more than the loan amount. As i am going to pay 62L interest, therefore, should i bother about the processing of Rs 10,000+ to finalize a home loan provider? The processing fee is not even a fraction of total interest. I should be concerned about more imp factors like markup, base rate, service, historical interest rate movement etc that will impact my interest outflow i.e. 62L.

Last but not least, always remember that there are NO FREE lunches in this world. If the bank has to charge Rs 20k from me then they will definitely charge. Processing fees will be Zero but there will be legal fees of 5k, Login fees of 4k, and valuation fees of 2k and so on. At the end of the day, total will match to 20k. Therefore, processing fees should not be a criterion to finalize the bank or HFC.

2. Balance Transfer in Future: You can term it as either a casual approach or a consoling factor to justify the decision. In many cases, a borrower is aware that he/she is not making the right choice but they always think that they will balance transfer in future. Always remember that balance transfer means cost, time and efforts. As i mentioned that decision is always situational in nature. Therefore, it might be easy for me to comment but only a borrower is in a right position to take a decision. I observed this reason in the case of a leading HFC that charges fixed interest for 2 years. After 2 years, the interest rate is between 11.5% – 12%. Though borrower is aware that after 2 years there is no choice but to balance transfers but due to current compulsions, they select particular HFC. A balance transfer in future is the highly illogical reason for the current decision.

3. Convenience: It is one of the imp considerations. Borrowers prefer the least documentation. Therefore, borrowers prefer housing loan from a bank or HFC that has pre-approved the project. In a recent case of one of the clients, the project was approved by the SBI but housing loan from PNBHFL was rejected. Quite surprising. When the client checked the reason, he came to know that builder interchanged few blocks with common area/children’s park as per approved plan. SBI was not aware of the same as the project was approved 2 years back. Always remember, a convenience at this stage may cost heavily in future. Therefore, if you are looking for a convenience factor and least documentation then it is better to postpone property purchase decision. The fact of the matter is that it is quite a hassle to buy property and avail housing loan.

4. Seller Recommendation: Normally seller prefers that buyer should avail housing loan from the same bank from which the seller availed or has a running housing loan. The housing loan is processed fast in this case. Seller has a selfish motive behind the same. It has its own pitfalls like the buyer will never get to see the original documents. In a similar case, i observed that banks lost two original documents. Now the person B who bought from person A had a loan from the same bank as person A. He was not able to prove at what stage the original documents were lost by the bank. Therefore, it is important to check all the original documents at the time of purchase. Personally, i will not suggest this arrangement.

5. No other option: Last but not the least, as i always highlight that you should buy in a project approved by at least couple of leading banks and HFC’s. Most of the projects on outskirts of the city or on panchayat land are approved by only one or two Loan for Home provider mostly a very small player. Trust me, no other bank or HFC is willing to lend in such cases. It is always advisable to avail housing loan from one of the top lenders. If they are not willing to lend then it’s a red flag that something is wrong. In such cases, you can altogether drop the idea of buying a property that particular project.

Source: http://www.nitinbhatia.in/home-loan/housing-loan/

Personal Loan Overview

Personal Loans are usually of two types i.e. secured personal loan which is secured against the mortgage of securities, high surrender value insurance policies, gold, etc. and another is unsecured personal loan which does not require you to mortgage anything.

Unsecured personal loans do not require you to provide any collateral security, though some PSU banks may insist on a third party guarantee. Unsecured personal loan can be taken to finance any short-term requirement like oversea trips, marriage, medical emergencies, etc. The only condition is that the persona loan should not be used for speculative purposes.

Personal loan is a simple hassle free process of funding your personal requirement with minimal documentation and within quick time. In India, Banks as well as Non-Banking Financial Corporation (NBFC) finance personal loan.

Purpose of Personal Loan

Personal Loan is commonly known as all-purpose loan it can be uses for fulfilling various legitimate personal needs that includes:-

Higher education for self, children, etc.

Marriage in the family

Dream vacation

Festival expenses

Medical emergencies

Furnishing or renovation of house

Purchase of high end consumer goods

Purchasing of high end lifestyle products

Etc.

Personal Loan Eligibility

Being unsecured in nature, lenders have stricter norms regarding eligibility and sanctioning of personal loan. But some of the basic eligibility criteria the applicant must fulfill are:

Should be a Resident Indian

Should be minimum 21 years of age

Should be Salaried or Self Employed Professional / Non professional

Should be a permanent employee of the organization, if salaried

Should have continuous source of income to service the loan

Rate of Interest and Loan Amount

The rate of interest is primarily dependent on:-

Company for which the prospective borrower is working

Credit history of the borrower.

The bank may reject the personal loan if the borrower has defaulted on his past dues on any credit card or loans.

The maximum loan amount is dependent on prospective borrower’s income and his ability to service the Home Loan Rates and can go up as high as Rs. 30 lakhs. The final loan amount is dependent on host of other factors like regular fixed expenses, existing loan repayment, etc.

Emi and Repayment

Most lenders will require borrower to repay the loan within a period of 12 to 60 months maximum. The borrower can repay the loan by paying regular monthly installments also known as Emi or Equated Monthly installments.

Fees and Charges

Processing fees varies from lender to lender and will be in the range of 0.5% to 3% (excl. service tax) of loan amount. Generally the processing fee for personal loan is not taken upfront, but is deducted from the loan amount disbursed by the lender.

If the personal loan is availed on floating rate of interest the borrower need not pay penalty for early closure of loan but may end up paying penalty if the loan is on fixed rate of interest.

Documents Checklist for Personal Loan

To start the loan process, the lender will require:-

Application Form with photograph

KYC Documents –

Proof of Identity – PAN / Passport / Driver’s License / Voter ID card / Aadhaar card, etc.) and

Proof of Address – Passport / Aadhaar card / Landline Telephone Bill / Electricity Bill, Ration Card, etc.)

A/c. Statement –

Statement of bank account for the last six months

If any previous loan, then Loan A/c. Statement for last 1 year

Income Documents

[Source: http://www.apnapaisa.com/personal-loan-overview/]

Home Loan Jargons

Availing a home loan…. It can be a head spinning affair for those involved! Deciphering the terms and the jargons involved, well, one can just go dizzy!

This article is an attempt to throw light on the complex terms that are involved in the home loaning process. Go one by one and get it all clear:

EMI: In other words, it is the Equated Monthly Installment till you pay back your loan. It is calculated on your interest and principal rates.

Fixed Rate of Interest: This means that the interest rate will remain unchanged or stable throughout the loaning period.

Floating Rate of Interest: In this, the interest rate changes with the market lending rates. Opting for this means that you might have to pay more when the lending rates go up in the market.

Monthly Reducing Balance: Meaning, your interest rate drops with your repayment of principal amount of Home Loans.

Annual Reducing Balance: Here, the principal reduction is done at the end of the year. So, you will be paying interest even for the principal amount which you have paid back.

Processing Charge: It is a payable fee for the loan lending institution when you apply for a home loan.

Prepayment Penalties: This is a charge initiated by the bank/financial institutions when you pay back the loan before the term period mentioned in the agreement, ie, a penalty for prepayment.

Commitment Fee: When you do not avail the loan within a stipulated period, after it being sanctioned and processed, then some banks/ institutions charge you with a commitment fee.

Miscellaneous Cost: These are the other charges like documentation or consultation fees that you may have to pay some lenders. Was it helpful?? Want clarity on more home loan terms? Write back to us @ ask.indiaproperty.com. Our experts are waiting to answer your queries! Ask Now….!

[Source: http://blog.indiaproperty.com/home-loan-jargons/]

Financial Plan That Works For Everyone

To get anywhere, you need a plan and the same goes for your financial future. Unfortunately. A financial plan appears, to most of us, like a visit to the dentist - something to postpone until you wake up screaming in the middle of the night.

So we came up with a financial plan that's more like a visit to your favorite coffee shop. It involves forming simple habits and takes less than an hour to start implementing.

Investing, tax planning

Maximize your Employee Provident Fund (EPF) contribution. If your total contribution (including your employer's) to EPF is less than Rs 1.5 lakh, invest the difference in Tax Saving (ELSS) funds. Your tax planning is done.

Invest 30% of your take home salary in diversified equity mutual funds. Never invest directly in stocks. Schedule a SIP to automate this habit.

Got your annual bonus? Invest 50% of it in a 5 year auto-renewing bank FD. This is your emergency fund.

Invest the remaining bonus in yourself - take a course, travel, do fun stuff.

If you have a home loan, split the bonus 3 ways - one third to prepay the loan.

Insurance

If you have people who depend on your income, then buy a 40 year term life insurance plan at 25, then a 30 year plan at 35 and a 20 year plan at 45. Every time make sure the total sum insured is 30x your then salary. There is no need to buy a life insurance policy unless you have dependents.

Buy health insurance for every member of your family. Even if you're covered by your employer. Div.>

Buy insurance for your car, your house and its contents. Div.>

Renew your insurance every year 1 month in advance. Div>

Please note that I said "buy" not invest. Insurance is not an investment.

Loans

Only ever take a Home Loans to buy a home. Never more than 75% and never longer than 15 years. Pay it off within 7 years. Yes, it's possible.

Bonus tips

Maintain a single no frills bank account and a single no frills credit card.

Set all your bills (electricity, phone etc) to auto-debit to your credit card every month.

Pay off your credit card every month - in full. Set it to auto-debit your bank account every month.

Contribute to charity - your time is better but some money will do as well.

Congratulations! You've just set yourself up for a comfortable financial future.

[Source: https://scripbox.com/blog/financial-plan-everyone]

Home Loan Closure Process

Your home loan closure process starts after paying the last EMI. In an ideal world, you should get all your property documents, NOC, Lien removed automatically and a Thank you note sent from the Bank.

Before this article turns into ‘fine prints’, here are the main things to know before signing the Bank’s acknowledgement letter.

Home Loan Closure Process

After your last Home Loan EMI, you need to send a written letter/application for return of original documents. Mention having paid the EMI with no dues left. You may also attach proof of last EMI payment.

It is good practice to mention the list of documents you expect the bank to return.

Get an acknowledgment receipt of loan closure application from your bank. Banks take 7-10 days to respond to closure requests.

Tasks for Home Loan closure

1). Original Property Documents

Collect all your original documents (In original condition) from Banks. Here, is a handy list of documents to refresh you.

Why it’s important?

The original documents with House Loan Interest Rates will be required to prove your ownership and also when selling the said property. Make sure to receive/check all the documents you had given at the time loan disbursement.

How to do this?

Your home loan bank has all your property documents. They are responsible for returning it to borrower. Please make sure that banks Do Not hand over property documents to builder as it because further inconvenience and running around.

2). Home Loan NOC

If you have paid for it, you should get a receipt for it. NOC (No Objection certificate Or No Due certificate or) at home loan closure is the proof that you have completely paid the loan and property is debt free. (Interest + principle). Look for this line in your Bank’s NOC letter.

The address of property and account details of borrower/s should be mentioned in NOC.

Why it’s Important?

NOC letter is loan clearance letter. This states that property is now debt free and bank has nothing to do with it. NOC is required for property resale. NOC is also beneficial in updating your credit score

How to Do this?

Your Bank is responsible for giving you NOC. Your job is to ask them or insist on it.

3). Remove Lien

A Lien is a transaction registered in Registrar Office against the property. Banks do this to prevent the borrower from the selling the property before paying back loan.

Why it’s important?

Once cannot sell the property with a lien registered against it. Also, the lien transaction suggests property is not completely yours.  This is a very important process and takes 10-14 days.

[Source: https://loaneasy.in/home-loan-closure-process/]

What Is EMI And How Is It Computed?

EMI is an oft repeated term that is associated with any loan taken. Let us understand how EMI works and what are the different aspects associated with EMI. The EMI facility helps the borrower plan his budget. The EMI is calculated taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum.

An Equated Monthly Installment (EMI) is usually a fixed amount of money that you need to pay your bank or lender every month as repayment of a loan taken, until your loan is totally repaid. It is essentially made up of two parts, the principal amount and the interest on the principal amount, divided across each month of the loan tenure. The EMI is always paid to the bank or lender on a fixed date each month. This could be done though post-dated cheques issued in favour of the lender or by providing auto debit instructions to your bank for the same.

Here’s the formula to calculate an EMI:

EMI = [P x I x (1+I)^N]/[(1+I)^N-1], where P is the loan amount or Principal, I is the Interest rate per month. [To calculate rate per month: if the interest rate per annum is 14%, the per month rate would be 14/(12 x 100)], and N is the number of installments.

Now, you might assume that the equal parts of the principal and interest are repaid to the financial institution every month. However, this not the case. During the initial years of repayment, the interest component repaid is higher while in later years, the principal component is higher. 

So, you cannot assume that you will have repaid half of the loan amount once half of the loan tenure is over. A more likely scenario we that you’ve reduced the total interest component that was due by a considerable amount while the principal amount remains to be paid.

Here is a simple example that explains how the repayment of your EMI reduces your Home Loans in India amount during the repayment period leading up to the end of the loan tenure.

Here the loan amount is Rs. 1, 00,000, which is lent at an interest rate of 12% with loan tenure of 12 months.

The monthly EMI is calculated at an annualized rate of 12% and amounts to Rs.8,885 per month with the total interest component amounting to Rs.6,619.

Will the EMI change during the loan tenure?

There are three reasons why your EMI might change during the tenure of your loan.

Interest rate on your loan changes – If you have opted for a floating interest rate, the interest rate on your loan will change whenever the floating rate is reset by the lender. This, in turn, will result in a change in your EMIs. However, note that you can instruct your lender to not to change the EMI and instead request for change in the tenure of the loan.

You prepay the loan – In case you prepay the loan amount during the tenure of the loan, your EMI will change. This is because the principal of the loan will have gone down and the interest due will be based on this new principal. Here too, you can ask your bank to change your tenure instead of the EMI. This will help you repay the loan quickly.

[Source: https://blog.bankbazaar.com/what-is-emi-and-how-is-it-computed/]

House Price Inflation Eases

According to the latest data released by the Reserve Bank of India (RBI), the House Price Index (HPI) rose 9.8% year on year (yoy) in the third quarter of the Financial Year (FY) 2015-16. This would be the quarter that ended on 31st December, 2015. This is the lowest ever rise that the index has shown. What does it mean for you? Let’s find out.

What is HPI?

HPI was created by the RBI to measure the change in the price of residential housing in India. It is meant to serve as a gauge for house price trends in the country. HPI was created in 2010-11.

What does it cover?

HPI considers the transacted amount for the house, based on registration details available in Government houses across 10 cities including Delhi, Mumbai, Bengaluru and Kolkata. The RBI considers the date you register the house as the date that the house was sold. The data is analyzed and compiled based on the transaction price mentioned during registration. This would be the price declared by you, the buyer.

How is it calculated?

Seemingly obvious, it is an average of house prices across India. First, the price per square meter (PSM) of all the houses is considered and a simple average is taken. For this the houses are classified into small, medium and large, based on the floor space area. Median prices are considered. Next, the percentage of houses transacted in each of the categories is considered. This is taken as the weight. Finally, price relatives are calculated based on the average PSM for small, medium and large houses in each ward of each city.

What does the current data indicate?

In the quarter that ended on 31st December, 2015, the overall rate of increase in the index has fallen below the 10% mark. This is for the first time in almost 4 years. This is just like the Consumer Price Index (CPI), where fall in percentages indicates slower growth. So, house prices have increased but at a slower pace than before.

Which are the cities that stand out?

Out of the 10 cities, six cities showed a slow-down with regard to the growth in house prices. Kolkata saw the slowest increase in the third quarter of the FY2015-16. Chennai is another city that recorded a modest rise among the top 5 cities. The city’s HPI grew by 8.2% yoy. Bengaluru was the city that registered the highest increase in growth in its house prices. The city clocked a 12.5% rise in its HPI. Mumbai was a close second, with a growth of 11.1%.

Why is this the right time to buy a house as well as before you go for the Home Loans?

Here are three reasons why you could look at buying a house now:

House prices have come down – With unsold inventories in several cities, it is no surprise that house prices seem to be coming down. If demand doesn’t pick up, more slides cannot be ruled out.

Interest is showing a downward trend – Interest rates have fallen significantly in the last 2 years. Consider this – RBI’s repo rate has come down from 8% to 6.5% now. This would mean lower interest rates on your Home Loan.

Protection in place – The Real Estate Bill has now become an Act as of 1st May 2016. This should help protect home buyers.

Buying a house is not a simple process and requires a lot of due diligence. A lot depends on your financial situation. This should be given prime importance over all other factors. Make sure you think it through before you go for that Home Loan.

[Source: https://blog.bankbazaar.com/house-price-inflation-eases/]