Home loans - Will the repo rate cut impact home loans?

Hyderabad RBI has recently cut the repo rates further. The impact of the same is yet to be seen on home loan interest rates. A lot of speculations were put to rest when the recent repo rate cut was announced by the Reserve Bank of India. While the industry had waited for quite some time for this development, buyers were also waiting to ensure they get better rates of interest against their home loans. The sheer fact that RBI has decreased its repo rates by 0.25 percent signifies that banks may lower their interest rates further for various loans. Talking about the recent development, Pankaj Bansal, Director of a leading real estate group, says, "RBI's decision to lower the repo rate is on expected lines. Inflation is at its lowest in the last five years and economic growth is picking up. This revision will positively impact sentiments surrounding the real estate sector. Banks will now offer loans at more attractive rates.

'RBI rate cut to boost housing sales this festive season'

New Delhi: The RBI decision to cut repo rate by 25 basis points on Wednesday will lead to cheaper home loans and boost housing sales during the upcoming festival season, according to property developers and consultants. They expect banks to pass on this rate cut by lowering the interest on home loans. DLF CEO Rajeev Talwar, who is also Chairman of NAREDCO, said the decision to cut the benchmark repo rate by 25 basis points could not have come at a more appropriate time. "The Indian economy is at a point of inflection. Easing procedural bottlenecks, speedier project clearances and reviving credit flows to the productive sectors such as real estate are critical for the economy to decisively move to a higher growth trajectory. Another small rate cut in the coming months should not be ruled out," he added. CREDAI's President Jaxay Shah said this is a welcome move just before the festival season and will help boost sales. "Banks should pass on the benefits to customers and the government should enforce and instruct banks to do so," he added. The real estate sector is facing a multi-year slowdown, particularly residential segment. The sales have been hit further post demonetisation and NAREDCO President Parveen Jain said the cut was much awaited and will fuel demand. Tata Housing MD & CEO Brotin Banerjee said: "We anticipate that the rate cut announced on Wednesday coupled with commensurate benefits for borrowers will impact home loan rate positively and enhance the consumer sentiment." The RBI decision to cut repo rate by 25 basis points to 6 percent - a 7 year low is in line with industry expectations amidst low inflationary trends, CBRE Chairman (India and South East Asia) Anshuman Magazine said. "We believe that this cut will result in making housing loans cheaper and help credit offtake in the housing sector." He said the decision, along with the new real estate law and GST, would provide further impetus to the segment and help in rejuvenating housing sales. Knight Frank India CMD Shishir Baijal said that "while it is a welcome move we were looking forward to a much more aggressive rate cut." However, he said the central bank has adopted a monetary policy that propels economic growth, which in turn would boost the Indian real estate. Anuj Puri, Chairman, Anarock Property Consultants, said there is surplus liquidity in the system and the policy change might not result in a greater impact on real estate sentiment. Puri was of the view that property prices affects buying decision more than interest rates and home prices are unlikely to reduce further. Supertech Chairman R K Arora the RBI's policy is positive for the real estate sector. "With the rate cut prior to start of festival season, the sluggishness in the real estate sector would come to an end," he hoped. SARE Homes MD Vineet Relia termed the rate cut as a positive step that will help boost housing demand. "Today's rate cut will only add more weight to the sentiments and push the customers to move towards investments where real estate sector will greatly benefit. As GST is settling down and RERA gaining momentum, real estate sector is projected to become the investment hub very soon," said Abhishek Bansal, Executive Director, Pacific Group. Deepak Kapoor, President CREDAI-Western UP & Director, Gulshan Homz, said it will boost sales as EMIs on home loans are expected to come down. "Final festive season of this calendar year is nearing and this rate cut can allow the banks to cut down on their lending rates further," EROS group director Avneesh Sood said. Amit Modi, Director, ABA Corp and Vice President CREDAI Western UP, said the move will help revive sectors like real estate which are highly sensitive to interest rate movements, while Antriksh India Chairman Rakesh Yadav said the banks must pass on the benefit to home buyers. "A reduction in Repo rate today will push the banks to further reduce the lending rates," SG Estates Director Gaurav Gupta said. House of Hiranandani Chairman & MD Surendra Hiranandani said there is scope for banks to cut lending rate further given the liquidity situation prevailing in the market post demonetisation.

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Cash-strapped state eyes bank loans to build houses for cops

PUNE: The cash-strapped Maharashtra government will seek loans from banks to construct houses for police personnel in the state. The government has given permission to the Maharashtra State Police Housing and Welfare Corporation (MSPHWC), a government undertaking, to acquire loans from the banks and disburse the same to police personnel for building their own houses. The MSPHWC undertakes construction of houses for the police force. It also formulates and executes housing schemes for serving and retired police personnel. "Police personnel get government quarters, which they have to vacate after retirement. As a result, those working in the police force are eager to construct their own houses. To facilitate this, the police department had started special scheme to give them 200% advance of the salary. Over the last four years, the advance has been provided but there 7,600 pending applications" said a state order issued on Monday.It said, "The state considered all options and (concluded that) the MSPWC can get loan from the banks and disburse it to the police (employees) wanting to construct their houses. This proposal was under consideration against the backdrop of applications received by the MSPHWC and available funds."The state police department has 2,20,000 employees and the number is rising, as per the state government. The number of assistant police inspectors, police hawaldars, police naiks and peons is 1,91,026 that is 92% of the total force. There are 7,767 sub inspectors and 3,000 police inspectors. Sources in the government said police employees find it difficult to get direct loans from the banks, considering the low wages reflected in their salary slips. Hence the government came out with the idea of providing advance against their salary. However, the state is finding it difficult to continue the scheme due lack of funds.The state home department headed by chief minister Devendra Fadnavis has asked the MSPHWC to look for comparative interest rates for the loan and go for the lowest. The home department, the MSPHWC and the director general of police will sign a joint contract in this regard. A separate head will be opened for this account but no new recruitment for any post to handle this matter will be created. Last week, the state government had scrapped the Western Ghats development programme due to the shortage of funds. The programme was launched in 1974-75 as a component of a plan for the growth of hilly areas in eco-sensitive zones. It was sponsored by the Centre (90% central share and 10% state share).

Zeroing in on a home loan online

Zeroing in on a home loan online

SBI cuts base rate by 0.15% to 9.10%; your car, home loan EMIs set to decline

New Delhi - Ahead of the RBI monetary policy this week, the country's largest bank SBI has reduced benchmark lending rate by 0.15 percent to 9.10 percent, a move that will lower EMIs for borrowers. Base rate or the minimum lending rate of the bank has been reduced from 9.25 percent to 9.10 percent effective April 1. The bank has also reduced its base rate by 0.05 percent to 9.25 percent. Similarly, benchmark prime lending rate (BPLR) has also been reduced by similar percentage points to 13.85 percent from 14 percent. With the reduction, EMIs for the new as well as existing borrowers who have taken housing and car loans at base rate will come down by at least 0.15 percent. The new rate is effective from the date the bank merged five of its associates and Bharatiya Mahila Bank putting it on the list of top 50 large banks of the world. The total customer base of the bank has reached 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country. The merged entity has a deposit base of more than Rs 26 lakh crore and advances of Rs 18.50 lakh crore. It is to be noted that the SBI has made changes in signage and logo, with its iconic keyhole set against the background of inky blue. There have been minor changes in the design and colour of SBI's new look from April 1. The background to the SBI signboard has been changed from white to inky blue while the SBI logo or the monogram is a few shades lighter than the existing blue. Source:firstpost.com

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EMIs for house in an urban area to shrink if bought under PM Awas Yojna

NEW DELHI: Your monthly home loan instalment or EMI for a new property will come down by around Rs 2,000 if you are buying your first home in a city or town under the PM Awas Yojna (PMAY) and if your annual household income is in the range of Rs 12-18 lakh. The government is offering an interest subsidy of 3-4% on borrowings of Rs 9 lakh to Rs 12 lakh even if the overall loan is higher. Loans availed from January are entitled for the subsidy announced by PM Narendra Modi as part of the post-demonetisation package. On Wednesday, 70 lending institutions including 45 housing finance companies, 15 scheduled banks, regional rural and cooperative banks signed MoUs with National Housing Bank for implementation of the scheme for the middle class in urban areas. Union housing and urban development minister M Venkaiah Naidu said that middle income groups (MIGs) make substantial contribution to the economic growth of the country besides paying taxes and deserved support to fulfill the dream of owning a house which is a basic and genuine aspiration. He urged banks and other lending institution to adopt pro-active approach to deliver the benefits to people. The benefit will be extended to families as comprising of wife, husband and unmarried daughters and son. Moreover, unmarried and earning young adults buying their first house will be eligible to avail the benefit.

Still paying interest on home loan at old rates? Cut EMI by switching to MCLR-linked rate now

Just like bank depositors, those borrowing from banks also need to be alert in order to protect themselves against unnecessary charges. Given below are the most common areas where banks tend to overcharge customers. If you compare the interest costs of your friends and relatives on bank loans—housing, auto, personal loan, etc.—you will realise that they vary drastically. And these costs not only vary across banks, but across customers of the same bank—and not because of varying customer credit scores. Some banks have been offering loans at cheaper rates to new customers, while charging old customers a higher rate. “Banks continue to follow the discriminatory practice of offering differential rates for for existing and new customers and this should stop,” says Ramganesh Iyer, Co-founder, Fisdom. As the banking regulator, the Reserve Bank of India (RBI) should stop this discriminatory practice, which it is partly responsible for creating. The RBI introduced the MCLR (marginal cost based lending rate) method, effective April 2016, to enable a faster transmission of rate cuts to bank customers, replacing the base rate method that was being used by banks to set their lending rates—earlier the base rate had replaced the less transparent prime lending rate (PLR). Now, borrowers who took loans at cheaper rates, based on MCLR, old customers are still paying higher rates. “Since banks offer different rates, it is better to visit some common aggregator and understand the lowest rates available in the market. This will help you bargain better with your bank,” says Dipak Samanta, CEO, iServeFinancial. How to avoid paying higher charges levied by your bank? To reduce your interest outgo, you need to shift your loan from base rate or PLR to MCLR. Shifting to MCLR now is a good move, say experts. “Though RBI’s stand is neutral now, rates may not go up from current levels. In fact, they may come down later—after an year,” says Balwant Jain, investment expert. Bear in mind though, in an upward moving interest rate regime, MCLR will move up faster than base rates, just like it falls faster in a reducing interest rate regime. Loan reset charges There are two types of loans: Fixed and floating rate. Floating rate loans are supposed to mirror the rise and fall in interest rates set by the RBI. But this rarely happens. While banks increase rates immediately, they are very slow in cutting them. The introduction of new benchmarks has also turned out to banks’ advantage. They charge customers for shifting from one benchmark to another— from PLR regime to base rate regime to MCLR regime now. The charges are levied to meet the expenses involved in drafting and registering new agreements—stamp duty, registration charges, etc. Though these expenses vary across states, ordinarily they won’t be more than 0.2% of the outstanding amount. However, some banks try to profit from this also by charging around 0.5%. Should you go for a reset even if it involves a small charge? Yes. The amount you save will be significantly higher over the years. To illustrate, consider the case of a home loan borrower with Rs 50 lakh outstanding loan amount and a 15-year tenure. A 1% fall in interest— from 9.5% to 8.5%—will bring his EMI from down from Rs 52,200 to Rs 49,250, a reduction of Rs 2,950 per month. A total saving of Rs 5.31 lakh —significantly higher than the reset fee of Rs 25,000 even at the maximum rate of 0.5%. You may be able to get this reset cost down by negotiating with your bank. A threat of shifting to another bank often works. “Another way is to approach the branch manager. Based on the value of your relationship, they can reduce or even waive charges,” says Samanta. The ‘value of relationship’ here is crucial. If you have multiple relationships with the bank—savings bank account, credit card, other loans, investment, etc.—you have a valuable relationship and will receive a favourable treatment. Source:economictimes.indiatimes.com

India Home Loan gains 6% on signing MoU with SUDA

Mumbai based, India Home Loan gained almost 6% as the company signed a memorandum of understanding (MoU) with Surat Urban Development Authority (SUDA). The MoU has been signed for facilitating housing loans to borrowers in Surat Mumbai based, India Home Loan gained almost 6% as the company signed a memorandum of understanding (MoU) with Surat Urban Development Authority (SUDA). The MoU has been signed for facilitating housing loans to borrowers in Surat. The stock hit a high of Rs 103 per share. The stock in a period of one year has delivered 127% returns, outperforming the BSE Small-cap and Nifty Financial Services indices over the same time span. The company through the MoU will provide economically weaker borrowers, housing loans for buying houses or flats under the Mukhyamantri Gruh Yojana scheme, at various locations in the city of Surat. India Home Loans Limited provides housing finance services primarily in India. The company was formerly known as Manoj Housing Finance Company Limited. Stock view:- India Home Loans Ltd is currently trading at Rs 102, up by Rs 4.6 or 4.72% from its previous closing of Rs 97.4 on the BSE. The scrip opened at Rs 103 and has touched a high and low of Rs 103 and Rs 97.95 respectively. So far 47536(NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs 139.1 crore. The BSE group 'XD' stock of face value Rs 10 has touched a 52 week high of Rs 124.85 on 14-Feb-2017 and a 52 week low of Rs 35 on 18-May-2016. Last one week high and low of the scrip stood at Rs 108.95 and Rs 96.1 respectively. The promoters holding in the company stood at 40.19 % while Institutions and Non-Institutions held 0.07 % and 59.74 % respectively. The stock is currently trading above its 50 DMA. Source:indiainfoline.com

India Home Loan plunges nearly 5%

Markets closed in green as BSE Sensex ended up by 27 points at 28929 level. Following the trend Nifty also ended in green, up by 2 points at 8927 level. Markets closed in green as BSE Sensex ended up by 27 points at 28929 level. Following the trend Nifty also ended in green, up by 2 points at 8927 level. The stock closed down by nearly 6% or Rs 5 at the closure of Thursday's session. The stock opened at Rs 104 and touched its day's high of Rs 108. It has spurted in volume by more than 1.38 times. The stock has outperformed both Nifty Financial Services and BSE Small cap indices on a yearly basis. On March 2 it has received upgraded credit ratings from CARE for long term bank facilities (proposed) from CARE BB+ (Double B Plus) to CARE BBB- (Triple B Minus) taking into consideration the operational & financial performance. Stock view: India Home Loans Ltd ended at Rs 97.4, down by Rs 5.75 or 5.57% from its previous closing of Rs 103.15 on the BSE. The scrip opened at Rs 104.45 and touched a high and low of Rs 108.95 and Rs 96.1 respectively. A total of 149974(NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs 147.32 crore. The BSE group 'XD' stock of face value Rs 10 touched a 52 week high of Rs 124.85 on 14-Feb-2017 and a 52 week low of Rs 35 on 18-May-2016. Last one week high and low of the scrip stood at Rs 114.85 and Rs 102 respectively. The promoters holding in the company stood at 40.19 % while Institutions and Non-Institutions held 0.07 % and 59.74 % respectively. Source:indiainfoline.com

Are you aware of the home loan benefits women enjoy in India?

Searching a dream home remains very much in the mind of the people as it gives them the assurance of their stay for lifetime. The same assurance is not possible with a rented accommodation. Searching a dream home remains very much in the mind of the people as it gives them the assurance of their stay for lifetime. The same assurance is not possible with a rented accommodation. In the pursuit of your dream home, you invariably rely on a home loan which can be availed for as long as 20-30 years. Since the home loan tenure is so long, the eventual loan cost from the customer end can be very high. But that can reduce in the case of a woman borrower. So, stay tuned as we take through the benefits that women borrowers can enjoy in the case of a home loan. Lower Interest Rate The interest rate holds the key to a cost-friendly home loan journey. Home loans are invariably in large amounts for a longer duration. So, if the interest rate is on the higher side, your pocket can get pinched. A slight difference in the interest rate can reduce the flow of interest outgo substantially in a period of 20-30 years. In addition, the monthly installment will also come down. A women borrower enjoys a concession of 0.05% in the interest rate from most banks in India. Let’s see the interest rate offered to women borrowers by several lenders in India. You may also watch: Looking For Home Loans? Should You Opt For Lowest Rates? Interest Rate Offers of Different Lenders (Suppose Loan Amount is Rs 50 lakh and Tenure Equals to 20 years) From the table, you can see a saving of around 38,000 for women borrowers over male applicants. Reduction in Stamp Duty Stamp duty does form the part of the property cost. And a difference of a few percentage can make a huge difference in your home ownership cost. The lenders finance a home loan at about 80%-90% of the property cost. As far as stamp duty goes, it differs from one state to another. Particularly, when women buy a property, the stamp duty generally remains lower. A concession of 1%-2% is generally applicable. So, on a property worth Rs 60 lakh, a woman borrower can save around Rs 60,000-1,20,000. You may also watch: Has Your Home Loan Been Rejected? Here's What To Do Tax Benefits Like the male counterparts, women borrowers can also be eligible for a tax deduction on the home loan repayments. The maximum tax deduction allowed in the principal and interest repayments is Rs1.5 lakh and Rs2 lakh, respectively. Women borrowers applying for a home loan along with their husbands can receive the tax deduction in an equal proportion. These are some of the benefits that women borrowers enjoy in the case of a home loan. But choose a lender that can offer you a loan at a much lower interest rate than its competitors. Source:financialexpress.com

Want to get a hassle-free home loan? Here are 5 things to keep in mind

Getting a call from banks regarding the sanction of a pre-approved home loan has become a very common thing these days. However, availing a home loan is not that easy. Most people think that getting a loan is an easy task, but once they visit a bank for getting a loan, they find it difficult because of many reasons – one being poor credit history. Getting a call from banks regarding the sanction of a pre-approved home loan has become a very common thing these days. However, availing a home loan is not that easy. Most people think that getting a loan is an easy task, but once they visit a bank for getting a loan, they find it difficult because of many reasons – one being poor credit history. Therefore, in a bid to avail a hassle-free home loan, one should prepare in advance and also keep certain things in mind. Here they go: Credit History If you are planning to buy a house in the future, then you must maintain your credit score well by repaying all your loan amount on a regular basis or paying credit card dues, if any. Banks nowadays pays a special attention on those applying for a new loan. All the housing finance companies acquire from CIBIL the details of each and every customer who is applying for a loan. CIBIL maintains all the financial history of an individual. Therefore, if you have applied for a loan earlier which got rejected due to any reason, CIBIL maintains that record for further references. HomeMoney Want to get a hassle-free home loan? Here are 5 things to keep in mind Want to get a hassle-free home loan? Here are 5 things to keep in mind Getting a call from banks regarding the sanction of a pre-approved home loan has become a very common thing these days. However, availing a home loan is not that easy. Most people think that getting a loan is an easy task, but once they visit a bank for getting a loan, they find it difficult because of many reasons – one being poor credit history. Advertisement If you are planning to buy a house in the future, then you must maintain your credit score well by repaying all your loan amount on a regular basis or paying credit card dues, if any. Getting a call from banks regarding the sanction of a pre-approved home loan has become a very common thing these days. However, availing a home loan is not that easy. Most people think that getting a loan is an easy task, but once they visit a bank for getting a loan, they find it difficult because of many reasons – one being poor credit history. Therefore, in a bid to avail a hassle-free home loan, one should prepare in advance and also keep certain things in mind. Here they go: Credit History If you are planning to buy a house in the future, then you must maintain your credit score well by repaying all your loan amount on a regular basis or paying credit card dues, if any. Banks nowadays pays a special attention on those applying for a new loan. All the housing finance companies acquire from CIBIL the details of each and every customer who is applying for a loan. CIBIL maintains all the financial history of an individual. Therefore, if you have applied for a loan earlier which got rejected due to any reason, CIBIL maintains that record for further references. You may also watch: Find Out 5 Effective Ways To Spend Money Wisely NOC Documents One must hold all the clearing documents whether related to the ownership of property. Moreover, if someone has paid all the due amount of the previous loan, then with respect to that one should get the no objection certificate issued by the loan-giving company itself. Financial Health If you have enough money in your bank account, then the chance of getting an easy loan is high. Moreover, if you have a stable job, then also you can avail a home loan easily from a bank. However, if you do not have proper savings in your bank account or are not maintaining your CIBIL score, then you might find it difficult to get a loan from a bank or any financial institution. Financial Stability To get a home loan, you need to give details and proof of your annual income and expenses to the bank. If you already have a bigger loan going on, then in such a case the bank may not give you the loan looking at your overall liability and monthly expenses. It is always good to have a life insurance policy and a fixed deposit paper which can act as a security against the loan and in turn can help you in getting the loan sanctioned without any hassle. HomeMoney Want to get a hassle-free home loan? Here are 5 things to keep in mind Want to get a hassle-free home loan? Here are 5 things to keep in mind Getting a call from banks regarding the sanction of a pre-approved home loan has become a very common thing these days. However, availing a home loan is not that easy. Most people think that getting a loan is an easy task, but once they visit a bank for getting a loan, they find it difficult because of many reasons – one being poor credit history. FacebookTwitterGoogle+LinkedInEmail Advertisement If you are planning to buy a house in the future, then you must maintain your credit score well by repaying all your loan amount on a regular basis or paying credit card dues, if any. Getting a call from banks regarding the sanction of a pre-approved home loan has become a very common thing these days. However, availing a home loan is not that easy. Most people think that getting a loan is an easy task, but once they visit a bank for getting a loan, they find it difficult because of many reasons – one being poor credit history. Therefore, in a bid to avail a hassle-free home loan, one should prepare in advance and also keep certain things in mind. Here they go: Credit History If you are planning to buy a house in the future, then you must maintain your credit score well by repaying all your loan amount on a regular basis or paying credit card dues, if any. Banks nowadays pays a special attention on those applying for a new loan. All the housing finance companies acquire from CIBIL the details of each and every customer who is applying for a loan. CIBIL maintains all the financial history of an individual. Therefore, if you have applied for a loan earlier which got rejected due to any reason, CIBIL maintains that record for further references. You may also watch: Find Out 5 Effective Ways To Spend Money Wisely NOC Documents One must hold all the clearing documents whether related to the ownership of property. Moreover, if someone has paid all the due amount of the previous loan, then with respect to that one should get the no objection certificate issued by the loan-giving company itself. Financial Health If you have enough money in your bank account, then the chance of getting an easy loan is high. Moreover, if you have a stable job, then also you can avail a home loan easily from a bank. However, if you do not have proper savings in your bank account or are not maintaining your CIBIL score, then you might find it difficult to get a loan from a bank or any financial institution. Financial Stability To get a home loan, you need to give details and proof of your annual income and expenses to the bank. If you already have a bigger loan going on, then in such a case the bank may not give you the loan looking at your overall liability and monthly expenses. It is always good to have a life insurance policy and a fixed deposit paper which can act as a security against the loan and in turn can help you in getting the loan sanctioned without any hassle. You may also watch: How To Keep Your Money Safe While Doing Cashless Transactions Age Factor The early you take a loan, the more is the possibility of a bigger amount getting sanctioned to you by the bank compared to taking a loan in late 40s or 50s when you may find it difficult to avail a loan of higher amount as repayment of the loan will get affected once you get retired. During such conditions, banks generally provide a short-term loan. Source:financialexpress.com

Tax benefits of buying a home on loan

If you are buying a home by taking a home loan, there are several tax benefits to be availed of. The tax benefits available to you for buying a house on home loan are enumerated below: If you are buying a home by taking a home loan, there are several tax benefits to be availed of. The tax benefits available to you for buying a house on home loan are enumerated below: Deduction under Section 80C: You can claim tax deduction of up to Rs 1.5 lakh under this section on repayment of the principal component of the home loan. Banks and financial institutions provide such bifurcation between the principal and interest components of the EMIs paid by you. This deduction is available for purchase or construction of new house and you cannot sell the house within five years of possession of the property if you avail this deduction. If the home loan is taken jointly with your family member, both of you can avail deduction on principal repayment of the home loan. Also, under this section, you can also claim deduction on stamp duty and registration charges and other expenses related to the transfer of property in your name. Deduction under Section 24: Tax deduction up to Rs 2 lakh can be claimed by you under this section on the interest component of your home loan repayment. This deduction can be availed if you and your family reside in the property or even if you keep the property vacant. However, if you rent out your house, you are eligible to claim deduction on the entire interest on the home loan. If you have taken a home loan jointly with a family member, both of you can avail deduction on interest up to Rs 2 lakh each. Deduction under Section 80EE: First-time home buyers can claim deduction under this section, provided the home loan does not exceed Rs 25 lakh and the property value does not exceed Rs 40 lakh. Also, the first-time home owners need not occupy the property themselves to avail this deduction. Disclaimer: The contents herein is specifically prepared by ‘Dalal Street Investment Journal’, and is for your information & personal consumption only. India Infoline Limited or Dalal Street Investment Journal do not guarantee the accuracy, correctness, completeness or reliability of information contained herein and shall not be held responsible. Source:indiainfoline.com

Looking to take your first home loan? Here’s a beginner’s guide

Home is where the heart is. Although owning a home means different things to different individuals, but one thing is common – we all want to own a home someday. Home is where the heart is. Although owning a home means different things to different individuals, but one thing is common – we all want to own a home someday. However, buying property is not an easy task. Given the huge costs involved, most people need a home loan to finance this dream. Taking a home loan is often a confusing, bewildering process that you must need to understand. But you need not worry – here are some helpful tips for those looking to take a home loan for the first time: Are you eligible for a loan? Every home loan has a list of eligibility criteria and you can avail the loan if you fulfill them. These many involve: Your age – usually, the minimum loan application age is 21 years and above. Your occupation – to avail the loan, you should either be a salaried employee or a self-employed individual/professional Your income – there is also a minimum income level criterion for home loan applicants. How much can you borrow? The amount you can borrow is subject to terms and conditions. “Banks and non-banking financial corporations (NBFCs) allow loans up to 70% to 90% of the cost of the property you want to buy with the loan. The rest you would have to pay from your own pocket. Additionally, this 70-90% is also subject to terms and conditions, namely your CIBIL score, your financial position, age, your repayment capacity, etc,” says Adhil Shetty, CEO, BankBazaar.com. What’s your CIBIL score? Home loans are allowed to individuals with a good credit score. Most lenders go by your CIBIL score. CIBIL is a credit rating agency which collects data from various regulated lending institutions and builds your credit profile. It provides your credit history report to lenders you approach for a loan. This report is a snapshot of your creditworthiness and captures details of every credit card or loan account you’ve ever operated. “Your credit score ranges from 300 to 900 — 900 being the highest possible score. Most leading lenders insist on a score around 750 if you want a loan from them. You can use free credit report generators online to assess where you stand,” says Shetty. Do you have these documents? After you apply for the home loan, you are also required to submit some important documents. These documents include: Your ID proof Address proof Income proof – salary slips and Form 16 for salaried employees and proof of business and IT returns of business of the last 2/3 years for self-employed individuals/professionals Last 6 months’ bank statements Important documents pertaining to the property, such as title deed. Other documents might be required depending on the lender’s requirement. You have to submit these documents to avail the loan. Know the loan interest rate When you take a loan, you have to pay interest on the same. Home loans have two types of interest rates. One is the fixed interest rate which remains unchanged through part of whole tenure of the loan. The other is the floating interest rate which changes as per the macroeconomic scenario. Currently, both fixed and floating interest rates charged by most lenders range from 8.50% to 12%. Know your EMIs Your loan is repayable through EMIs which consist of both the principal amount of the loan and the interest thereof. EMIs are payable after the total loan has been disbursed by the bank. The value of your EMI would depend on the loan amount taken, the repayment tenure chosen and the rate of interest. There is also a concept of pre-EMIs. Lenders might disburse your loan in tranches if you are buying an under-construction property. Before the complete disbursal is made, interest is charged on the disbursed part on a simple interest basis. These interest payments which you make before receiving the total loan are called pre-EMIs. Know your loan charges Your home loan has certain charges. The processing fee is the first fee which you pay at the time of loan application. This fee is non-refundable even if your loan application is rejected. “Other types of charges applicable in a home loan are late payment penalty, pre-payment or part pre-payment charges, conversion charges for changing from fixed to floating interest rate and vice-versa, issue of duplicate NOC charges, etc,” says Shetty. Know the foreclosure or part-prepayment procedure It might sometimes happen that you have access to lump sum funds and you might want to pay off your outstanding loan. If you pay off the entire outstanding loan, it is called prepayment or foreclosure of the home loan. If you, on the other hand, make only a partial payment, it is called partial pre-payment. Lenders might charge you a fee for such full or partial prepayment of your home loan. Conclusion These are the major concepts you need to keep in mind while approaching any lender for buying your dream property. There are various lenders in the financial marketplace offering you competitive interest rates. “Finding the best lender for your loan has been made convenient by online loan aggregators. These online aggregators help you check your home loan eligibility and the amount of home loan you can avail as per your eligibility. They also show you the various home loan offers matching your eligibility. You can compare the different loan products and choose the best as per your needs,” informs Shetty. Source:financialexpress.com

Should you repay your home loans now or go for investments?

The final decision will depend not only on the return numbers, but also the qualitative factors such as your mental setup, your financial needs and your current financial health. The economy is made up of several moving parts which impact each other in different ways. Intersperse this with your personal requirements, and it makes for multiple choices in decision making. Based on the choices you make, your finances and in turn your life goals will be impacted. So it is wise to make a decision looking at all relevant parameters. In the current scenario one question that many people would be grappling with would be the choice between investing into the equity market, buying a home or repaying home loans. As of now we are seeing a decrease in home loan rates and an upward trending equity market. If you have money in hand, what should you do, prepay a part of your outstanding loan or invest into equity or property? If you want to buy a new house for personal use, then it is more of an emotional decision, so you might as well go ahead in buy it, even if renting makes more sense than buying-mathematically speaking! When it comes to putting in money into a house as an investment, there are many factors you need to look into, including the opportunity cost. Buying a house means putting a lumpsum as down payment as well as a regular payout in EMI. The opportunity cost lies in whether you will get a better return if you invest the lumpsum and the EMI into another product versus return on your property investment after bearing the costs of interest and maintenance and adding rent if you get any. Besides, there is also the convenience factor to consider. Let us look at a scenario where you have an ongoing home loan and have some lumpsum money available. In such circumstances, should you choose to part-prepay your loan or invest the amount? Assuming the original loan was Rs.60 Lakh taken in Jan-2013 at the rate of 9.5 percent for 20 years and EMI of Rs.55,928 per month. Look at the table below, which shows the total interest you will pay and the date of completion of the loan in different scenarios. It is assumed that you will move your loan to the current interest rate of 8.6 percent. That itself will move the completion date of your loan down from Jan-2033 to May-2031. If you part prepay an amount of Rs.11,00,000 your loan will get over by Nov-2026. Please note that the return figures are assumed and the calculations are not exact and are meant for ease of understanding the scenarios. If you choose to invest the amount instead of pre-paying the loan, you could get a range of returns. I have analysed scenarios ranging from 8 percent to 15 percent return, assuming an investment in equity funds. I have also assumed that you will close the loan once the investment amount is equal to the outstanding loan. You can see that even at a pessimistic return of 8 percent you will be able to close the loan more or less at the same time as you will if you make the part pre-payment now. The difference being in the total amount of interest you will pay in both these scenarios. The final decision will depend not only on the numbers as shown above, but also the following factors: 1. Your mental set-up. Will being debt free make you happy? Or you enjoy getting returns on leveraged investments? Your mental set-up will be the first point of decision. 2. What is your risk profile? Will you be able to live with the volatility of equity as an asset class, if the money is to be invested in equity? Your investment might fluctuate over time and might even show negative returns in some periods. 3. Job security: Will you be able to manage the EMI’s if there is a job loss? Is there an alternate income available (spouse’s income/rental etc) or are there sufficient funds for emergency that can help tide over the phase till you get your next job? 4. How prepared are you for your other financial goals? If you have a child’s higher education coming up in a few years, you might want to keep the funds invested in appropriate instruments rather than repaying the home loan. 5. What is your liquidity position? If you are asset rich but cash poor, you may want to consider improving your liquidity by investing the amount in debt instruments rather than repaying the loan. After considering all the above factors, if you decide to just opt for the lower interest rate on the home loan, without making any part prepayment and invest the amount of Rs.11 lakh into equity funds, you stand a chance to make a corpus of about Rs.50 lakh to Rs.80 lakh (assuming a return range between 12 percent-15 percent) by the time your loan gets over in May-2031. This can be utilised for goals like education for children or your retirement. If you realise that you need to have liquidity for short term, equity investment might not be a right choice for you. In such a case you may want to look at moving your home loan into a super-saver or smart home loan kind of structure where the spare funds can be held in the home loan account. This will reduce the interest on the home loan while providing you with liquidity at the same time, with a rate of return equivalent to the rate of the home loan. If you have a major goal coming up in less than five years, you may want to look at debt mutual funds for investing your money. So you can see that it is not an answer that can be the same for everyone, it entirely depends on individual circumstances and should be dealt with accordingly. Source:moneycontrol.com

How to manage your home loan repayments

Home loan EMIs last for at least a decade and are the largest monthly expenditure item for a majority. Hence, borrowers usually look out for ways to reduce their home loan interest burden. A home loan is probably the biggest financial commitment most people make. Home loan EMIs last for at least a decade and are the largest monthly expenditure item for a majority. Hence, borrowers usually look out for ways to reduce their home loan interest burden. Here are a few tips on how to manage your home loan interest in the most cost-effective manner. Switch to MCLR: Both home loan borrowers and Reserve Bank of India have accused banks and other lenders of neglecting existing borrowers while reducing interest rates. To deal with this problem, RBI made the banks to switch over to MCLR (Marginal Cost Based Lending Rate)-based lending rates from April 1, 2016. While all the new bank loans are being lent on MCLR-based rates, existing borrowers till March 31, 2016 have the option of switching over to MCLR. As the repo rate is used while calculating MCLR, it reflects the changes in the policy rates better than the earlier BPLR and base rate systems. The MCLR regime requires banks to mandatorily review their MCLR every month and reset the interest rates of existing borrowers at least once in a year. Even the interest rate reset date has to be communicated to the borrowers at the time of loan disbursal. The provision of fixed dates for interest rates will force banks to pass on the future repo-rate reduction to the borrowers. These features make MCLR-based rate-setting system much more transparent than previous rate-setting systems. Given the current declining interest rate regime, existing borrowers under the previous rate systems should switch to MCLR to benefit from future rate cuts. Reset your loan to lower rate: RBI has not included NBFCs and housing finance companies (HFC) under the MCLR system. However, their existing borrowers can reduce their interest rate by paying a conversion fee. This fee can go up to 1% of the outstanding principal. Make prepayments: Home loan borrowers can prepay the entire or a part of the outstanding home loan amount. Although, the lenders cannot charge prepayment penalties on floating rate homes loans, they charge up to 2% of the outstanding fixed rate home loan amount as prepayment penalty. Thus, make sure that your savings in interest cost is higher than the prepayment penalty. Use the proceeds of financial windfall like your annual bonus or a maturity of an investment plan to prepay a part of your outstanding balance. However, do not use your emergency fund or investments generating higher rate returns than your interest rate on home loans. Investments in equity funds or equity ULIPs can easily generate higher returns over the long term (above 5 years) than what most home loans currently charge. Instead, close your surplus bank or post office fixed deposits and other fixed income securities, which generate lower rate of returns than the interest rate charged on your home loan. Increase your EMI: Your monthly income plays a major role while setting your EMIs. Generally, lenders prefer your EMIs to stay within 40% of your monthly income. You can make considerable savings in interest cost by diverting a part of your income increments for higher EMIs. However, while doing so, do not reduce your contribution to long term investment goals. Opt for home loan balance transfer: Under this option, you can transfer your entire outstanding home loan balance to another lender at a lower interest rate and other better terms and conditions. Go for home loan balance transfer if your existing lender refuses to reduce your interest rate. Existing borrowers from NBFCs and HFCs can use this option to transfer their home loan to banks and benefit from MCLR-based interest rates. Source:businesstoday.in

Looking for home loan? Here’s how to select your lender

Buying a home is a big decision for any individual. The decision is critical not only in terms of the amount of loan and thereby the percentage of disposable income which goes towards paying the EMI obligation, but also in terms of how easy it will be to manage this loan as a typical home loan tenure will be in excess of 10 years. Buying a home is a big decision for any individual. The decision is critical not only in terms of the amount of loan and thereby the percentage of disposable income which goes towards paying the EMI obligation, but also in terms of how easy it will be to manage this loan as a typical home loan tenure will be in excess of 10 years. But even more important is selecting the lender who can provide you the finance to get the home in your name. That is because choosing the right home loan lender from a series of banks and other financial institutions can be a challenging task in India. Things like eligibility criteria, interest, processing fee and others will be the key to decide your home loan lender. However, before discussing that, it would be helpful to know that the decision of selection of the lender can be taken at any time during the search of your property. There are broadly three occasions when the decision can be taken: Getting an In-Principle home loan approved before the property has been finalised: This is for people who want to plan their home purchase very precisely. “This helps the buyer know his exact budget well in advance as he becomes aware of the maximum amount that can be funded to him by the lender, thereby avoiding the time being spent on shortlisting property which may be outside one’s budget,” says Manish Chaudhari, Co-founder of CoinTribe, an online loan disbursement platform. Getting a home loan approved while property is being shortlisted: This is similar to the previous option. However, here the property is not completely finalised but fairly well agreed on. Getting a home loan approved once property has been finalised & the owners’ contribution or booking amount paid to the seller: This is a decision which is taken once the property has been finalised and there is almost nil flexibility on property being changed as there is already a financial commitment made. The seller in this kind of a scenario can direct you to the lenders who have already approved the project, especially in cases of builder property and first time sale. As is obvious, depending on the individual’s planning and preference, he may choose any of these options. However, the earlier he zeroes in on his lender the better it is as it opens up various information points which could be very useful for a buyer. These points cover aspects like: Approved Projects: All lenders typically pre-approve projects by doing their due diligence. This information opens doors for possible property where the buyer can be sure of the various compliances, specially related to legal and technical. Current Stage of development of the project: For a project under construction, the buyer can get insights into the speed of progress of the project. Price Point check: The lender can give an idea about the price points, which can be a good indicator for a new buyer. While these are some pointers which can be very helpful, there are other things which should be kept in mind while deciding on the lender as listed below: Eligibility: The first step is to know the minimum and maximum amount of home loan you can get from the lenders. Based on your requirement, you need to find the match. “The eligibility criteria is based on your monthly income and the value of the property. The loan amount is decided in such a way that the EMI payout comes out to be 50-60% of your monthly income and about 85% of the property value. But it differs from bank to bank and thus choosing the closet as per your requirement is the key,” says Rishi Mehra, Founder and CEO, Wishfin. Loan Pricing: The interest outflow on a home loan has very high sensitivity to the rate of interest. “Even a 10-basis point difference over the tenure of the loan can make a huge difference. So the rate of interest should be carefully looked at. One should also check the fixed rate versus floating rate to ensure that the interest rate benefit in case of rate reduction is passed on to the loan availed,” says Chaudhari. Processing Fee & other charges: Apart from interest payment, the processing fee and other onetime charges could be a big outflow for a buyer. Processing fee is the charge that bank deducts for processing the home loan. Processing fee can be 0.25%-2% of the loan amount. To ensure that the same is also well under control, a buyer should do a comparison of the same. Sanction / Disbursement Turnaround Time: The time taken for sanction of a loan is critical from a buyer perspective irrespective of the stage at which a home loan is being applied, as the buyer needs to commit himself to the deal. “This implies a good turnaround time is a pre requisite. This becomes even more critical where a buyer is looking at an under construction project as there the buyer would need multiple disbursements as per the progress of the project,” says Chaudhari. Builder linkages: The ease of processing a home loan application typically depends on how the lender is connected to the builder. The process of documents to be collected could be quiet cumbersome for an individual to do on his own and so a good lender-builder relationship eases the process. Customer Service: As a home loan is a long-tenure product, multiple requirements may come during the course of this tenure where the buyer would need to interact with the lender. These could be things like rate reset, thereby impacting EMIs or the tenure of the loan, part payment, loan reschedulement, interest paid certificate or any other similar requirement. Hence an efficient and easy customer service channel should be given due importance. These points are critical while selecting a lender. However, “apart from these points a buyer might want to look at other factors like the brand image of the lender, closeness of branch and flexibility in payments, etc. In case of a resale property, which may already have been financed, it may be a good idea to go with the current lender itself,” informs Chaudhari. Source:financialexpress.com

Home loan pre-payment: Here’s why you should do so now

WHEN a borrower’s income increases, his capacity to pay over and above his home loan EMI goes up. Opting for pre-payment instead of putting it into other investment assets can prove wise, especially in the current macroeconomic scenario. WHEN a borrower’s income increases, his capacity to pay over and above his home loan EMI goes up. Opting for pre-payment instead of putting it into other investment assets can prove wise, especially in the current macroeconomic scenario. Lending rates are likely to remain low over the next few quarters in comparison to where the rates were two-three years ago. Therefore, should borrowers pre-pay while interest rates are low, they would reduce their outstanding loan balance at a faster rate. Therefore they will be strongly positioned in their repayment plan whenever interest rates start trending upwards again. Let’s understand this with an example. Let us look at a typical home loan scenario, wherein the loan amount is R30 lakh, the interest rate is 11% and the tenure is of 240 months. If the home buyer pays regular EMIs for 20 years, the total interest payment on the principal of R30 lakh would be about R44.31 lakh. Now let’s assume that the borrower decides to pre-pay the loan after five years. At the end of five years, he would have paid R18.58 lakh, out of which, R15.82 lakh would have gone towards the payment of interest while only R2.76 lakh would have gone towards the repayment of principal. The outstanding principal amount would be R27.24 lakh. So, on prepayment of the entire outstanding principal at the end of five years, one would be able to save about R29 lakh. On prepayment after 10 years, he would be able to save about R15 lakh. These calculations assume a fixed interest rate. If the borrower pre-paid on a floating interest rate which had come down from 11% to around 8.6% (the prevalent rate now), the savings would be much more significant, since the borrower is paying off a part of the loan at a cheaper rate. The borrower had R27,24,418 as loan outstanding from the sixth year, when his loan switched from a fixed rate to a floating one. The floating rate being 8.6%, his EMI has already come down to R26,988. If he pre-paid 10% of his outstanding balance—R2,72,441—his loan tenure would plummet from 180 months to 148. This implies long-term savings from 32 fewer EMIs would be of R8.63 lakh. The more the borrower is able to pre-pay at a lower interest rate, the more he’s going to save in the long run when the interest rate starts to climb again—which it undoubtedly will. Is it always good to pre-pay? You should compare the interest you would earn from an investment instrument with the interest on the home loan before taking a decision. If the alternative investment instrument pays more than the home loan interest, you must opt for it. Also, consider the tax benefits associated with the home loan principal repayment and interest payment if you stay married to the loan. Source:financialexpress.com

Why a cheap home loan might not be good value

The debate about housing affordability, and speculation about the direction of interest rates, have brought housing loans back into the spotlight. Many borrowers are even considering changing lenders to take advantage of what may seem to be a cheaper rate. Unfortunately, it is not as simple as it sounds. Right now, the banks are more interested in competing for deposits than they are for loans, and even if you did find a friendly bank you will almost certainly end up confused, as there are now over 1000 different home loan products in the market. Sorting through them is just as tricky as working out which phone plan is best for you. A useful guide is the comparison rate sheet that all lenders are required by government legislation to provide, but keep in mind that it is only a starting point. Even though it includes the basic loan costs, such as set-up fees, interest rates and ongoing charges, it does not include bank fees that are only charged in certain circumstances. These include fixed loan early termination fees and redraw fees. But there is more to a loan than the interest rate and the fees and charges. One of the most important things to consider is flexibility. You might believe that a no-frills loan with low fees is perfect for you right now because your affairs are simple and your present intentions are to stay in the one house for many years, but keep in mind that change is always with us, and your present loan may not be appropriate if things change. What happens if you decide to move house, or borrow some money for renovations or investment, or need to reduce your repayments when the kids are at high school? If you have a no-frills loan it might not have a redraw facility and you might be required to take out a second mortgage for the extra money. Naturally the bank will be looking for a higher interest rate on the second mortgage. Offset accounts are also a highly desirable feature. If you deposit money in a normal interest-bearing account you will probably earn less than 2 per cent a year and then lose at least a third of that in tax. However, when you deposit money in an offset account the notional interest credited should be the same as that charged on the housing loan. And it gets even better: instead of the interest being credited to your account, leaving you liable for tax, the interest is taken off the principal on your non-deductible home loan. So funds in an offset account earn you the same as the loan rate (currently around 5 per cent) after tax. That's equivalent to getting more than 7 per cent before tax on an interest-bearing deposit. You can put offset accounts to good use if you intend to move home and keep the old one. This is because you can build up funds in the offset account instead of paying them off the housing loan. There is no difference in the interest costs, as the offset account is credited at the same rate charged on the housing loan, but there can be a huge difference when you decide to make the move. Think about two neighbours who started with a housing loan of $400,000 some years ago. Karen used all her resources to reduce the loan as fast as possible, while Katya banked all her spare money into the offset account, leaving the original loan high. Today, Karen owes only $100,000; Katya has a debt of $400,000 with almost $300,000 in the offset account. They both decide to upgrade to another residence, but want to keep the old one as a rental. Katya is far better placed for tax purposes, as she can simply withdraw the $300,000 she has in the offset account for a deposit on the new home, leaving a debt of $400,000 on the existing house – this debt is now deductible as she is renting the house out. In contrast, Karen will be paying tax on a large portion of the rents from the original property as it has a very low debt, while suffering the burden of a huge non-deductible debt on her new home. Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Source:smh.com.au

Home loan co pushes subsidy cases with no insistence on income proof

NAGPUR: A recent entrant in the lending business, Home First Finance Company (HFFC) is banking highly on the Pradhan Mantri Awas Yojana (PMAY) — the interest subsidy scheme launched by the Narendra Modi government. Out of the Rs270 crore subsidy granted under PMAY, 8% has been for loans given by HFFC. The company attributes its success in cornering a huge chunk of PMAY subsidies to the system of easier approvals. PMAY loans can be taken from all banks or NBFCs. However, borrowers at HFFC are not required to submit their income tax returns or bank statements. "The company does its own due diligence to assess the income level," said Gaurav Mohta, HFFC's head (sales and marketing). Borrowers with up to Rs6 lakh per year family income are eligible for the PMAY subsidy, which is capped at Rs2.20 lakh. Once approved, the amount is credited to the loan account, which reduces the outstanding balance. In Nagpur, HFFC has processed 21 loan cases under PMAY. The city branch of Confederation of Real Estate Developers of India (CREDAI) and HFFC held a function to felicitate the beneficiaries on Friday. "Under the terms laid down by the government, only a declaration has to be given that the family has an income within Rs6 lakh an year. To finance borrowers who may not have a bank account or tax returns, HFFC has devised its own system of ascertaining the income. It is done through market intelligence. We do not need income tax returns or bank statement like other lending institutions," Mohta told TOI on the sidelines of the function. He said the HFFC system does not have any extra risk, since the company gathers information through different sources to ascertain the income. The income is cross-checked in both subsidy and non-subsidy cases. In case of misrepresentation, the subsidy is taken back. So far 3,000 loans of the company have been covered under PMAY with approvals secured for over 1,000, said Mohta. The company's current outstanding advances stand at Rs793 crore. The average ticket size of the loans is Rs10 lakh. Mohta said there is a major thrust on affordable homes in cities across the country. In Nagpur too some schemes are coming up on the outskirts. "The amended PMAY announced in December last year has increased the income level to Rs18 lakh. This will bring in a large number of persons under the eligibility criterion," said Mohta. Stay updated on the go with Times of India News App. Click here to download it for your device. Source:timesofindia.indiatimes.com

Home loan growth to slow down in FY17

MUMBAI: Home loan growth is likely to be lower than previous years as buyers and investors are expected to defer their home purchase on expected correction in real estate prices. “Following demonetization, the growth in home loans in FY2017 is likely to be lower at 16-18% from earlier expectations of 18-20%,”said rating company IcraBSE 0.41 % in a statement. “Demand from the self-employed segment is also likely to be subdued as their business volumes may have been impacted.” Also, reduction in MCLR by various banks could lead to increased competition and balance transfers, especially in the prime salaried segment, the report said. In the Union Budget the government has given 39% higher allocations under the Pradhan Mantri Awas Yojana. Also, infrastructure status accorded to affordable housing projects will stimulate wider investor community and improve the access to funding avenues. “While growth in the prime home loan segment could witness moderation, affordable housing segment is likely to grow at a faster pace than industry with efforts being made to address the supply, demand and affordability issues,” said Rohit Inamdar Group Head Financial Sector Ratings Icra. Asset quality indicators continue to remain resilient with the Gross NPAs of 0.8% as on September 30, 2016. Post demonetization, the delinquencies in the affordable housing and self-employed segments would increase given the borrowers’ reliance on cash transactions. Given the expected correction in property prices liquidity of properties may get hampered, impacting the loss given default. Despite rising portfolio vulnerability owing to increasing share of non housing loans, higher share of self-employed and low-income borrowers within housing loan segment and high competitive intensity leading to dilution in lending norms (like relaxation of LTVs/FOIRs), we expect gross NPAs for HFCs to remain range bound between 0.9% - 1.3% over the medium term.” Inamdar added. Incremental funding costs for HFCs have come down considerably in the second half of FY2017 with many HFCs raising funds at median rates of 7.5-8%. Therefore, cost of funds is likely to moderate further for HFCs. The reported capital adequacy for HFCs remained comfortable, due to the benefit from relatively lower risk weights for home loans and commercial real estate loans for residential projects. The gearing level remained at 8.5 times as on September 30, 2016. ICRA expects the aggregate gearing levels for HFCs to remain at around 8-9 times over the medium term. In ICRA’s estimates, HFCs will require around Rs 160-275 billion of external capital (30-50% of the existing net worth of the HFCs) to grow at a CAGR of 18-20% for the next three years at internal capital generation levels (post dividend), of 15-16% and gearing levels of 8-9 times. Source:economictimes.indiatimes.com

Is it the right time to transfer your home loan?

Over the last two years, the Reserve Bank of India has steadily reduced lending rates. Any rise or fall in the RBI's repo rate will have a direct impact on your home loan interest rate. Therefore, in the recent past, lenders have reduced their interest on home loan products in tandem with the lowering of repo rate. Additionally, several lenders took an axe to their own lending rates following the culmination of the 50-day demonetisation drive. In an ideal scenario, existing loan owners should benefit from these rate cuts. But in the past, this wasn't often the case, with repo rate cuts not being adequately transmitted to borrowers. Which is why the RBI mandated banks to switch to the MCLR regime from the base-rate regime. Since April 1, 2016, all new loans are linked to the bank's marginal cost of lending rate (MCLR). These loans are more responsive to rate cuts in the sense that the rates change automatically on specified intervals of time mentioned in a loan agreement. The question now is this - if you have a home loan now, should you consider transferring to another loan with a lower interest rate? What existing borrowers can do If you borrowed before April 1, 2016, your loan would be linked to the base rate, which is known to be less responsive to rate cuts. Assuming that you're paying over and above the prevalent interest rate (in the region of 8.6%), you may be tempted to move to a cheaper loan. But this decision should be arrived at after carefully calculating the benefits of the transfer. Lower interest rates are not the only reason why you should transfer your loan. You also have to look at the quantum of long-term savings as well as loan transfer costs. Here's a look at how you can weigh your transfer benefits. The transfer costs: Transferring to another loan with your current lender may not involve costs. However, transferring to another lender will cost you some money. You have to pay processing fee on the balance of the loan transferred, administrative expenses, pre-payment penalty if you had a fixed rate loan, legal charges, stamp duty, etc. The aggregate of these costs lower the savings you make on the transfer. The Remaining Tenure: If your loan is nearing its end, a transfer may not make sense. You may save costs on EMIs, your loan transfer costs may outweigh any savings. The Long-Term Savings: This the gross of what you will save over the remaining term of your loan through a reduction in your EMIs, factoring in the transfer costs. If your savings appear to be significant, you have a case for transferring to another loan. Don't forget that any MCLR-linked loan you move to will have a fluctuating interest rate. Currently, the interest rates are low, but at some point in the future, the rates will start increasing again due to factors such as inflation. When It Makes Sense To Transfer Here's a look at the illustration below to understand when transferring your home loan makes sense. Suppose you had taken a home loan for Rs 25 lakh for 20 years at an interest rate of 10.50% per annum. You want to transfer this loan to another bank offering you an MCLR-linked interest rate of 9.5% per annum. Now, consider the two different scenarios. Conclusion - Shift, Only If There Are Savings As the illustrations reveal, opting for a loan transfer in Scenario 2 is not an economical option for the borrower. It could lead to a loss, therefore the borrower can stick to his current repayment plan. In fact, he can make the best use of the prevalent low interest rates and pre-pay on his loan. This would help him make significant progress in terms of repayment, and put him in a stronger position when the interest rates start rising again. Conversely, when there's a sizeable part of the loan tenure remaining, there may be significant long-term savings from moving to a loan with a lower interest rate. In conclusion, do not make a hasty decision related to your home loan transfer. Calculate all the costs of transfer. You can take the help of various online calculators to calculate these costs and your savings. You could also approach your lender to ascertain these numbers. Source:businesstoday.in

IDBI Bank doesn’t wait for RBI cue, cuts home loan rate

Surplus liquidity in the banking system is forcing banks to reduce rates even before the Reserve Bank of India’s (RBI) monetary policy tomorrow. IDBI Bank has reduced its home loan rates by around 0.60%. The home loans of the bank are now at 8.55% to 8.7%. The lowest rate of 8.55% is applicable to the priority sector loans. The bank has also reduced its one-year marginal cost based lending rate (MCLR) to 8.60% with effect from February 1. MCLR is the rate to which most of the loans are pegged. While the two-year rate is pegged at 8.85%, the one-month rate is 8.40% and the overnight rate at 8.20% Mythili Balasubramanian, executive director, IDBI Bank, told DNA Money, “Across maturities, the reduction in the home loan rates are about 0.60%, and we are now in line with our competitors. Home loans is a big focus area for the bank. We are planning a reduction on our car loan rates also but this is a very small portfolio.” With this reduction, loans across categories will be cheaper by 0.30 % to 0.35% on various tenures. The bank said in a release, “The reduction in MCLR is expected to positively impact loan growth; both in the retail consumer segment and corporate sector lending, thereby supporting the growth impulses in the economy.” Banks across the board are expected to keep the rates low as the liquidity improves. Source:dnaindia.com

Union Budget 2017: New Income Tax Rules On Home Loan Benefits. See Details Here

As per current tax laws, for properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. The government has cut down tax benefits borrowers enjoyed on properties let out on rent. "In order to address the existing anomaly of interest deduction in respect of let out property vis-a-vis self-occupied property, it is proposed to restrict set off of loss from house property against income under any other head during the current year up to Rs. 2 lakh. The loss not so set off would be allowed to be carried forward for set off against house property income for eight assessment years," Finance Minister Arun Jaitley said in his Budget 2017-18 speech. (Also read: Arun Jaitley gives tax relief on gains from property investments) As per current tax laws, for properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. On the other hand, borrowers of self-occupied properties get Rs. 2 lakh deduction on interest repayment on home loan. However, according to the proposed change, on rented properties, the borrower can only claim deduction of up to Rs. 2 lakh per year after adjusting for the rental income. And the amount above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years. For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, according to the earlier rule, were allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later. Experts say the move will dampen the demand for buying a second property for the purpose of earning rental income. "High net worth individuals used to buy properties on loan and were able to set off the full interest liability against the lettable value of property usually resulting in loss which would substantially bring down tax liability and consequently their borrowing costs. This avenue is now closed and loss above 2 lakh would have to be mandatorily carried forward," said Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP. The finance minister in Union Budget 2017-18, however, proposed a change that will attract lower tax on gains from property sale. Mr Jaitley proposed that the holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. Source:profit.ndtv.com

Budget 2017: All about home loans in your interest

1. Even a loan taken from an employer, friend, private lender is eligible for deduction--but only on interest and not principal. And you'll need a certificate from the lender. 2. Booking an apartment which is under construction is sometimes cheaper. I-T law permits you to claim the total interest paid during the pre-delivery period as a deduction in five equal instalments starting from the financial year in which the construction was completed or you acquired your apartment (generally this denotes the date of possession).Of course, the maximum you can claim as a deduction per year continues to be 2 lakh, in case of self-occupied property. 3. It makes tax sense to purchase the new apartment jointly ­ say with your spouse, then each of you is entitled to a deduction of 2 lakh for interest funded by each of you, as explained above. In case you have a working sondaughter and the bank is willing to split the loan three ways, all three can avail deduction up to 2 lakh each on selfoccupied property. 4. If you have a second house, it makes better tax sense to rent it out rather than keeping it empty . An empty second house will still attract tax on its `deemed value'.In other words, tax is calculated at expected market rent. 5. Expenses towards repair and maintenance are not allowed as a deduction income from house property . However, a standard deduction @ 30% of gross value (generally the rent received) is allowed to compensate for repair and maintenance expenses of a house property . This is allowed irrespective of actual expense. Also, deduction towards municipal taxes paid during the financial year is allowed irrespective of the year to which it pertains. The above is not applicable to self-occupied property. Tax benefits on principal Equated monthly instalments (EMIs) are typically divided into principal (the amount you took as loan) and interest (the cost of servicing the loan) Principal is allowed as a deduction from your gross total income (subject to an overall cap of 1.5 lakh with other eligible investments). Tax benefits on interest paid Interest payable on `selfoccupied' property is subject to a maximum deduction of 2 lakh under the head `Income from house property'. It can be set off against other income, which includes salary income, in the same year. This reduces your total tax liability. But to claim this, it is essential that the acquisition or construction is completed within 5 years from the end of the financial year in which the loan was taken; else the deduction will be limited to 30,000 Additional deduction of 50,000 for interest paid shall be allowed for first-time buyers if certain conditions are fulfilled. Source:economictimes.indiatimes.com

Switching your base rate home loan to MCLR can bring down the EMI

MCLR comes with an interest reset option, which means that the interest rate has to be reset at least once a year I am a co- borrower and a co-owner of a property along with my wife and am repaying the entire loan from my salary account. The details of my home loan from a bank are as follows: 1. Total amount sanctioned: Rs 28.52 lakh. 2. Outstanding: Rs24,41,775. 3. Present rate of interest as per base rate: 9.3% 4. Tenure: 240 months 5. Present equated monthly instalment (EMI): Rs29,800. My home loan was sanctioned in May 2015, when it was linked to the base rate. From the initial rate of 9.9%, the rates have fallen to 9.3% as on 1 January 2017. My bank is now advising me to enter into a separate agreement to link my home loan to marginal cost of funds based lending rate (MCLR) after paying a fee of around Rs14,000 (0.58% of the outstanding amount). They have also said that if the loan is linked to MCLR now (which will automatically reset the interest rate to 8.6%), any further reduction in the near future will be applicable only after 12 months. I am totally confused. The banks do not have the time to advise customers like me with a detailed breakup. I am also worried whether there will really be any further fall in interest. Please guide me whether it is prudent to make such a move after analysing my loan data. —Ravi Mehta The concerns being faced by you are valid and true as most of the home loan borrowers, at some point of their loan cycle, grapple with their interest rates. Let’s understand the facts on how a bank fixes its interest rates. At the time of your borrowing, i.e., in 2015, the banks were using the base rate mechanism to determine the interest rates. Base rate is the minimum rate fixed by all banks, below which the bank cannot charge its customers. Base rate can be different for different banks. Why is that so? The answer lies in how a bank manages its profit and loss (P/L). So, its profitability based on predetermined factors plays a crucial role in determining its base rate. Typically, a bank reviews its base rate every quarter. And just to bring in more clarity, base rate was introduced in 2010. Prior to the base rate, the interest rates were fixed based on prime lending rate (PLR). In the PLR regime, banks had the option to give a rate lower than PLR, based on their due diligence of the borrower and wherever the banks believed that it was a low-risk loan. Base rate, hence, was introduced as it aimed to offer more transparency and helped the consumers in comparing the base rates between all banks—all banks were required to disclose their base rates. However, there was a practical flaw. Whenever the Reserve Bank of India (RBI) reduced the benchmark rates (such as repo rates), the banks were not very responsive in passing the benefit to the consumers. And wherever they did pass it, either it was not the complete pass-back or there was much time delay, thereby defeating the essence of what the RBI expected of banks. Thus, to further streamline and improve the process, the base rate regime was moved to MCLR from April 2016. This process is expected to speed up the process of resetting the interest rates on a more actual and real time basis. MCLR also comes with an interest reset option, which means that the interest rate has to be reset at least once a year. So the interest rate, once on MCLR, becomes fixed till the next reset date. This reset varies from one bank to another, and some banks even offer a 6 months reset clause. This means the rate of interest (RoI) can be fixed for the said period. Hence this can be a good option when the interest rates have gone down. The banks are now giving an option to convert the loans from base rate to MCLR on mutually acceptable terms. While this is not a new loan, and is a mere transfer from one regime to another, banks do charge for this shift. Typically, the rate of conversion is 0.5% and if they add the service tax and the actual costs to the borrower, the cost does come to about 0.58%. And this is the rate that your bank is also charging you to convert to an MCLR, along with an interest reset clause of 1 year. Let’s now check the numbers to determine whether you should be going for the switch. The loan amount of Rs28.52 lakh at 9.9% RoI for a 20-year tenure with an EMI of Rs27,334. Your outstanding amount reflects that some prepayment has been done. So, at the current outstanding of Rs24,41,775, at 9.3% RoI for an 18.5 year tenor (reduced 1.5 years of the tenure), the EMI is Rs23,082. And if we convert to MCLR with everything else remaining same—outstanding loan of Rs24.41 lakh and tenor of 18.5 years, but with an RoI of 8.6%, the EMI becomes Rs22,009. This shows a clear saving of Rs1,073 per month. This means, assuming no further changes in interest rates, the cost of converting to a lower rate gets adjusted in the next 13 months. In a different way, this change of interest by 0.7% can reduce your tenure/EMI period by 2 years. It is recommended that you convert from the base rate to MCLR, as it aims to be more real time, as well as better regulated. And yes in the current times, there are expectations that the interest rates will be coming down, which makes the case stronger. Source:livemint.com

Will HDFC hold up its home loan growth rates?

The lingering effects of demonetisation will perhaps reduce growth in disbursements for another quarter That there are no nasty surprises from the December quarter numbers of Housing Development Finance Corp. Ltd (HDFC) should please investors and justify the 13% run-up in its shares over the past three weeks. To its credit, the home loan lender’s net profit grew by 12% to Rs1,701.21 crore for the December quarter, marginally higher than analysts’ estimates. Indeed, the housing finance company has seen better quarters before with higher profit growth but the latest is not to be sneezed at especially in the wake of the currency withdrawal. The fact that the profit comes on the back of a strong operating performance, with net interest income growing at 17%, and asset quality holding up in the aftermath of demonetisation is enough reason for investors to like the stock. HDFC’s shares, which were initially pummelled on demonetisation worries, have gained 13% so far in 2017, shrugging off the initial negative sentiment. The home loan firm seems to have weathered the demonetisation event much like its smaller peers. The currency withdrawal could shave only one percentage point off HDFC’s individual loan book growth, which slipped to 15% for the third quarter from the average 16% in the previous two quarters. This is adjusting for the loans sold by the lender. Its non-individual loan book that is largely made of developer loans grew at a faster pace of 17% for the December quarter. But the worry is that HDFC’s individual loan book growth has been slowing over the last three years. Its individual loan book growth was as high as 19.7% in fiscal year 2014, which dropped to 16.8% in FY15 and then to 15.6% in FY16. According to Religare Capital Markets’ research wing, the home loan lender’s individual loan book growth could drop to sub-12% for FY18. HDFC’s individual loan book has been its strength and the growth in it outstripped that of the corporate loan portfolio until 2015-16. The push for mortgage loans, healthy rise in real estate prices and the management’s focus on individual loans boosted the portfolio over the past years. This year, the share of individual loans in incremental loan disbursals has dropped to 73% in the December quarter from 88% in the June quarter. The lingering effects of demonetisation will perhaps reduce growth in disbursements for another quarter. But the real question is whether HDFC will trump the rising competition from banks and other housing finance firms consistently as it has in the past. Source:livemint.com

Budget 2017: Increase limits for home loan tax benefits, put additional thrust on affordable housing

Amid frayed sentiments in the market, the Indian real estate sector has its hopes pined for the upcoming Union Budget 2017-18 slated for February 1, 2017. Some of the key expectations from the upcoming Union Budget are outlined as follows: Relaxation of tax benefits for home buyers On December 31, the government announced sops to the LIG through interest subvention of 4 per cent for loans of up to Rs 9 lakh, and subvention of 3 per cent for loans up to Rs 12 lakh. Given the high cost of homes in the metros, the government should look at extending similar benefits for loans for homes of higher values as well, to give an impetus to the burgeoning demand for housing in this segment. The Budget should also extend tax benefits for a period of five years that were introduced in last year’s budget. Last year, the government had announced an additional Rs 50,000 tax deduction on interest paid for a loan amount less than Rs 35 lakh and for a house value less than Rs 50 lakh during 2016-17. This could be further revised to include all home loans for first time buyers for interest paid up to Rs 300,000, and restriction on the value increased toRs 1.5 crore. These measures would go a long way in boosting demand and taking care of all households up to the middle class and which form the bulk of residential demand. Thrust on affordable housing stock creation • More tax breaks such as service tax exemption for developers of affordable projects would incentivize developers and spur the private sector’s interest in the space, leading to creation of affordable housing stock. • Lower cost of borrowing for affordable projects will give an impetus to developers to focus on low-cost housing. Expanding the ambit of external commercial borrowings (ECB) for construction finance with a focus on the residential sector would be beneficial for developers. • The government defines priority housing within 30 square meters (sqm) for four metropolitans and 60 sqm for other urban markets mostly in the bracket of Rs 20 – 50 lakh. However, due to high costs of land, labour, materials and cost of operations, the government should redefine ‘Priority Housing’ to include houses costing up to Rs 1.5 crore for first-time home buyers. The budget should make available government owned institutional financing to the priority housing projects, which will enable private developers to create stock in the segment. The government can also look at further empowering bodies such as National Housing Board to provide secured lending to developers in the priority sector. For the large mobile talent pool that is available in all the urban areas in the country, there is heavy dependence on rental accommodation, which is largely scarce, unregulated, unorganized and even dilapidated. The government should promote the development of large scale rental housing projects to cater to the needs of at least the low and mid income groups that need rental housing. Consequently, it will also take care of issues such as formation of new slums, overcrowding, etc.Such projects can also be included within the REITs frame-works as they are income generating assets. Exempting REITs from stamp duty • Over the last year, the government has streamlined the structure of REITs to a large extent. While taxation issues such as dividend distribution tax, long-term capital gains tax on transfer of units have been resolved, REITS still need to pay stamp duty charges at the state level. The government should consider convincing the States to exempt REITs from stamp duty for, at least for the initial few years, to increase the competitiveness of REITS in India. Boosting employment opportunity Finally, the government’s ‘Make in India’ initiative also needs to boost associated real estate infrastructure. This could be done by providing tax incentives for private developers and funds investing in developing industrial and logistics/warehousing parks. These can include exemption from stamp duty and registration charges, exemptions / rebates on taxes and duties for materials and machinery needed to develop and operate such parks. The country saw remarkable progress on the economic and social fronts through policy frameworks such as STPI and SEZs that helped to nurture many sectors. Given the current global competition for these sectors and new emerging ones, the absence of any such regulatory policies could hurt economic growth. Hence, the government needs to revisit the SEZ policy completely or introduce another one, which will provide necessary push and protection for the growth of employment and export revenue generating sectors/industries. Creation of supporting judicial framework An abnormally high number of all pending civil and some criminal cases with the judiciary involve real estate. This has resulted in locking up a large chunk of much needed real estate out of markets and people and further helped to create shortages / scarcity resulting in further increasing prices. The government needs to seriously think of adding more resources and mechanisms to deal with real estate related litigation and take care of this huge backlog. Concurrent steps like immediate creation of a nationwide digital property database, bringing in title insurance, etc. will also help to bring in transparency and better systems that will also help in the implementation and functioning of RERA. • The government needs to provide adequate financial and regulatory resources to support these measures. Source:economictimes.indiatimes.com

Why you should refinance your home loan now

The decision of major banks and NBFCs to cut interest rates has created the right conditions for you to refinance your home loan. Maximise your savings while interest rates are down and save on your dream home. Borrowers across the country have reason to cheer in 2017 as banks slashed their home loan rates to a six-year low. With approximately Rs.15 lakh crore cash deposited on the back of the government’s demonetization drive, banks have enough money to offer attractive interest rates to borrowers. Non-banking finance companies (NBFCs) are also structuring attractive offers on new loans or refinancing of existing loans. Why are interest rates falling? You may have heard or read about the Reserve Bank of India (RBI) cutting benchmark rates in the past, but the news may not have made a big difference to you. This is because lenders – in this case your bank – did not pass on the benefits of these cuts to borrowers. The RBI held rates steady in the last credit policy announced in December 2016, and expected banks and NBFCs to cut rates for borrowers. As the financial system received a substantial cash influx following the announcement of demonetisation of Rs.500 and Rs.1000 notes, lenders decided to cut lending rates. In fact, the interest rate cuts have brought down the average borrowing rate by nearly 0.5%. But how will it actually affect you? Know your interest rate regime If you are an existing home loan customer, you need to first understand your interest rate regime. If you had taken a loan between April 2010 and March 2016, your loan comes under what is known as a base rate. Loans taken after that month qualify for a Marginal Cost of Funds-based Lending Rate or MCLR. The MCLR regime features a reset clause. Some lenders allow a one-year reset while others offer more frequent reset options (e.g. every six months). The reset clause offers a flexibility to take advantage of falling interest rates if you opt for a fixed rate option. For example, after 3 years of availing a fixed rate of interest, the reset clause will kick in and let you take advantage of the prevailing interest rate. It allows you to make use of the rate reductions at the right time. This can result in big savings on the interest payable. What is the impact of the rate cut on you? The rate cut could make a big difference to your existing loan. For example, if you still have 10 or more years to go on your home loan, you have a good chance to reduce your monthly EMI expense or repayment tenure or maybe a little bit of both. This is your chance to reduce the size of your loan. Falling interest rates over the past two years are now finally reaching you. Your relationship with your lenders When interest rates are falling, other banks or non-banking companies offer to shift your loan to the MCLR regime. You won’t usually incur any fee as it is not treated as a foreclosure. However, it is a good idea to check the cost of switching with your lender. Your existing lender could charge you a higher fee for such a switch to MCLR. In such a situation, you may want more flexibility in the loan repayment terms. You can also approach a different lender for refinancing options. Refinancing is very easy. What it means for existing loans You can refinance your existing home loan. It really means talking to your lending institution and finding out the lowest possible interest rate that you can pay on your outstanding principal amount. Before you speak to your bank, it may be a good idea to talk to multiple banks and find out the best possible rate that they are offering. You can get a quote from them. You will then know the prevailing market interest rate on the property. This would be lower than the home loan interest rates you pay now. If the lender does not agree to give you the best rate, you can do a home loan transfer to another lender and save on interest. The documents needed for loans are a hassle for many people. Yes, your new lender will ask for it. However, in the case of refinancing, it is relatively less cumbersome because your bank or NBFC already has a track of your repayment record. Your lender should accommodate requests to reduce EMI or cutting your monthly outgo. It is a borrowers’ market so the lender would be interested. In short, it’s very easy to refinance your home loan. You can move to another lender offering the updated, lower interest rate. Check out NBFCs for flexible terms and better features. Some NBFCs offer customers instant online approval with no hidden charges. Reduces your tenure This is the first thing you should negotiate with your bank or a non-banking finance company you have taken the loan from. Reducing the tenure leads to a substantial saving in your interest payment at the end of your loan term. For example, consider a 25-year loan of Rs.50 lakh at 9.5% interest. With the 0.5% drop in rates, the tenure could drop to just under 22 years. Lower your monthly liability While reducing the tenure ends up saving more interest, a popular thing among borrowers is to reduce the EMI. This cuts your monthly liability and leaves more cash in your hand. Take the same example as above. With a 9.5% interest rate, you will be paying Rs.43,685 every month. But if your interest rate reduces to 9%, then you only have to pay Rs.41,960. This may not seem significant, but it can contribute greatly over the period of 25 years. Imagine, Rs.1,500 invested every month can fetch you Rs.18.5 lakh if you earn a 10% return over the same period of time! To sum up, the interest rate cuts have created the right conditions for refinancing your home loan. Source:livemint.com

The great Indian home loan puzzle

Competition is welcome and the drop in interest rates will help expanding the home loan market but there are a few key questions about whether lenders will be able to sustain it In October 2003, Romesh Sobti, then executive vice-president of ABN Amro Bank (now he heads IndusInd Bank Ltd) took the Indian mortgage market by storm, announcing home loans at 6% in the first year and 6.5% in the second year—around 1.75 percentage points lower than the prevailing home loan rate, offered by larger banks and housing finance companies. A newspaper headline screamed, “ABN Amro hits a sixer”. Undercutting competition by a wide margin, ABN Amro wanted to build a retail portfolio and expand the market. The equated monthly instalment (EMI) dropped to as low as Rs717 per Rs1 lakh for a 20-year loan. At that time, poaching customers from other banks was not easy as a prepayment penalty was involved if the customers wanted to shift from one bank to another. The Dutch bank started a pilot project in Delhi and eventually wanted to be among top five on the home loan turf but we did not hear much after this. (In October 2007, its parent was acquired by a consortium of banks and the Indian business came under the fold of Royal Bank of Scotland, which made its exit from the country in 2016). Six years later, after the ABN Amro gamble, in August 2009, when the world was in the grip of a recession, O.P. Bhatt, then chairman of State Bank of India (SBI), launched another unique scheme for home loans—the teaser home loan, at 8-8.5% for the first three years. Amid concerns expressed by the Reserve Bank of India (RBI), the bank withdrew the scheme in May 2011 and replaced it by floating interest rate loans on a par with other commercial banks—between 9.5% and 10.25%. Around the time when Sobti eyed the home loan market, then IDBI Bank Ltd boss Gunit Chadha toyed with a different experiment. The bank started giving loans covering the price of the property and even its stamp duty and registration cost, setting aside the concept of loan to value or LTV where the lender keeps a margin and the home buyer needs to put in her own money to part-finance it. Currently, banks finance up to 90% of the cost of a house worth Rs30 lakh, 80% for loans above Rs30 lakh and up to Rs75 lakh, and 75% above that. The IDBI Bank scheme too attracted the regulator’s glare. In the recent past, SBI started offering 0.05% discount to women customers and most other lenders, including the Housing Development Finance Corp. Ltd (HDFC), India’s oldest mortgage firm which disbursed its first loan in 1978, emulated that. At the moment, we are witnessing a rate war on the Rs13 trillion home loan market. A rate war per se is not new but there are quite a few new dimensions in this round. l Almost every lender has joined it either through cutting rates or tweaking the products. l This is driven by liquidity as every bank is flooded with money following the so-called demonetization exercise in which Rs1000 and Rs500 notes which accounted for 86% of the currency in circulation are being replaced. Banks’ year-on-year deposit growth, which was 9.8% till October-end jumped to 14.7% in the third week of January. l Finally, along with expansion of the market, lenders are poaching each other’s customers freely as there is no prepayment penalty for the customers. The only cost a borrower incurs is the so-called memorandum of deposit charges payable to the state government. This could vary between 0.2% and 0.5% of the loan amount being transferred. SBI made the first move by cutting its one-year marginal cost of funds based lending rate or MCLR—the anchor for all loans—by a massive 0.9% to 8%. It is now offering loans for home loans up to Rs75 lakh at 8.65%; for women borrowers, it is 8.6%. For loans above Rs75 lakh, the rate is 8.7% for men and 8.65% for women. HDFC and most others have matched it but Punjab National Bank (PNB) is offering a lower rate—8.50% for all home loans, irrespective of the amount. Interestingly, PNB’s MCLR is higher than SBI’s—8.45%, down 0.7% from its December level. Still, it could offer a cheaper home loan rate than SBI because it is keeping only 0.05% spread over MCLR for home loans while SBI has jacked up its spread from 0.35% to 0.65%. Its home loan rate has not come down as much as its MCLR. Bank of Baroda has gone one step ahead and is offering home loans at its MCLR—8.35%, lowest in the market. It has linked the home loan rate to a borrower’s credit score . The best-rated borrowers (with credit score over 760 points) will get home loans at this rate. Lower-rated customers will have to pay more; it could be as much as 9.35%. Indian mortgage firms have been talking about rating of individual borrowers and they do check the credit history of customers with Credit Information Bureau of India and other credit bureaus but so far none has linked the cost of loan to an individual borrower’s rating. Typically, the lenders look at the repayment capacity of a borrower and as long as her total outgo towards repayment of loans (not home loan alone; could be other loans such as personal loans, education loans, auto loans, etc.) is about 45% to 50% of income, the lenders have no concerns in granting home loans. Bank of Baroda has changed the rules of the game. When very few companies are making fresh investments, many large corporations are laden with huge debts and most banks’ corporate loan portfolios are shrinking, bankers expect the retail business to come in handy for balance sheet growth. Going by the September end data, SBI with little more than Rs2 trillion home loan portfolio is the largest lender in the mortgage market, followed by HDFC (Rs1.93 trillion), LIC Housing Finance Corp. Ltd (Rs1.27 trillion) and ICICI Bank Ltd (Rs1.18 trillion). Other lenders with a relatively large mortgage portfolio are Axis Bank Ltd, Indiabulls Housing Finance Ltd and Dewan Housing Finance Corp. Ltd. The Indian home loan market consists of 76 housing finance companies and state-owned as well as private banks. In the affordable housing finance market, there are one and half a dozen new entrants in addition to the 14 existing lenders. A burgeoning middle class, rising disposable income and support from the government in terms of interest rate subsidy as well as tax reliefs have increased the affordability of homes in Asia’s third-largest economy. While the market has been growing around 18% every year, there has not been a significant drop in the average age of the customers. For instance, at HDFC, it has come down from 42 to 38 in past 25 years. The reason behind this is the rising real estate prices. Apart from the cost of a property, there are other costs in terms of stamp duty, brokerage, registration, parking and refurbishing a new home, among others. A home buyer typically ends up spending around 35- 40% of the total cost to make it livable. Not too many people have that kind of savings at a young age. I am sure that aggression of lenders is being accompanied by good housekeeping in terms of appraisal processes and storage of documents. This is a must to prevent frauds and earning confidence of the borrowers. Competition is welcome and indeed, the drop in interest rates will help expanding the market but there are a few key questions. Some of the smaller housing finance companies are now offering home loans at a rate lower than the cost of the funds they had raised from the market a couple of months ago. How will they sustain the low rate? Will the banks be able to maintain the current rate when liquidity dries up? If not, would a sudden jump in the mortgage rate after a year or two put pressure on the borrowers and affect the quality of banks’ assets? Source:livemint.com

Home loans based on credit rating finally arrive in India

Your credit history and credit score used to play a decisive role in determining whether you would get a home loan or not and it would stop there. You would get a home loan, R Your credit history and credit score used to play a decisive role in determining whether you would get a home loan or not and it would stop there. You would get a home loan, if you had a good credit score and would fail to qualify for the home loan, if your credit score was not up to the minimum fixed by the lending institute. Now, Bank of Baroda has gone one step further and will offer differential rates of interest on home loans, based on your credit standing. How does it work? Let us discuss. What is a credit score? All banks and NBFCs are required to share the data of financial transactions, with respect to all the loans and credit cards, with one of the credit bureaus. Presently, there are four such bureaus in India but CIBIL (Credit Bureau Information of India Limited) is the pioneer and has the first-mover advantage. These credit bureaus compile, collate and maintain the data of borrowers, on the basis of the payment history received from various participating institutes. CIBIL has a scoring methodology, to indicate the credit worthiness of a borrower, ranging between 300 and 900. Higher the score, better is the person’s creditworthiness. It is also proof of good behaviour, with respect to the credit facilities availed by the person. As per the CIBIL’s website 79% of the loans approved, are for individuals with a score greater than 750. So, 750 is considered as the standard score for loan eligibility by lenders. All the lenders request for such credit history from any of the credit bureaus, before giving a home loan to a borrower. As CIBIL has the largest database of borrowers, therefore, banks mostly rely on the CIBIL score while lending. What is Bank of Baroda offering? Presently, the banks are required to benchmark their lending rates against the MCLR (marginal cost of funds-based lending rate). The banks are supposed to have this MCLR for different periods, based on their marginal cost of borrowing for the corresponding period. The banks are not allowed to lend below the MCLR. In effect, the banks keep an extra margin over their MCLR, for fixing home loans. This margin is called as the ‘spread’. See also: How to improve your credit score before applying for a home loan. The present MCLR of Bank of Baroda is 8.35%. It has decided to reward people with good credit standing, by offering them home loans without charging any spread (i.e., by lending to them at the MCLR of 8.35%). So, an individual who has a credit score of 760 and above, will be given a home loan at 8.35%. For borrowers with credit scores between 725 and 759, the rate of interest will be 8.85% with a spread of 0.50%. Borrowers with credit scores of 724 and below, will have to pay 9.35% – a spread of 1% over the MCLR. Hence, a borrower with excellent credit score, stands to gain a 1% difference in the rate of interest. Savings on home loan EMI How it translates into actual numbers, can be better understood by an example. A person with a credit score of 825 and who takes a home loan of Rs 1 crore for 20 years at 8.35%, will have a monthly EMI of Rs 85,835. However, a person with a credit score of 715, who gets the home loan at 9.35%, will pay a monthly EMI of Rs 92,236. This translates into a difference of Rs 6,401 every month. Over the tenure of the loan (20 years), the person with the lower credit score will pay an extra amount of Rs 15.36 lakhs almost 15% of the loan amount. Source:moneycontrol.com

Pradhan Mantri Awas Yojana: Govt doubles loan amount for interest subsidy

Banks and Housing finance companies have welcomed the move. The scheme, initially launched by PM Modi in June 2015 to provide ‘Housing for All by 2022’, offered beneficiaries an interest subsidy at the rate of 6.5 per cent for a loan amount of up to Rs 6 lakh. In a boost to the affordable housing and middle income category of the housing sector, Prime Minister Narendra Modi had on Saturday doubled the quantum of loan amount that can qualify for interest benefit under the Pradhan Mantri Awas Yojana (PMAY) for Urban areas in 2017. In addition to this, he also announced a 3 per cent interest subvention for loans of up to Rs 2 lakh in the rural areas, taken for either new home or extention of housing. The scheme, initially launched by the Prime Minister in June 2015 to provide ‘Housing for All by 2022’, offered beneficiaries an interest subsidy at the rate of 6.5 per cent for a loan amount of up to Rs 6 lakh. The scope of the scheme has now been enhanced to loans of up to Rs 12 lakh with interest subvention of up to 4 per cent. “Two new middle income categories have been created under the Pradhan Mantri Awaas Yojana in urban areas. Loans of up to Rs 9 lakh taken in 2017, will receive interest subvention of 4 per cent. Loans of up to Rs 12 lakh taken in 2017, will receive interest subvention of 3 per cent,” the Prime Minister said in his speech on Saturday. He further added that for the rural areas, “Loans of up to Rs 2 lakh taken in 2017, for new housing, or extension of housing in rural areas, will receive an interest subvention of 3 per cent.” PM Modi Offers Rebate Of 4% On Rs 9 Lakh, 3% On Rs 12 Lakh Under New Housing Scheme While the interest rate on home loans currently stands at around 9 per cent, an interest subsidy of 4 per cent on loans of up to Rs 9 lakh means the effective rate of interest would be 5 per cent and, thus, substantial savings on EMI for individuals. Illustratively: An individual taking a 15-year loan of Rs 9 lakh would save Rs 2,011 in EMI every month on account of 4 per cent lower interest rate as his EMI will come down from Rs 9,128 to Rs 7,117. Similarly, an individual taking a loan of Rs 12 lakh under the scheme will save Rs 2,044 in EMI on account of the 3 per cent lower interest rate. Banks and Housing finance companies have welcomed the move. Gagan Banga, vice-chairman and managing director (MD), Indiabulls Housing Finance, said: “The Prime Minister has effectively made the EMI cheque smaller than the rent cheque for the affordable housing segment — a tremendously positive announcement coming on the back of many directed steps to realise the “Housing for All” objective.” Anil Sachidanand, MD & CEO of Aspire Home Finance, said that the move would bring more families in the ambit of PMAY scheme. “Through this as more number of EWS/LIG families would now come under the ambit of PMAY schemes…. This will increase the formal credit flow to rural areas which is expected to be utilised not only for constructing new houses but also for converting the existing kutcha houses to pucca ones.” Even as the Prime Minister has announced the scheme for 2017, industry experts say that the government is yet to come out with details on the value of property and household income eligibility criteria for the scheme for 2017. Earlier in August, Sriram Kalyanaraman, MD and CEO of National Housing Bank had said that demand for houses in sub-Rs 10 lakh category were driving growth for the housing finance sector in 2015-16. “It is probably for the first time that loans of under Rs 10 lakh with both banks and housing finance companies accounted for over 30 per cent of the total loans. The focus is definitely shifting towards the lower segment of the market,” he had said.

How to reduce your home loan interest rate

By Manoj Nagpal, CEO Outlook Asia Capital On January 2, 2017, one of my friends called me in excitement. “SBI has reduced the home loan rates to 8%. Seems HDFC is just fleecing me still at 9.75%. How do I shift my home loan?” There are some inherent fallacies here and let’s see what really happened to home loan rates and what should be your next steps to benefit from the current cuts in lending rates. Banks now follow a MCLR (marginal cost of fund-based lending rate) model whereas HFCs (housing-finance companies) continue on the PLR (prime-lending rate) model. The MCLR is the benchmark rate below which a bank cannot lend and is calculated based on a prescribed formula based of four variables (a) marginal cost of funds (b) operating cost (c) tenure premium and (d) negative CRR-carry cost. MCLR replaced the earlier base rate system, which, in turn, had replaced the PLR in banks. The objective of these shifts by the regulator (RBI) has been to move to a more transparent, quantitative and market-determined rates. Thus MCLR is a more dynamic model reflecting the incremental cost of funds and changes on a monthly basis. All new home loans taken from a bank with effect from April 2016 are on MCLR. But prior home loans would be on base rate or the PLR, which will be slower (read ‘very slow’) to react to changes in the interest rates. Home loans from HFCs like HDFC still work on the PLR model. Due to the formula system of MCLR, SBI had to cut its MCLR from January 1, 2017, from 8.9% to 8%. SBI did not pass on this entire reduction of 90 bps to customers. Concurrently, it increased the margin on top of MCLR. Thus new home loan rates fell by around 50 bps and now will be in the range of 8.6%-9.1% depending on the ticket size and type of loan. Being on an MCLR system provides home-loan customers with a more dynamic interest rate environment and is beneficial to customers. When one takes a home loan linked to MCLR, one should remember that the interest rate changes only on a pre-determined reset date. Between two reset dates, an MCLR home loan works like a fixed rate loan oblivious to any changes in the MCLR. RBI allows banks to have a reset period up to a maximum of one year. For example, SBI has a reset period of one year, whereas HSBC has a reset period of 3 months. Thus a home loan customer who had taken a loan from SBI in Dec 2016 say at 9.3%, will not have any benefit of the current reduction in interest rates till December 2017, but new customers will be eligible for lower rates. Ideally one should choose a lower reset period to have a truly floating home loan. What happens if you are on base rate or PLR model. Either you should move over to the MCLR model (which is a mandated option you have, though your bank may charge you for it) or wait for the base rate/PLR to come down. SBI in the past 15 months has reduced its base rate by 5bps and the MCLR in the last nine months has reduced by 1.2% showing the reluctance of banks to cut base rates and thus not passing on the benefits of lower rates to existing customers. With the current reduction in MCLR, this may be the best time to re-negotiate and switch your loan over to the MCLR system. If you are with an HFC like HDFC, you could negotiate with your home-loan provider to shift your interest rates down to the prevailing market rates or shift over to a bank on the MCLR system. Every day of delay costs you money lost in higher interest. Source:economictimes.indiatimes.com

Lower interest rates on home loans, more transparency in 2017 to push real estate industry

Gunjan Goel said that India is already experiencing this courtesy demonetisation, which has brought lakhs of crores worth of money into the banks. Since banks have enough cash supply, it is feasible for them to reduce the interest rates. Factors such as lower rate of interest on home loans, more transparency and accountability and reduction in home prices with the implementation of GST are likely to give a much needed boost to the real estate sector, said Gunjan Goel, Director, Goel Ganga Developments. Goel said that India is already experiencing lower rate of interet on home loans, courtesy demonetisation, which has brought lakhs of crores worth of money into the banks. Since banks have enough cash supply, it is feasible for them to reduce the interest rates. On January 2, SBI reduced interest rates on homes by 0.9%. More cuts are expected in the near future. Goel argued that the Real Estate Regulatory Act (RERA) and the Benami Transactions (Prohibition) Amendment Bill 2015 will infuse the much-needed transparency, accountability, and credibility into the entire industry and its procedures. The RERA, in particular, is a blessing for home buyers investing in an under-construction project. The fundamental idea behind GST is to combine the sea of indirect taxes prevalent and merge them into a single tax structure. While the interest in residential projects witnessed a dip in demand after demonetisation, commercial projects surprisingly, remained unaffected in 2016. This just showcases the existing demand and need for commercial spaces in India, which arises from below-par infrastructure in even tier-1 cities and not just tier-2 and tier-3. In fact, real estate consultant, JLL India estimates that in 2017, there will be a demand for over 34 million sq. ft. of commercial spaces. Source:indiainfoline.com

HDFC, Indiabulls Housing take on SBI, ICICI with home loan rate cuts

HDFC is offering 8.65% to women borrowers for loans up to Rs 75 lakh, and 8.7% to other borrowersHousing Finance Development Corporation (HDFC) and Indiabulls Housing Finance Ltd have cut retail home rates by 40-45 basis points, after State Bank of India and ICICI Bank, the two largest banks in the country, slashed their rates on Monday. HDFC will offer a rate of 8.65 per cent to women borrowers for home loans up to Rs 75 lakh, and 8.7 per cent for other borrowers. Indiabulls Housing Finance will offer the same rates. Analysts said this decision on the part of the two housing finance companies is a fallout of the huge rate cut by large banks. Banks first reduced their Marginal Cost of Fund-based Lending Rate (MCLR) by 70-90 basis points and later tweaked rates for MCLR-linked loans. Private sector lender ICICI Bank had reduced home loan rates by 45 basis points to 8.65 per cent from 9.1 per cent earlier. It also brought down its one year MCLR by 70 bps to 8.2 per cent from 8.9 per cent. Renu Sud Karnad, Managing Director, HDFC Ltd said "Over the past couple of months, the company has seen a drop in its marginal cost of funds and, as always, HDFC has ensured that the benefit is passed on to its customers." HDFC had also cut the interest rate on deposits by 35-40 basis points across maturities in past few weeks. Ashwini Kumar, deputy managing director, Indiabulls Housing Finance said his company has seen a reduction of about 45 basis points in the cost of funds raised from banks, through securitization and from the money market. The entire benefit is being passed on to new borrowers. There will also be reduction in rates for existing home loan customers. The ALCO (asset liability committee) will take decision soon, he said. According to Reserve Bank of India data, the housing loan portfolio of banks rose by 15.6 per cent in the months to November 2016. Outstanding home loans stood at Rs 8,15,300 crore. Source:business-standard.com

SBI raises spread on home loans, cuts loan growth target

SBI will offer floating loan home loans at 8.65 per cent for loans up to Rs. 75 lakh. State Bank of India (SBI), which reduced its benchmark lending rate by 90 basis points from January 1, has increased its spread on home loans to 50 basis points (bps) and above, as compared with 25 bps earlier. This means that the lowest home loan rate a borrower can avail of with the largest lender in the country is 8.5 per cent. SBI will offer floating loan home loans at 8.65 per cent for loans up to Rs. 75 lakh. That is, it would add a spread of 65 basis points to the one-year marginal cost of fund based lending rate (MCLR). Earlier, it had a spread of 25 bps added to the MCLR for home loans. For loans above Rs. 75 lakh, the effective interest rate will be 8.7 per cent. Women borrowers will get a discount of 5 bps. A percentage point equals 100 basis points. “Spread is decided by many factors. At this point in time, we felt this is what we can afford. Our rates are far below the market (competitors),” Arundhati Bhattacharya, chairman, SBI said at a news conference. The bank has also offered a fixed-cum floating rate home loan scheme in which it will charge 8.55 per cent for the first two years for loans up to Rs. 30 lakh, and after two years, the loans would attract a floating rate of interest. Women borrowers can avail the scheme at 8.5 per cent. Since the spread of the loan will remain unchanged when the loan switches to floating-rate, SBI declined to term it as a teaser loan and said it would not attract higher standard provisioning. 8-9% growth target The bank has also cut down its loan growth target for the current financial year to 8-9 per cent from 11-12 per cent envisaged at the beginning of the year. “We expect loan growth to improve from the current rate of 6.7-6.8 per cent to 8-9 per cent. However, we have just three months to go (for the financial year to close). In a month’s time when we announce our earnings, we will be in a better position (to comment on) the loan growth for the financial year ,” Ms. Bhattacharya said. “Interest rate is only one component to boost economic growth. We need to bring back confidence in the economy in very many ways,” she said. While credit growth was impacted due to the demonetisation exercise, deposit accretion had got a boost. SBI has seen an increase in net deposits of Rs. 1.65 lakh crore in November and December, which resulted in deposit growth of 21.24 per cent year-on-year, till the end of December. Its share of low-cost deposits, which are current and savings account deposits, went up by a whopping 483 bps in the quarter to 47.55 per cent. Rajnish Kumar, one of the managing directors of SBI said the number of active, automated teller machines (ATM) has improved significantly in December with about 41,000 ATMs of the SBI group dispensing cash ‘at any point’ in time out of 49,000 such machines the group has. Mergers delayed Ms. Bhattacharya also said that merger of SBI with its associate banks, which was expected to be completed by the end of the financial year, is now likely to happen in the first quarter of the next financial year. “We still have to get the government approval (official notification of the scheme of merger). Even if I get it now, doing things in the last quarter is not a wise thing. Because, there will be IT system changes and by mid-February, we (traditionally) close down all IT systems. As you know, sometimes IT systems can impact something quite unintentionally. We do not want to take any risk at the time of annual closing. So, we may just do the annual closing and then look at it (the merger),” Ms. Bhattacharya added. Source:www.thehindu.com

State-run banks saw a big drop in retail loan demand after note ban

After demonetisation on 8 November, daily enquiries for retail loans at govt banks dipped to 23,660 in the rest of the month, compared to 46,784 in the first eight days The days following Prime Minister Narendra Modi’s demonetisation announcement on 8 November have seen a drop in demand for retail loans, including home loans. For public sector lenders, average daily enquiries for retail loans between 9 and 30 November dipped to nearly half of what they were in the first eight days of the month, according to data points shared by Indiabulls Housing Finance Ltd in an update to stock exchanges on Thursday. Quoting data from credit information company CIBIL, the update said that the average daily enquiries at state-owned banks dipped to 23,660 in the days between 9 and 30 November, as compared with 46,784 in the first eight days. Home loan enquiries at government banks dipped to 4,876 in the month after demonetisation, as compared with 8,690 in the first eight days, the data showed. The drop in demand for other lenders in the system was less dramatic though. In the case of private sector banks—including foreign banks—the average daily enquiries for all retail loan products dipped by only 5% in the same period to 76,707. In the case of home loan enquiries, the drop was 4%. Housing finance companies were the least impacted by the demonetisation announcement, as average daily enquiries in the period between 9 and 30 November were at 5,923, down by only 3% when compared with the first eight days. Indiabulls Housing shared the data points as an indicator of the impact that the withdrawal of Rs500 and Rs1,000 banknotes has had on the home loan business in India. In the case of Indiabulls Housing, while daily logins have dropped by 15%, the company is still on track to achieve 30% loan book growth, it said. The housing finance firm has not seen any major impact on the asset quality of its loan portfolio, which includes loans against property. In a report in October, rating agency India Ratings & Research Pvt. Ltd had said that delinquency rates in the loan against property market are likely to increase owing to risky lending by some companies. Delinquency rates—defined as the proportion of loans where payments are 90 days past due—may rise to 5% in two to four quarters, the report had said. That would represent a threefold increase since fiscal 2014. By virtue of owning about 70% of the banking system’s deposits, public sector banks would have been busy with deposit activity post-demonetisation, where even the branch staff was engaged, experts said. Moreover, public sector banks are more dependent on walk-in retail customers than private banks and non-banking financial companies, which depend on third-party services to seek out customers, said Karthik Srinivasan, co-head, financial sector ratings at ICRA Ltd. “Both these factors could have played a role in public sector banks seeing a more dramatic dip in demand for loans,” he said. Source:livemint.com

Home loan experts say now is the time to lock in fixed-rate deals

FLUCTUATIONS in both the fixed and variable home loan markets have prompted a spike in borrowers looking to lock in their interest rate. The official cash rate has not budged since August but a number of lenders have increased their rates across all types of loans, citing increased costs of funding and rife competition in the market. There are still numerous razor-sharp deals on both fixed and variable products at four per cent or better, but the disparity between deals means many borrowers could be paying far more than they need to. Latest figures by financial comparison website Mozo show that borrowers can nab variable rate deals as low as 3.35 per cent and three-year fixed deals for just 3.49 per cent, based on a $300,000 principal and interest home loan with a 30 year term. But the site’s spokeswoman Kirsty Lamont says for those looking for certainty and to avoid any further rates rises, locking in is the answer. “We’ve seen rates rise on 122 home loan products in December, which is continuing the trend that started in November,’’ she says. “Longer term fixed rates are seeing the biggest hikes and we are expecting more lenders to follow suit and put their fixed rates up so borrowers need to act fast as the window for snapping up a fixed rate appears to be closing quickly.” On the fixed rate deals that have risen the average increase is by 0.23 per cent — or the equivalent on one rate rise. But borrowers need to be mindful of restrictions around fixed rate loans, often they don’t come with the ability to have an offset account, there’s limitations on how much extra you can pay off the loan and there’s hefty break costs if you try and end the term prematurely. Mortgage Choice data revealed that 19.5 per cent of all their loans written in November were fixed, compared to 17.4 per cent the previous month. Mortgage Choice chief executive officer John Flavell says the rise in both fixed and variable rates suggests the market has “hit the bottom of the rate cycle” and rises will continue across the market. "Of course, even if rates do rise in the near future, it is important borrowers do not panic,’’ he says. “The reality is, interest rates are incredibly low by long term standards so even if rates do rise, they will continue to be low. “There is a strong case to lock in to a fixed-rate mortgage at the moment while home loan rates are still sitting below 4 per cent.’’ Source:news.com.au

Affordable housing is the flavour of the season

The contribution of mortgages to the banking industry’s advances has grown from 1.5% to 10% in the past decade, as most bankers see opportunities in the market There are at least 17 new entrants in the affordable housing space even as 14 existing lenders significantly expand their portfolios of low-cost home loans. Photo: iStockphoto What do Anshu Jain, Jaspal Bindra, Gunit Chadha and Pramod Bhasin have in common? They are all global bankers from India. Right? Yes, they have all been high-profile bankers and now they want to dabble in the affordable housing loans segment. And, they are not alone. Essel Group’s Subhash Chandra; former managing director and CEO of Sriram Capital Ltd R. Sridhar; Shantanu Mitra, who had managed consumer banking and risk at Citibank and Standard Chartered Bank in the past; Rakhee Kapoor Tandon, daughter of Rana Kapoor of Yes Bank Ltd; and many more either already have one foot in this space or are knocking on the doors. There are at least 17 new entrants in the affordable housing space even as 14 existing lenders are significantly expanding their portfolios of low-cost home loans by broadening their distribution channels through direct sales and community-based loans. The Indian home loan market consists of 76 housing finance companies and state-owned as well as private banks and all have started using technology to reach out to the lower end of the customer segment. There has also been a rate war to woo the customers. Axis Bank Ltd, which has a little over Rs60,000 crore mortgage portfolio, disburses around Rs2,000 crore home loans every month; out of this, Rs150 crore flows into affordable housing through its Asha home loan product for first-time buyers. Similarly, Dewan Housing Finance Corp Ltd, with a portfolio of around Rs62,000 crore, disburses Rs1,700 crore every month , Rs300 crore of this goes for relatively low-cost housing. The story is similar with DCB Bank Ltd, Yes Bank, PNB Housing Finance Ltd, and most others who have been in the business of home loans. A burgeoning middle class, rising disposable incomes and fiscal incentives on home loans have increased the affordability of homes in Asia’s third-largest and the world’s fastest growing major economy. The average age of a new home buyer in India is now 32 years, down from early 40s, a decade ago. Even though the little over Rs10 trillion Indian mortgage market has been growing at around 18-19% every year, its size is too small in relation to the economy—around 8% of the GDP, less than half of what it is in China. Singapore’s mortgage market is 32% of its GDP, lower than Hong Kong’s 41%, and in the US and the UK, it is 81% and 88% of GDP, respectively. In Denmark, the southernmost and smallest of the Nordic countries, the mortgage market is 104% of GDP. Most bankers are seeing opportunities in the market. This is reflected in the fact that the contribution of mortgages to the banking industry’s advances has grown from 1.5% to 10% in the past decade. At this rate, the mortgage to GDP ratio is expected to rise to 20% by 2020, according to an estimate by consulting firm BCG. Many are betting big on this segment because the opportunities are enormous with a shortage of close to 19 million units in urban India and around 40 million in rural pockets. The housing finance companies are increasingly focussing on the middle class and aspiring lower middle class segments with average annual income of Rs1.5 lakh to Rs10 lakh. Within this segment, the emphasis is on small and medium entrepreneurs and self-employed individuals and professionals. Most of the new entrants and the aspiring mortgage lenders are operating from Mumbai and Delhi and a few from Bengaluru and Haryana. From there, they are keeping a hawk eye on eight Indian states that have 80% share of the shortage of housing in urban pockets— Madhya Pradesh, Rajasthan, Bihar, Tamil Nadu, Andhra Pradesh, West Bengal, Maharashtra and Uttar Pradesh. They are reaching out to the developers who have been constructing affordable smaller format (one room plus kitchen) dwellings, costing less than Rs6 lakh, as such units are sold faster than the larger formats (one/two bed-room plus kitchen and a hall). Gujarat, Maharashtra and Madhya Pradesh have been doing better than other states in selling such units even as the supply is limited in north India. The southern region is the least attractive market because of longer time taken for various approvals and the cultural resistance of people to move to flats in multistoried buildings. In eastern India, developers have been active in Kolkata and Bhubaneswar. A look at Vastu Housing Finance Corp. Ltd, a new entrant, gives us a sense of the opportunities. The nine-month-old company, with focus on Maharashtra, Karnataka, Madya Pradesh, Gujarat and Rajasthan, has acquired 850 customers and built a loan book of Rs100 crore. While the government push and the initiatives of the high-profile bankers are giving a leg up to the affordable housing segment, the recent clamp down on cash economy will force affordable housing financiers to take a relook at their business model. Many of their customers are not in the income tax bracket and they earn their salary and wages in cash. Till now, while assessing their repayment capacity, these firms were taking into account the customers’ official income as well as the surrogate income but now they would need to overall the risk assessment process since the surrogate income, in cash, may dwindle. I understand that the so-called bounce rate in the low-cost housing market in December has risen following the demonetization move. The bounce rate refers to the incidence of post-dated cheques meant for paying monthly loan instalment bouncing or an instruction given for fund transfer electronically at a specified date not being honoured because of lack of funds. Many businesses across India such as diamonds and textiles in Surat, handicrafts and brass industries in Moradabad and gold jewellery manufacturing in Kerala have been fully or partially shut and the workers are not being paid. Naturally, they do not have funds to pay the monthly instalment for their home loans. The industry is confident that the pain is short term and in the longer run, the drive for a cashless economy will have a positive impact through transparency and correction in prices. Body blow to LAP Indeed, in the medium and long run, the opportunities will increase in this space but one casualty of the clamp down on cash will probably be a product called loan against property or LAP. While home loans are the safest bet for the bankers as they are backed by securities, LAP is the equivalent of home-equity loans internationally. For many large and established players, particularly the non-bank entities, it is a growth-driving profitable product. LAP could be more than 50% of the total mortgage book of a few. LAP, a secured loan, takes a residential or a commercial property as collateral and typically, self-employed individuals and professionals are LAP customers. Such loans support business expansion and diversification and even meet working capital needs. They are also used for weddings, education, medical exigencies, repayment of previous loans and debt consolidation. Small and medium entrepreneurs are big buyers of LAP and as their transactions are mostly in cash, they are being hit the hardest. As a product, LAP will find it difficult to grow. Tamal Bandyopadhyay, consulting editor at Mint, is adviser to Bandhan Bank. He is also the author of A Bank for the Buck, Sahara: The Untold Story,and Bandhan: The Making of a Bank. source:livemint.com

Note ban drags down home loan market

MUMBAI, DECEMBER 15: Banks and housing finance companies are feeling the effect of the downward spiral in business sentiment triggered by the demonetisation of high-value currency notes. Market expectations of a decline in real estate prices as well as in interest rates have prompted borrowers to defer purchases, resulting in tepid home loan demand. A top housing finance company executive said, “Retail home loan enquiries have come down substantially... it is almost next to nothing. Even people who made token payments on purchases are holding back and not taking fresh loan disbursements. In some cases, we have seen cancellations of bookings too.” A senior public sector bank official said prospective home buyers had gone into a wait-and-watch mode to figure out how property prices will move. Underscoring the slowdown in demand, the head of one of Central Bank of India’s large branches in Mumbai said that on an average, his branch used to receive 15-20 home loan proposals every month. But over the past month, it had received only two or three proposals. Given that the cash crunch induced by the demonetisation shows no signs of abating even a month later, the housing finance company executive felt that normalcy — in terms of people getting back into the loan market and builders starting to move forward — could take up to six months. The heightened governmental focus on draining out black money transactions has raised expectations among prospective buyers of a fall in real estate prices. Further, banks are awash in liquidity from the deposit inflows in the wake of demonetisation, and the Reserve Bank of India has signalled an accommodative monetary policy stance, which could see interest rates soften. In the backdrop of lacklustre corporate credit growth and rising distress in corporate loans, banks have over the past year or so been relying on home loans to grow their loan book. In the case of housing finance companies, home loans are their bread and butter. Overall, over the past three or four years, banks and housing finance companies have seen a 20 per cent year-on-year growth in home loans. But now, with home buyers putting purchase decisions on hold, and the third and fourth quarters unlikely to see much home loan uptake, the earlier pace of loan growth could come off a bit, noted the housing finance company executive. Source:thehindubusinessline.com

MLAs to get home loan at 4% interest

The state cabinet on Wednesday approved a proposal to provide housing loans of up to Rs 40 lakh to MLAs at a minimum interest rate of 4%. The scheme will be implemented with immediate effect and legislators in the current assembly and pensioners from the previous Houses will also be entitled for the loan. In another decision, the Raghubar Das-led cabinet also set the valuation of non-saleable agricultural land in Deoghar district of Santhal Pargana division based on their grain production capacity. The valuation of Dhaani 1 nature of land was fixed at Rs 12.67 lakh per acre while Dhaani 2 land at Rs 9.20 lakh. The value of Dhani 3 and Baari 2 land was fixed at Rs 6.13 lakh per acre while Bari 1 land was valued at Rs 7.67 lakh. The value of housing lands was fixed at Rs 12.27 lakh per acre. Signup at Adda52.com & get Rs.100 free! Adda52.com Sinewave TDSPro to file & manage your returns Sinewave Recommended By Colombia The cabinet also approved the commissioning of four cold storages in Deoghar, Giridih, Ranchi and Gumla. The cold storages, each of 5000 metric ton capacity, will be set up at a net cost of Rs 28.2 crore with Rs 6 crore provided by the Centre. The cabinet also sanctioned Rs 30.66 crore for building 400 houses for leprosy-affected families in Devnagar in Jamshedpur. The cabinet also raised the commission share of public distribution system (PDS) dealers. Under the new arrangement, each PDS dealer will get Rs 100 - increased from the previous Rs 80 - as commission on each quintal of salt, rice, wheat and pulses that are being distributed. In another decision, the cabinet approved the appointment of civil engineering department of IIT Kharagpur as the third party inspector for municipal waste water inspection of Sahibganj under the National Ganga River Basin Project. The cabinet also approved the appointment of National Informatics Services Inc. (NICSI) for setting up WiFi services in four universities and 30 colleges under their jurisdiction and sanctioned Rs 72 crore for the scheme. The 11-member cabinet also cleared that Jharkhand Innovation Laboratory would be set up at the old Jharkhand Bhavan in Ranchi's Ratu Road and approved Rs 20.23 crore for the projects. It approved to urban development department's proposal of re-building Ranchi Haj House at a cost of Rs 65.7 crore and building a new Rabindra Bhawan at a cost of Rs 166.03 crore. Stay updated on the go with Times of India News App. Click here to download it for your device. Source:timesofindia.indiatimes.com

Four things to remember while availing a joint home loan

Applying for a joint loan is one of the most convenient ways of increasing your home loan eligibility. However, there are some other points that you need be aware of before applying for such loans. In case of joint home loans, only a few relationships are allowed to become co-borrowers. These loans are only provided to spouses or blood relatives, such as parents and children. (Reuters) Hemant Jain, an employee with a leading accounting firm, was shopping for home loan to buy a flat in Delhi. However, his loan applications were repeatedly getting rejected on the grounds of insufficient income (generally, the lenders want the monthly loan repayments to remain within 30–40% of borrowers’ net monthly income, and crossing this limit may lead to the rejection of your loan application). On learning his ordeal, one of his colleagues suggested him to consider a joint home loan for increasing his loan eligibility. Acting on the advice, Hemant made a fresh loan application with his employed spouse as a co-applicant. Their monthly EMI became less than 30% of the combined monthly income and as a result, their fresh loan application got approved. Applying for a joint loan is one of the most convenient ways of increasing your home loan eligibility. However, there are some other points that you need be aware of before applying for such loans. Let’s take a look at some of them: Eligibility of a co-borrower: In case of joint home loans, only a few relationships are allowed to become co-borrowers. These loans are only provided to spouses or blood relatives, such as parents and children. Although most banks do not prefer siblings to become co-borrowers fearing future property disputes, some may allow joint home loans to brothers if they happen to be co-owners of the property. You may also like to watch this: Typically, sisters are not allowed to avail joint home loans because of the risk of not contributing to the repayment after their marriage. Similarly, brother-sister and unmarried partners are also not eligible for joint home loans. However, an unmarried daughter and her father can jointly apply for a home loan if the property is in the name of the daughter. Documentation: In case of a joint home loan, all co-applicants are required to go through the same set of KYC documentation. Each of them is required to submit their ID proofs, income proofs and address proofs. If two or more co-applicants are co-owners, then a proof of the co-ownership of their property has to be submitted. Remember that as the banks will check the documents of each co-applicant, the entire documentation process may take more time than a loan taken singly. Shared liability for repayment: The primary borrower and the other borrowers are equally liable for the repayment of the loan. The ratio of the ownership of their property or their share in property does not matter. In case of a default, the lender will proceed against all the borrowers of the loan. Thus, co-borrower(s) may come under serious pressure in the event of death of a contributing co-applicant. This will especially hurt a co-borrower who is not a co-owner of the property. To avoid such a scenario, get yourself and your co-borrowers adequately covered by a term policy. Tax benefits: This is another major advantage of availing joint home loans. All co-borrowers of a joint home loan can independently avail tax benefits available under Section 80C (up to Rs 1.5 lakhs) and Section 24 (up to Rs 2 lakhs). This means that if you add a co-applicant to your home loan, contributing equally to the repayments, the total amount of deductions available under Section 80C and Section 24 will increase to Rs 3 lakhs and Rs 4 lakhs, respectively. However, remember that for availing these tax benefits, your co-applicant has to be a co-owner of your property. Moreover, the tax benefits can only be claimed according to the ratio of your and your co-borrower’s repayment contribution. For example, if the ratio of the repayments made by you and your co-borrower is 60:40, the ratio of your tax benefits will also be in the same ratio. Thus, always set your repayment contribution ratio according to your income tax liabilities. For example, if your tax liability is higher than your spouse’s, your contribution towards repayment should also be on the higher side. With spiralling home prices, a joint home loan is one of the best ways to improve your home loan eligibility. You can also add a co-applicant if you want to pay-off your loan in a shorter tenure or if you want to bring down your family’s income tax liability. However, make sure to get adequate life cover for each co-applicant in order to deal with unforeseen events. Source:financialexpress.com

Lending rates to fall further: Should you take a short-term or long-term home loan?

As expected, the demonetization of higher denomination Rs. 500 and Rs.1,000 notes has made banks flush with deposits, which have now breached the Rs.11 lakh-crore mark in one month's time since the move came into effect. The benefit of reduced interest rates will come in the form of lower EMIs, resulting into cheaper home loans till 2018 to a year or two later.As expected, the demonetization of higher denomination Rs. 500 and Rs.1,000 notes has made banks flush with deposits, which have now breached the Rs.11 lakh-crore mark in one month’s time since the move came into effect. The surge in deposits made lenders like HDFC Bank, Bank of Baroda, Dena Bank and Bank of India cut their benchmark lending rates even without waiting for the RBI monetary policy meet that was held on Dec 7, 2016. In a move to reduce the cost of funds for banks, the Reserve Bank of India (RBI) has rolled back its earlier decision of mandatory 100% incremental cash reserve ratio (CRR), which the central bank termed ‘as a temporary measure’, to suck out the excess liquidity in the banking system arising out of demonetization. Now the question everyone’s asking is: whether to opt for a short-term or long-term home loan? Well, “the quantum of home finance is such that it can be a herculean task for a majority of borrowers to pay off the loan in a short period of, say, 1-5 years. That is because when someone decides to pay the loan in a shorter time, either he can do via personal loan alternative with 16-20% rates or can enjoy low rates of home loan of 9-10%, but having the capacity to pay EMI in 5 years,” says Rishi Mehra, co-founder, deal4loans.com. However, the benefits of the ongoing trend of reducing lending rates are going to be more imminent in 2-3 years from now. What to expect on the EMI front? From Jan 2015 to Dec 2016, the RBI has cut the repo rate by 1.75%. Banks, though, slashed the rates by only 0.60-0.70%. However, in the previous monetary policy meet that happened on Oct 5, 2016, wherein the RBI had slashed the repo rate by 25 basis points (100 basis points=1%) to 6.25%, banks responded in equal measure by reducing the lending rates by the same percentage. Now with bank deposits at an elevated level and expected to touch new levels in times to come, expect your home loan lending rates to go down substantially. Also, the profound change in banks’ approach to adequately transmit the benefits of repo rate cuts to the borrowers, post MCLR mechanism, will also ease the interest rates and the EMIs that follow the same. “Keeping in view the ongoing scenario, a 1% repo rate cut seems imminent in the next two years. If we assume that banks pass on the benefit to the tune of 70%, the home loan rates could fall by 0.70% by the time we bid goodbye to 2018,” says Mehra. The benefit of reduced interest rates will come in the form of lower EMIs, resulting into cheaper home loans till 2018 to a year or two later. For example, “suppose you want to borrow a 20-year home loan of, say, Rs. 20 lakh from HDFC Bank, whose floating interest rates are 9.10%-9.15% p.a. Going by the assumption of 0.70% interest rate cut till 2018, the rates could easily fall to 8.40%-8.45% by the said period,” says Mehra. Below are the two scenarios depicting the EMI flow on a home loan. Scenario 1 (Present) Loan Amount- Rs. 20 lakh Interest Rate- 9.10%-9.15% p.a. Tenure-20 Years EMI- Rs. 18,123-18,188 Interest Outgo- Rs. 23,49,603-23,65,099 Total Outgo- Rs. 43,49,603-43,65,099 Scenario 2 (Applying at 2018-end) Loan Amount- Rs. 20 lakh Interest Rate- 8.40%-8.45% p.a. Tenure-20 Years EMI- Rs. 17,230-17,293 Interest Outgo- Rs. 21,35,222-21,50,374 Total Outgo- Rs. 41,35,222-41,50,374 (Source: deal4loans.com) From the chart, you could clearly see the fall in EMIs as we go from scenario 1 to scenario 2. So, you are in for a cost-friendly home loan journey till 2019, the time for which the current dispensation is in place. “Beyond that, there can be positive effects for a year or two. However, it is not sure whether the same government will come to power by 2019. So, a long-term perspective of a home loan would sound immature at this point of time,” informs Mehra. One advantage of taking a home loan for a shorter period is that short-term loans allow you to reduce the interest burden significantly compared to long-term loans (we will discuss this in a separate story). But this is ideal when you have the financial capacity to pay large EMIs without the certainty of defaulting or having your finances stretched thin. If you can’t do this, then it is better to opt for a longer-term loan. And you should definitely not try to clear your home loan after taking some other loan at high interest rates. This can compromise your financial health. Source:financialexpress.com

AAA ratings for risky home loan securities

Two ratings firms are assigning AAA ratings to bonds backed by new riskier home loans in the USTwo ratings firms are assigning AAA ratings to bonds backed by new riskier home loans in the US, one of the few times such securities have won top grades since the financial crisis, according to documents obtained by Bloomberg. Fitch Ratings and DBRS Inc. are giving the ratings to more than $210 million of bonds backed by loans made by Caliber Home Loans, a unit of Lone Star Funds, and by loans from Sterling Bank & Trust and LendSure Mortgage Corp. The bonds are partially backed by mortgages in which the lender verified a borrower’s income with bank statements rather than tax returns. Another ratings firm, Moody’s Investors Service, recently called out those types of mortgages as risky. Most of the loans backing the bond are not qualified mortgages, meaning they do not adhere to the US government guidelines designed to give borrowers extra protections against their lenders. Those guidelines include how much debt a borrower can have. The top grades may be a sign that big Wall Street firms and lenders are becoming comfortable again with riskier home borrowers. Lone Star had hired Fitch and DBRS for a similar mortgage-bond sale earlier this year and received credit ratings as high as A. A Lone Star spokeswoman referred to ratings commentary offered by DBRS. A spokesman for Fitch didn’t immediately respond to an e-mail seeking comment. Down the same path: Since the crisis, apart from government-backed home loans, mortgage-bond issuance has been limited to bundling old, soured debt or big loans made to wealthy individuals. The Lone Star unit is one of a handful of companies trying to test broader investor appetite for riskier mortgage credit. About 71% of the loans in the latest transaction were made by the Lone Star unit, and 22% were made by Sterling Bank & Trust. LendSure made about 6.5% of the loans. Credit Suisse is the lead underwriter on the deal. A spokesman for Credit Suisse declined to comment. Source:livemint.com

RBI refuses to cut repo rate: Will your home loan EMIs come down?

Nearly a month before the Reserve Bank of India's announcement on keeping the key rates unchanged, the private sector lenders had already started reducing the marginal cost of funds-based lending rate (MCLR). On November 03, the largest public sector bank State Bank of India (SBI) had cut its home loan rate to its lowest in six years. ICICI Bank and HDFC Bank too cut their home loan interest rates. Many other banks have followed this by reducing their lending rates to 9.15% per year. However, post the demonetisation move, the banking system is flooded with liquidity. With the step of abolishing high denomination currency, there are chances of banks interest rates to reduce further. Shaktikanta Das, Secretary Economic Affairs, said, "Domestic savings lying idle at home have come into banking system, will enable banks to give loans at lower interest rates". Chanda Kochhar, MD & CEO, ICICI Bank, said, "With regard to liquidity and interest rates, the withdrawal of the incremental Cash Reserve Ratio requirement and the use of other instruments such as the Market Stabilisation Scheme to manage liquidity is welcome. Deposit and lending rates are expected to continue to show a downward trend going forward.” Naveen Kukreja, CEO & Co-founder, PaisaBazaar.com, said, "We were expecting a rate cut owing to liquidity inflow within the banking system since the last month. However, the withdrawal of incremental CRR from Dec 10 is a positive step. I expect interest rates on unsecured loans to remain unchanged. There may be minor reductions in home loans once CRR constraint is withdrawn. Home loan pricing is based on MCLR and the excess funds inflow should reduce the overall cost of funds. But, it is likely to be few and far between". V S Parthasarathy, Group CFO, Mahindra & Mahindra said, "The RBI is probably awaiting the transmission of earlier cuts and has therefore, deferred the rate action. Now that the liquidity is good and the cost of the liability side of banks is going down, hopefully the banks will now act. This will enable the RBI to deliver another growth boosting cut soon when they see abatement of “heightened uncertainties”. How home loans are related with MCLR? MCLR is the benchmark interest rate that banks use to lend money to its customers of various loans, like home, car, personal, etc. From April, 2016, under the former RBI Governor Raghuram Rajan's tenure, he had brought this new methodology of setting lending rate by commercial banks. This new methodology replaced the base rate system introduced in July 2010. As now the loans will be linked to the MCLR system, most of the banks and NBFCs since then have announced a set of five to seven rates that will be levied on different kinds of loans over a period of time. "Lending institutions will either use a six-month or a one-year reset time in case of Home Loans. So, if your Home Loan agreement shows a six-month reset clause, the rate of interest on your Home Loan will be revised after that", as explained by InsideIIM.

Home loan firms may seek margin money on loan against property if realty prices crash

Mumbai: Mortgage companies are considering seeking margin money on loans against property (LAP) as the spectre of diminishing real estate value looms, giving rise to fears that a fall in home prices could erode the buffer in such loans. Analysts have been sounding alarm bell on risks building up in the LAP portfolio due to higher loan-to-value (LTV) ratio, high ticket size, high balance transfer and granting of loans based on cash flows, especially to small businessmen who are now hit by demonetisation. "There would be a shrinkage of 5%-10% in LTV ratio of new loans. Lenders have been aggressively giving an LTV of 70%-75% in LAP," said Kalpesh Gada, senior vice-president, IcraBSE -0.56 %. "Those lenders would also ask existing borrowers to make part payment on fears that real estate prices would fall." "Those who have lent at LTV of 60%-70% would have to make some adjustments," said R Vardarajan, MD, Repco Home Finance. "Our LTV is at 50%.We will not be affected even if realty prices fall by 10-20%. On existing books, margins will come down." This portfolio has become riskier due to top-up and lower interest rate from new lenders. Delinquencies are higher in LAP at 2% compared with about 1% for home loans. Now, demonetisation has increased the risks.Firstly, it may cause realty prices to fall 15-20% as customers baulk at cash transactions. Secondly, it has affected the cash flow of borrowers in the unorganised sector by 30%-50%. Some borrowers with small businesses have, however, pre-paid their loans, say industry executives. Some SMEs have started moving to cashless transactions, but business reduced by 3050% i n November. December is the true test of their willingness to move to cashless transactions, said an analyst who did not want to be named. On November 21, the Reserve Bank of India relaxed the prudential norms on asset classification by an additional 60 days for lenders for dues payable between November 1 and December 31. This has given some respite to housing finance companies in managing asset quality . Source:economictimes.indiatimes

Budget 2017: Govt Plans Housing Scheme At 6-7% Home Loan Rates

In a bid to boost housing sector, the central government is mulling a new housing scheme that may use money from the demonetisation drive, reports ET NOW exclusively. According to sources, the government is already in discussion with the Reserve Bank of India (RBI) for the scheme. The new housing scheme might be announced in the Union Budget 2017, which is expected on February 1. The final contours of the housing scheme will be decided after the details of revenue earned from demonetisation emerge. The interest rate stands between 6% and 7% for home loans up to Rs 50 lakh. The new lower interest rate option will be available to first-time borrowers. R Vardarajan, Repco Home added the lower interest rates will be a boon for the real estate sector. He said, “Like Pradhan Mantri Awaas Yojana, a similar scheme will come up where there will be interest of subvention, where if the marginal cost of lending rate is higher, the difference will be met by the government.” Sudhin Choksey of Gruh Finance said the move will benefit low-end income families and overall Indian realty. timesnow.tv

Five factors that could impact your home loan eligibility

Five factors that could impact your home loan eligibility Home loans are a must to buy houses given the high real estate prices. Hence it is prudent to be bit more careful while applying for a home loan. Your decision to purchase your first property is a very important and a life altering one. Not only do you have to be adequately prepared, in terms of finances, you have to ensure that the conditions are right for your home loan application to go through smoothly. Here are five factors that could become an obstacle if not taken care of on time. When you apply for a home loan, it is a given that you are getting into a financial commitment for the longer term. While you do your best to prepare in terms of getting your papers in order and getting the funds ready for the down payment, your bank also must put you through a rigorous credit assessment process to ensure that lending to you entails the minimum amount of risk. Here are five factors that may impact your chances of getting a home loan negatively. Your profession and tenure of work All lenders will try and ensure that a borrower has steady source of income for a relatively long period of time. This means that if you have skipped too many jobs in the recent past and do not have at least a year

Housing loans: Room for rate cuts, but banks may pass benefits gradually

A banking analyst with a leading brokerage firm said that banks are holding it in order to maintain their net interest income and the net interest margin. On Thursday, State Bank of India and ICICI Bank announced a 10 basis point cut in the housing loan rates following the implementation of Marginal Cost of Funds based Lending Rate (MCLR) system mandated by the Reserve Bank of India with effect from April 1. But, the cut in rates by banks may not stop at that and prospective home buyers and existing home loan customers may expect much more than that coming their way following the Reserve Bank of India

Reality that can pull down your home loan eligibility

The best way to avoid loan rejection is to check the eligibility requirements of lending banks carefully and apply only to that bank which matches your profile and budget. Are you the one who had applied for a home loan and your loan application was rejected by the bank making you worried about your eligibility? Then you are the one, who is missing some of the basic factors that banks consider while approving a loan. So, what are those factors and reasons that pull down your home loan eligibility? Let's explore few facts to keep in mind that can affect your eligibility while applying for a home loan . Loan Tenure: It is very important for a borrower to always keep a balance between monthly EMI and loan Tenure. There is a misconception among the borrowers that minimum loan tenure will help them to close the loan tenure soon. The fact is, the longer the tenure the lower the EMI, and the shorter the tenure, the higher the EMI. The monthly EMI is always inversely proportional to loan tenure. The best way to avoid loan rejection is to check the eligibility requirements of lending banks carefully and apply only to that bank which matches your profile and budget. Keeping proper documents ready and providing accurate, verifiable details to the banks will ensure that you are eligible for the initial verification process. Always, calculate the available surplus and your finances before checking the loan tenure. Applicant's Age:This is the major factor while applying for a home loan. If you think that you can take a joint home loan easily, then it's not that true always. Because the age of your co-applicant is also significant while taking a home loan. Suppose your age is 35 and your co-applicant's age is more than 55 years then the loan tenure will be measured mainly upon the age of the elder person among the borrowers. The loan tenure will get restricted from 10-15 years as well, depending among banks to banks. If you are applying for a single home loan, then eligibility depends on your age. At an early age, your eligibility is more depending on your credit score. "A Home Loan represents a big step in an individual's life and it's important to understand the various measures that banks, NBFCs and other financial institutions employ in determining the eligibility of an individual. At the forefront, your payment track record, which gets factored into your credit score, is one of the prime considerations when determining one's eligibility. Liabilities such as credit card dues and other existing loans, also significantly impact an individual's eligibility criteria. Additionally, a higher monthly outflow, a greater number of dependents and even an applicant's age could have an effect on the final home loan rate & amount sanctioned." says R. Vaithianathan, Managing Director - Tata Capital Housing Finance Ltd. Applicant's Income: Home loan eligibility depends on your income as well. If you are a salaried employee, then banks will look ahead of your salary and age. Which means that the loan eligibility will be calculated on the basis of the income and the number of working years of the applicant. Lesser the age, more the eligibility of your home loan. Lender will always check your repayment capability, tenure of your job (It should be more than one year). Your profession plays a very important role while borrowing home loan because few banks avoid giving home loans to particular firms and profession (Depends on their job security). Credit history: Lender will always check your credit report and applies for application of a loan, credit card, mortgage or any other type of credit. Lender will check all the information and will make the decision of lending the loan accordingly. Whether, it's your salary slip, balance sheet (for businessman), lenders will check all credit information mentioned there. Your ability to pay and willingness to pay the home loan depends on your credit report. Credit bureau will give the image of what kind of a borrower you are and this will help you in improving your home loan eligibility. If you are a defaulter, not done credit card payment timely or in the past you have failed to pay the amount to the lender, then your eligibility for home loan will be pulled down. So, it's very essential to maintain a good credit score. "While applying for a home loan, lenders normally check one's credit score and use the information, along with their own policies to determine loan eligibility. The 'Credit Score' is a crucial determinant in assessing a customer's borrowing behaviour. Creditors hence recommend that customers build a credit footprint that will let the banking system evaluate their creditworthiness, says- Mr. Mohan Jayaraman, Managing Director, Experian Credit Bureau, India. "It should also be kept in mind that a higher Loan to Value ratio (LTV) will severely impact an individual's Debt to Income ratio (DIR), which could increase the pressure on the borrower. The ratio may vary, but a general thumb-rule is to consider 60% of the net take home monthly income and then 60 times this amount to calculate overall home loan eligibility. Such yardsticks are adopted by financial institutions and borrowers should be cautious about such instances which could lower their credit score, and consequently, their eligibility." says R. Vaithianathan Home loan rejection/approval depends on your financial track record. Key points to improve your home loan eligibility: Always check the rate of interest before applying for a home loan. Don't get confused by fixed rate or floating rate of interest. It is important that you know the difference between fixed rate home loan and floating rate home loan. Close unused credit accounts if you no longer require them. Lenders can take into account the credit limits available to you, not just what you currently owe. Study the terms and conditions carefully related to all documents. Submit all your financial documents correct. Check the down payment requirement according to your budget and which fits you well. -You can take a joint home loan with your spouse, parents or siblings. NSC, provident fund, LIC policies etc as a security and helps you in taking a home loan. -Ask about all the documents that are required by the bank and fill them within the given time frame It takes lot of efforts to build your dream house. So, start following the rules and build your dream home today.

SBI cuts home loan rates to 9.15%

Making its loans cheaper, the nation's largest lender State Bank of India on Monday revised downwards its lending rates based on marginal cost of funds by 5 basis points to 9.15 per cent. The new minimum lending rates are effective from May 1, the bank said in a release here. Last month, the lender had set the MCLR at 9.20 per cent after the Reserve Bank cut repo rate by 25 basis points. With this reduction, the home loan interest rate for women borrowers has come down to 9.35 per cent, while for others it now stands lower at 9.40 per cent. Interest rates on car loans have also been reduced by 5 basis points (one basis point is equivalent to one-hundredth of a percentage point). The state-run bank has now kept a processing fee of Rs 500 for SBI car loans, NRI car loans, SBI Combo loan scheme and SBI Loyalty car loan scheme. The processing fee for these car loan schemes were waived till April 30. Banks moved to the MCLR regime last month for pricing their loans. The move is likely to help in better transmission of the monetary policy rates.

5 reasons to go for home loan refinance

Refinancing a home loan means availing a new loan from another lender to pay off an existing one. Two primary reasons for switching a housing loan (also known as refinancing) are:(1) To get the benefit of a lower rate of interest and (2) To avail a top-up on the original loan amount. However, besides these two, there could also be many other reasons for taking a new loan to pay off an older one. These can be poor service quality of the existing lender and consolidation of loan portfolio, among others. Here we take a look at five most common and compelling reasons for home loan refinance: 1. Saving on interest cost: This is the most common reason for shifting the home loan to a new lender. If an individual, for instance, is paying higher interest on an existing home loan than that offered by another lender, he would naturally be tempted to go for a new loan that brings down his total interest cost and consequently his EMI. A declining interest rate scenario also leads to several people opting to refinance their home loan. It is common knowledge that most home loans are floating rate loans, which means they are linked to overall macro interest rate movements. Not all lenders reduce the interest they charge on their loans when the general interest rates in the economy fall. Some lenders reduce their rates after a lag and some do not reduce the rates as much as the base rate declines. "It is often seen that when home loan rates move upwards, all customers' loan rates tend to go north. However, there is a possibility of the rates of not all loans coming downwards in the reverse situation. This also makes home loan refinance an attractive option as your current loan gets adjusted to prevailing market interest rates, giving you significant interest cost savings and reducing your monthly EMI burden," says Parth Pande, co-founder of Finance Buddha, a marketplace for retail lending products. 2. Moving from floating rate loans to fixed loans or vice versa: Home loan customers may be in any of these two scenarios. They may be paying a high floating interest rate and therefore are likely to see value in moving to a fixed rate home loan, in which case their EMI will be constant for a certain period of time. Alternatively, they may be stuck with a fixed home loan at a higher rate (fixed rate loans typically are at a higher rate than floating rate loans at any point of time). In this case, they may realise that the overall interest rates have moved southwards and floating rate loans are much cheaper than their existing loan and there is value in switching the loan. In both these scenarios one may like to opt for refinance. Let us take the example of an individual who had opted for a 20-year fixed rate home loan of Rs 50 lakh at 12.25% per annum two years ago and is now paying an EMI of around Rs 56,000. "After paying the EMI for two years, his outstanding loan amount is Rs 48,67,866. For the rest of the tenure (18 years), he decides to shift to another bank which is offering floating rate home loan at 9.75% per annum. This way he reduces his EMI from Rs 56,000 to close to Rs 48,000 and his total interest cost comes down from Rs 84 lakh to Rs 67 lakh," says Rishi Mehra, co-founder of deal4loans.com, a loan comparison service engine. True, the individual may have to incur some charges for pre-closing his loan and getting his loan refinanced from another lender, but those charges are likely to be negligible compared to the savings he will be able to get during the remaining tenure of the loan. 3. Additional loan opportunity: Along with home loan refinance, customers also have an option of taking incremental funding (also known as top-up) at the prevailing home loan rates. For example, Mr A took a Rs 40-lakh loan for buying a Rs 50-lakh property 5 years back. After paying the EMIs for 5 years, let's assume that the loan value has come down to Rs 30 lakh, however the property value has appreciated to Rs 1 crore. "This means that Mr A can now get a home loan of up to Rs 80 lakh on this property, if he so desires. But he can't avail the entire amount as loan as he still has an outstanding loan of Rs 30 lakh which he has to clear first before taking the new loan. In this case Mr A can get his loan refinanced from another lender to transfer the Rs 30-lakh outstanding amount at a lower interest cost, while he can also get incremental funding of Rs 50 lakh (Rs 80 lakh minus Rs 30 lakh) at more or less the same interest rate," informs Pande. However, you should opt for a top-up of your loan from another lender only if you are getting the benefit of lower rates, otherwise try to get it from your existing lender as that would be easier and you also won't have to incur charges for getting the loan refinanced. "Should you plan to switch your housing loan to avail the 'top-up' option, I would advise you to approach your existing bank for a top-up plan, in case the interest rates are similar. If your loan repayment track record is good as well as the value of the property has appreciated, there is a good chance that the existing lender would consider your request for a top-up," says Naveen Kukreja, co-founder and CEO, PaisaBazaar. 4. Poor service of the existing bank: If the bank from which you have taken your home loan does not service you properly- for instance, if it does not issue loan statements on time, provides bad customer care services or is slow in reacting to changes in interest rates-there is every reason for you to get your loan refinanced from a lender which is known for providing good services. 5. Change in financial status: Any increase or decrease in your income would affect your ability to service your EMIs. In case your monthly income has decreased due to any reason or another financial obligation has come up, refinancing a home loan by replacing it with one with a longer tenure is a good idea to reduce your EMI amount. "On the other hand, in case you are in a better financial position compared to when you had taken a home loan, it may be a good time to opt for home loan refinance and reduce the tenure of the loan, thereby increasing your EMI amount but making sure you will be now be able to repay your home loan sooner," says Adhil Shetty, founder & CEO of BankBazaar.com. Thus, apart from other benefits, one can save significantly if one refinances one's home loan keeping in mind the overall interest rate movements in the economy. However, there is need to take some precautions. Watch-outs Here's what you need to keep in mind while opting for home loan refinance: # Try to switch the loan early on during the tenure. "It is advisable not to make the switch after 5-6 years of loan payment as you would have already paid most part of the interest amount during the initial period," says Kukreja. # Secure clarity on processing fee, valuation fee and other charges that will be applicable in case you opt for a fresh loan. # Be aware of the fact that the new bank/lender would treat your request for home loan as fresh and hence, you will have to go through all procedures again. This is inclusive of legal verification of your property credentials, credit appraisals etc. # Make sure that you get a statement from your current lender stating that all relevant documents will be transferred to the new lender within a stipulated time-frame. # You may not be able to switch the housing loan if you have been irregular with loan repayment in the past.

Rates cut 1.5%, banks passed on only 1/3rd to home loans

The Reserve Bank of India has cut key policy rates by 1.5 percentage points since January 2015 to signal lower interest rates in the economy, but home loan borrowers have got only around one-third of the benefit. This may force RBI governor Raghuram Rajan to hold off on a fresh cut next month, especially with inflation and global petroleum prices edging up. The reluctance of banks to pass on the benefit of the lower rate regime has prompted the RBI to repeated ..