Demonetisation and Home Loan Interest Rates

To understand the relation between demonetisation and the effect it will have on the home loan interest rates, let us dive into the issue in 7 simple questions.

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1. Why Is Demonetisation now in India is really a success-driven?

In India now, along with the rupee cancellation, there is a withdrawal limit which is making the demonetisation, a real strike.

2. What happens if there is a withdrawal limit?

With the ban on the 500s and 1000s, and with no further issuance of 1000s, people started depositing their hidden money in the bank accounts. Deposits happen in the form of new income mixed old income. But when you want to withdraw, there is a limit. This results in low cash in hand.

3.What happens when there are more deposits.

Already, 80% of the cash in hand with the people is deposited in the banks. And the RBI is soon reaching its limit of having cash with itself. More deposits with banks result in more money circulation among banks.

4. What if more money circulation with banks?

Before demonetisation, there was 60% of unaccounted money circulation among people. Now that money reached banks and no doubt there will be double circulation of money. If banks are rich, RBI soon cuts the repo rate (the rate at which RBI lends money to the commercial banks) and also there will be a perfect management of CRR (the amount banks have to deposit with RBI for control of the economy).

5. What happens if the repo rate is reduced?

The repo rate and home loan interest rate are directly related. So, the reduction in repo rate automatically reduces the fixed deposit interest rates and also the loans interest rates.

6. How will the home loans be affected in near future?

After Raghuram Rajan’s expert financial management on our economy, the home loan interest rates have already come down from 13% to 9.5%. Now, with the enough deposits with banks, the home loan interest rates will be much lesser, might be as less as 7%. No wonder even if it goes much lesser.

7. Which type of interest rate to opt?

To be really brisk, flexible interest rate is the best opt one now, from the day one of your loan. Immediate and constant measures to control deflation by the government will surely control the psycological deflation and stabilise the economy. Infact, giving way for the growth of the economy in true way. This always keeps the flexible interest rate low when compared to the fixed interest rate.

Loanyantra’s Tip : Low cash in hand gives the psycological feeling, even for the better earned person, of no money to spend. This is momentary. Keep dreaming about your sweet home and continue your process of home search. If you can dream, we can get it real by our low interest rates.

Home Improvement Loan

Home Improvement Loan – an easy way to renovate your home

The growing popularity of home loan is very well known, the fact that banks are now laced with customer-friendly policies has made it very easy for people to buy their dream home. Well, home buying comes with a lot of other responsibilities like maintaining the home, taking care of the internal and external fittings etc. all these steps are necessary to keep your home safe and new.  Similar to any product that you use, your home also needs an up-gradation, improvement, and maintenance. However, managing the funds for the same in one go is not easy especially for those who are already paying the monthly EMIs for the house; car and other policies. For such people, banks now have the provision of Home Improvement Loan.

What is a Home Improvement Loan?

As the name suggest, Home Improvement Loans are availed to construct a new floor in the house or get a repair done or in case you want to renovate your house . Home Improvement Loans works similar to home loans. It can be taken for a period of 10-15 years or more (depends on your pocket and banks from where you are availing the loan) and pay back the amount in the form of EMIs. Apart from the major construction or other work done in the house, these loans are also beneficial for things like electrical wiring, bathroom fittings, furniture etc.

Inclusions and Exclusions of Home Improvement Loan

This loan serves the purpose of house renovation but banks have defined certain work for which your home improvement loan will be sanctioned while for certain work you cannot get home improvement loan, here is the list of inclusions and exclusions:

Inclusions : Home improvement loan can be taken for construction and renovation work like building another floor ,making a new balcony, flooring work , plumbing, electrical work, painting, bathroom fittings or exterior elevations.

Exclusions: Home improvement loan is not sanctioned by the bank if you are buying consumer durable goods, like buying a new kitchen cabinet or a new wardrobe.

Eligibility Criteria:

  • Any homeowner who is willing to renovate or construct in his/her house is eligible to apply for home improvement loan.
  • You can apply for home improvement loan jointly with the co-owner.
  • The minimum age to apply for home improvement loan is 21 years and the maximum limit is your retirement age i.e. 65 years.
  • Even companies can apply for this loan but the company should be making profits in the last few years.

Those who have already availed home loan from bank, if you apply for home improvement loan from the same bank, the bank considers the total loan amount applied (this is inclusive of new application). The total sanctioned amount is not more than 85% (outstanding amiunt as well as new sanctioned amount together).

Processing of Home Improvement Loan:

  • In order to apply for home improvement loan, the borrower has to make a rough estimate of the renovation work and has to submit it with the bank.
  • In the case of extension work, the approval plan also needs to be submitted in the bank.
  • Once the estimate is submitted in the bank, the banks carry out the physical verification which includes taking the measurement, pictures of the house to correlate with amount submitted for a loan.
  • Once the verification process is done and bank approves your application, the loan is disbursed.

What if you don’t have a home loan?

Home improvement loan is not restricted to those who have availed home loan, for those who want to start a fresh, you don’t have to worry; you have to follow a similar procedure of a home loan to avail and approval of the home improvement loan.

Submit all the income and property documents to get your loan sanctioned. The processing fee of home improvement loan ranges between .5% -.75%.

Is there any other option?

Personal Loan – Well, you can opt for a personal loan as well. People in a hurry to avoid a lot of procedures and paperwork avoid getting the process of home improvement loan and plan to avail the personal loan. Although it is a bit easier but at the same time it can be a bit heavy on your pocket primarily because personal loan comes with a higher interest rate. On the other hand, home improvement loan’s interest rates are cheaper and it is considered to be more secure as compared to the personal loan.

Top –up loan – You can also opt for a top-up loan. If you already have a home loan you can take a top-up loan on this. But an important point to note here is that this loan can be taken only after a certain number of years of your home loan. Most of the banks mention the number of years between  3 to 6. The interest rate is base rate plus some percentage. If a bank has offered the home loan at an interest rate of 10 % and you apply for a top-up loan, then your top-up loan interest amount will be 11.25%. The top-up loan is cheaper than a personal loan.

Top-up loans are sanctioned for 70% of the total property value but this may vary as per the market value and the borrower’s ability to repay the loan. A processing fee of top-up loan is between .5 %-.75% of the loan amount.

We hope this would have enlightened you with the right option if you are looking for renovating your house.  For the same and any other home loan related queries and needs, you can log on to our portal www.loanyantra.com and we will assist you with the best option to make your home buying an easy one.

 

Rs.500 And Rs.1000 Notes Ban Impact The Real Estate Sector

The late night news on 8th November 2016 (8/11/16) by the Modi Government has left everybody awestruck. Though the news about the release of Rs.2000 note and the hidden strategy about the design is revealed much earlier through various channels, the ban on the Rs.500 and Rs.1000 note is a brave step by the Modi Government, to eradicate black money.

The ban on the Rs.500 and Rs.1000 notes decide whether the economy will go towards deflation or inflation. If India is really driven by white money, it is inflation, else, deflation. If, illegally earned, then the amount cannot be declared and the circulation of money reduces which causes deflation.

Impact on Real Estate Sector.

The economy is going cashless. This is a great advantage for organised builders who are already using banking as their channel. Many ongoing projects involve into triparty agreement which makes things clear w.r.t. bank, the builder and the investor.

rs-500-and-rs-1000-ban_loanyantra-comIt is the unorganized builders and the secondary market that gets affected. As the small builders depend on the cash transactions while buying the raw material from the wholesale markets. The resale property market also relies on 15 to 50% cash transactions. So, this will be a big challenging move to the small builders and the resale property market.

Rs. 500 and Rs.1000 Ban Impact on Real Estate Sector’s Price Change

Rs. 500 and Rs.1000 Ban Impact on Real Estate Sector’s price might remain constant w.r.t organized builders. They can’t hike the prices as already the real estate is going on a down trend. Also, since the movement of cash is literally low, the price hike will not help the situation in any cause.

But are there chances for a decrease of price? 

The investment capability of the buyers will surely reduce. It also varies according to the place and the nature of the investors. The investors in a place like Bangalore amount upto 80% of the IT employees and 20% of the self-employed people. So, the ban on the Rs.500 and Rs.1000 notes doesn’t really impact them. They remain purely unaffected and the investor capability too remains unaffected. But in a place like Mumbai where the investors vary from small businessmen to IT employees, the impact is strong. As the business people in Mumbai and also in many non metropolitan cities are more, the investing capability will reduce with the ban on the Rs.500 and Rs.1000 note.

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So, in such a situation, to attract the investors, and to capture the market, the real estate sector will initially reduce the prices. So, it is sure that the prices go up only after the economy attains stability and there is an organic demand for the real estate.

Tip : So people to invest in organized sectors, please go ahead with your decision and fulfill your dream home desire.

Also there are attractive interest rates coming up with the banks. So you can plan well and pay lesser EMIs for a good amount of loan.

HAPPY CASHLESS DAYS AHEAD. : ): )

25 FAQs About Home Loan

  1. What is a home loan and what are the different types of home loan?

When you want to buy a home, you cannot fund the whole property value. So, you go to certain lenders for borrowing the amount at a certain rate of interest, for a particular period to repay in installments. This is termed as home loan. In general, loan taken to buy a home.

There are five types of home loans popular in India.

  • Land Purchase Loan– There are many people who are interested in buying a plot of land and then constructing a house, land purchase loan helps you buy land. Most banks provide 80%-85% of amount but this loan does not shield you from tax.
  • Home Improvement Loan- If you want to renovate the house like painting, plumbing, electrical work etc.  you can opt for this loan.
  • Home Conversion loan – If you have a home but are interested in buying a new house this is your best bet. With this loan, you can transfer the current loan to the new home but this loan is a bit expensive when it comes to interest rate.
  • Home Construction loan – People who are willing to construct their own house can avail this loan. The customer has to submit the entire cost of construction along with application for the bank to review and approve it.
  • Home Purchase Loan – This loan is for those who are willing to buy a new home or flat. Apart from simplifying your home buying dream, this loan also gives you tax benefit under section 80C and Section 24(d) of Income Tax regulations. Banks sanction loan for 80%of the total worth of the property, the remaining 20% which is the down payment has to be paid by the borrower.

2. What is the criteria to be fulfilled to get a home loan?

You need to fulfill the following parameters of the bank in order to get your loan successfully sanctioned:

  • homeloan-questionnaire_loanyantra-comSalary and ITR– Salaried individuals have better prospects of getting their loan approved especially the ones who have higher salary. Also you need to submit ITR to prove your credibility.
  • Age: The minimum age limit prescribed by the banks is 21 years for loan application
  • Credit history or CIBIL rating – Credit rating plays a key role in getting your loan approved by the bank. A strong credit history means better prospect of loan sanctioning.
  • Professional stability – Individuals with a good professional background work experience is considered good and hence has better chances of getting loan. Higher the salary of an individual, the more are the chances for greater eligibility of a loan amount.
  • Property check– Banks and HFCs carry out the property verification to see if the prospective property is ideal as per their defined technical and legal specifications.

3. Who is a home loan nominee?

Nominee is a person who is entitled to become the owner of the property when you are no more. This concept comes into picture when you insure your home loan in case you pass away. The outstanding amount is paid by the insurance provider and your nominee becomes the new owner of the property.

4. Who can be a home loan co-applicant?

A co-applicant is a person who applies for loan along with the borrower. This is done to show as a supplement to the borrower’s income so as to increase the eligibility. Banks and HFCs allow only certain relations to be co-applicants and it includes the following:  

  • Father and Son
  • Unmarried daughter and father
  • Unmarried daughter and mother
  • Brother and brother
  • Husband and wife.

5. What are the benefits of having a co-applicant?


The benefits of having a co-applicant include the following:

  • Increases the probability of loan approvalhome-loan-co-applicant_loanyantra-com
  • Helps you to get bigger loan amount sanctioned
  • Tax benefits to both applicant and co-applicant

6. Who Is A Home Loan Guarantor?

A guarantor is a person who vouches your credibility before bank or HFCs. A guarantor is someone who agrees to pay the debt in case the borrower is not able to do so. Also, banks ask the guarantor to be someone from the family or a good friend. A guarantor has to submit the fowling documents:

  • Income proof in the form of salary slip
  • Property documents
  • PF details

This is done to see the capability of the guarantor whether he/she will be able to repay the home loan in case of default of the principal borrower.

7. Is home loan guarantor and co-applicant same?

Do not confuse home loan guarantor and co-applicant the same. A guarantor’s role is assuring the credibility of the borrower before the home loan provider and to repay the loan in case the borrower goes rouge.

On the other hand, the co-applicant applies for loans along with borrower and reaps the benefit of tax. Presence of co-applicant helps in increasing the home loan eligibility amount whereas this is niot the case iwth a guarantor.

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8. What Is Home Loan Collateral?

Home Loan Collateral is the security against which the banks or HFC will sanction the home loan. It is also known as asset-based lending or secured lending. It protects the home loan provider against home loan defaulters. The property you are willing to buy can also serve as home loan collateral , in case the borrower fail to repay home loan the home loan lender will take the possession of the property.  

9. How much amount is usually sanctioned on the amount of the property as a home loan?

Banks and HFCs usually sanction the loan of 80%-85% of the total cost of the property.

10. On what salary is the home loan eligibility calculated? Gross or net?

Some lenders take the Gross salary into consideration whereas some take net salary. If gross salary is considered, the loan eligibility amount will be comparatively more as the gross salary figure is higher than the net salary’s.

11. What are the different documents required for a home loan?

The following table shows the different documents required by the banks and HFCs from salaried, self-employed and non-professional individuals:

Salaried Customers Self Employed Professionals Self Employed (Non Professional)
Duly signed application form by all applicants with recent photograph. Duly signed application form by all applicants with recent photograph Duly signed application form by all applicants with recent photograph
Age proof, ID proof and residence proof . Age proof, ID proof and residence proof . Age proof, ID proof and residence proof .
PAN card details of all the applicants PAN card details of all the applicants PAN card details of all the applicants
Salary slip of last 3 months Proof of educational qualification and business existence proof Business existence proof
Form 16 / Income Tax Returns Income tax return of last 3 years and computation of income Business profile
Bank statement of last 6 months Balance sheet of last 2years which is certified by CA along with profit and loss account. Income Tax Return of last 3 years along with computation of Income
Balance sheet of last 2yeras which is certified by CA along with profit and loss account.
Processing fee cheque Bank statement of last 6 months Last 6 months bank statements (self and business)
Processing fee cheque Processing fee cheque

12. What are the additional charges for a home loan?

The home loan applicant has to pay the following fees apart from down payment:

  • Processing fee– This is usually a non-refundable amount charged by the banks to process the loan applications. Some banks and HFCs charge a percentage of loan amount while others have flat processing fee.
  • MODT charges or Memorandum of Deposit of Title Deed- This is an acceptance from the borrower that he/she has submitted title documents of property with the bank. Government levies stamp duty on this and the additional-charges_loanyantra-comamount varies from .1%-.2% of the loan amount.
  • Legal verification charge- Once the documents are submitted for loan approval, the banks and HFCs gets the legal verification of the documents done. A team of legal and technical expertise is deployed by the banks. Some financial institution includes this fee in processing fee while other charges it separately.
  • Loan conversion charge– This charge is levied by the bank in cases where you are converting floating interest rate into fixed or vice versa. The conversion rate charged by banks and HFCs usually varies from 0.5% to 1% of outstanding loan amount.
  • Late Payment charges – In case the borrower is not able to repay the home loan EMI on time, the banks may charge a penalty in the form of late payment charges
  • Miscellaneous charges– Banks- service charge, cancellation charges, cheque bounce charges etc. are a few charges levied by bank.

13. Costs Not Approved By Banks as Part of A Home Loan?

Stamp duty charges, registration charges and other documentation charges are not included in the home loan amount.

13. What is the average time taken for the disbursal of the loan amount?

It takes approximately 20-25 days for completion of formalities and loan disbursement.

14. Who are the different types of home loan provider?

There two major home loan providers:

  • Bank (nationalised and private)
  • HFCs (Housing Finance Companies) / NBFCs (Non-Banking Fianance Companies)

15. When can you go for a nationalized bank?

Nationalized banks are more reliable when compared to any other lender. Also the interest rates are lower and the customers can expect an immediate interest rate change when the RBI executes the rate cut. One can opt for national banks only with an understanding that it takes time to get the things done faster.

16. When can you go for an NBFC or a private bank?

Private banks and NBFCs work faster and accessible. Also some NBFCs provide loan for 90% of the property value. If you are in a hurry and need more funding to buy a home, opt for an NNFC or a private bank. But one should be careful while choosing the bank with respect to the interest rate.

17. What is part payment?

Apart from the EMI, if you wish to pay huge amount to the lender to reduce the principal amount, then it is termed as part payment. Usually, the lenders don’t charge on the part payment. Scheduled part payments, quarterly, half-yearly aor annually, can infact, reduce the principal amount and help you in closing the home loan faster.

18. What is prepayment?

Housing Loan prepayment is the full payment of the outstanding loan amount in one single payment so as to close the loan before the scheduled tenure. There are no prepayment charges levied by any of the lenders as per RBI’s rule.

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19. Is prepayment and part payment same?

No. Prepayment refers to paying the whole outstanding amount in order to close the loan earlier than the estimated tenure. Whereas, partpayment refers to apart from paying the EMIs, paying a particular amount to the lender to reduce the outstanding principal amount.

20. What is balance transfer?

It is the transfer of the unpaid principal loan amount to another lender fro different reasons. Usually you transfer your outstanding loan amount to another lender if you are not satisfied with the existing lender with respect to the rules or interest rate. If you have been regularly paying your EMIs banks easily let you avail this facility.

21. Do you know the relation between EMI and tenure of a home loan?

EMI and home loan tenure are inversely related. The longer your home loan tenure, lesser is the EMI and vice versa.

Here is an example to illustrate the same:

For example you have taken a home loan of Rs. 50 lac for a period of 30 years then the EMI paid by you is 43,694 at the interest rate of 9.95% but if this tenure is reduced to 25 years then the EMI shoots to 45,259.

22. What are the different home loan penalties?

Loan Prepayment: In case you are prepaying your home loan, banks might charge up to 2%of total outstanding loan amount. This is only in certain cases say, prepayment after immediate six months of loan disbursal.

Missing EMIs: Missing your EMIs might put you in the list of defaulters and in such cases when you skip 2 or 3 EMIs banks will intimate you about paying the EMIs which if ignored will make you face the legal notice and make you a defaulter. This can make bank initiate possession of your property or might out your property for sale , it can also adversely affect your credit score.

23. What Is Home Loan Foreclosure and what are the factors to be considered?

Home loan foreclosure or prepayment means closing your home loan before the completion of tenure for which you had taken it. In order to foreclose the home loan, you need to consider the total EMIs paid by you , it helps you in estimating the foreclosure amount. You can now check your foreclosure amount by using foreclosure calculator , to do so you need the following information handy with you :

  • Total loan amount
  • Home loan tenure
  • Rate of interest
  • EMIS already paid
  • Foreclosing month- it’s the month in which you want to foreclose your home loan. 

24. What is an amortization schedule?

It is a table which contains all the details of home loan. The table shows the amount borrowed and the period for scheduled payment. It gives you information about the principal amount, outstanding amount, interest rate, tenure, EMI and how the EMI is divided into interest component and principal component. It also includes the tax payments or insurance payments that the borrower makes.  

25. What are probable reasons for home loan application rejection?

There are various reasons for home loan rejection, some of them include:

  • Poor CIBIL rating
  • Insufficient salary or monthly income
  • Low work experienced
  • Too many dependents
  • Unsatisfactory educational qualification
  • Previously rejected home loan
  • Error while filling the application form and unsatisfactory verification
  • Old property
  • Processing fee cheque bounce