## MCLR and Base Rate.

What is going viral this April 1st?

Don’t think it to be a fool game. It’s real. SBI, the pioneer had taken initiation to announce the news of execution.

There is a press release on september 2015 by RBI w.r.t the banks interest rate calculation to improve transparency in the methodology followed by banks for determining interest rates on advances.

Till today (March 31st, 2016), the calculation is based on base rate system which includes the following factors

A) Cost of Deposits

B) Negative carry on CRR and SLR

D) Average Return on Networth.

The highest weightage is given to Cost of Deposits.

However, it was not mandatory that all the banks should have the same base rate. There were different methods that were followed.

The new concept is that banks HAVE to lend using rates linked to their funding costs. A bank raises money through deposits, bonds and wholesale borrowing. It has costs like salaries, rents, electricity costs etc. It also has to make a certain amount of profit at the very least. So the RBI has put all of this into a formula that banks can use to quantitatively determine how much their lending rate should be.

The new method MCLR(Marginal Cost of funds based Lending Rate) mentions a particular method to be followed. Following are the main components of MCLR.

A) Marginal cost of funds

B) Negative carry on account of CRR

C) Operating costs

Here, the highest weightage is given to the marginal costs.

Know the meaning of the above terms to understand why this method is powerful and transparent when compared to earlier methods, viz., base rate system and BPLR.

Negative carry on account of CRR is the cost that the banks have to incur while keeping reserves with the RBI. The RBI is not giving an interest for CRR held by the banks. The cost of such funds kept idle can be charged from loans given to the people.

Operating cost is the operating expenses incurred by the banks

Tenor premium denotes the higher interest that can be charged from long term loans.(means 1 year rate is higher than 6 month rate, etc)

Marginal Cost: The marginal cost is the novel eleme
nt of the MCLR. The marginal cost of funds will comprise of Marginal cost of borrowings and return on networth.  According to the RBI, the Marginal Cost should be charged on the basis of following factors:

1. Interest rate given for various types of deposits-  savings, current, term deposit, foreign currency deposit
2. Borrowings – Short term interest rate or the Repo rate etc., Long term rupee borrowing rate
3. Return on networth – in accordance with capital adequacy norms.

The marginal cost of borrowings shall have a weightage of 92% of Marginal Cost of Funds while return on networth will have the balance weightage of 8%.

According to the RBI guideline, “Banks will review and publish their MCLR of different maturities every month on a pre-announced date.” Such a monthly revision will compel the banks to consider the change in repo rate change if any made by the RBI during the month.

Inspite of severe emphasis laid by the RBI governor, Raghuram Rajan, to the banks to pass on interest rate cuts, less than half had been passed on to consumers this year. This made the necessity to invent this method.

Now with MCLR, banks are obliged to readjust interest rate monthly. This means that such quick revision will encourage them to consider the repo rate changes.

The final lending rate will be MCLR + Spread. (Earlier, Base Rate + Spread.)

While these guidelines will benefit new customers, existing customers will also have an option to shift to the new regime with some conditions.

SBI’S Announcement.

At SBI, the MCLR for loans upto one year maturity will be lower than its current base rate of 9.30% while those on two year and above maturity will be marginally above its base rate.

According to the statement on the bank’s website, the MCLR for overnight loans will be 8.95%, for one-month at 9.05% and for three-month at 9.10%.

The MCLR on 6-month loans will be 9.15% and for one year loans the rate would be 9.2%, the bank said.

Further the bank’s MCLR for two year loans would be at 9.3%. Loans with three year maturity would carry an MCLR of 9.35%, the bank said.

## When can you lessen your home loan EMI?

Is it necessary that the home loan EMI should be more to finish off the loan earlier?

But everything in the world has exceptions. Similarly, the exception for not increasing the EMI can be, either you invest in some thing else worth or you can not afford paying more.

As we know, reducing the EMI will lead to longer tenure.

Before you take the step, ask yourselves.

• Can you bear the EMI for such long tenure?
• Can you finish the loan before you retire?
• Is there any other alternative?
• Is there a proper plan as to what to do with the rest of the  extra(to-be-paid for the EMI) money, every month?
• Can you assure that the extra money is invested for a better cause?

The valid reasons for lessening your EMI can b

• Investing where you get better returns when compared with the present scenario.
• Financial crisis.
• Opting for a bigger amount of loan.

If you have a really strong reason and a well planned investment for the increased disposable income, it is a recommended suggestion.

## Advantages of Prepayment or Part Payment – We name it, The Holiday Plan

To prepay the entire amount early in the tenure or in the later stages is always the best suggestion as you can enjoy the advantages of early closure of your loan, either home or personal.

Prepayment of entire amount might be a bit tricky, part payments can be planned, though. So if we work out on this, we get really a fair picture how advantageous it really is.

Recently RBI had directed banks to stop charging customers for prepayments. Definitely this is one greatest advantage to consider. It is the surely recommended option for personal loans, if you have lump sum money sitting idle.

For instance, if you have a Rs.3,00,000 loan amount taken from next month for 5 years at the rate of 17.5%. Suppose, you wish to pay the outstanding amount, let us see the table of calculations to know the extra amount you can avoid paying.

 Year Principal (P)       in Rs. Interest (I)    in Rs. Total Payment (P)+(I) in Rs. Loan paid till date in % Outstanding amount (O) in Rs. Save if you wish to prepay amount O in Rs. 2016 33,774 41,592 75,367 11.26% 2,66,226 2017 47,544 42,896 90,440 27.11% 2,18,681 3,76,833 2018 56,566 33,874 90,440 45.96% 1,62,116 2,86,293 2019 67,298 23,142 90,440 63.39% 94,818 1,95,953 2020 80,068 10,372 90,440 95.08% 14,750 1,05,513 2021 14,750 323 15,073 100% 0 90,440 Total 4,52,200

Consider another illustration with a home loan of Rs. 30,00,000 for 12 years at the rate of 9.5%. Assuming part payment Rs.20,000 will be paid quarterly. Now, look at the table which shows your savings.

Note : Part payment paid anytime will reduce your principal amount.

Loan will close in Total Amount Saved Total EMIs Saved By Paying Number of Part-Payments Total Part-Payment Amount
108 months (Earlier 144 months) Rs.12,59,676/- 36 months Rs.20,000/- each. 35 months Rs.7,00,000/-

Yes, it is no exaggeration.
Save as and when you can without compromising on basic needs and amenities. Try to part pay your loan at least annually. And see how it works.

To decide which loan to close earlier, ultimately, is an economical trick. If the idle cash in hand earns you less return when kept in a bank or invested elsewhere when compared to the interest you pay on your loan, it is wiser to pay off the loan.

Pay fast and enjoy investing again or plan a holiday with your family.

*Both the instances are under the assumption of interest rates being constant

## Does a co-applicant help when getting a home loan?

A co-applicant for home loan is someone who applies for a loan with you. Usually it’s a family member, such as a spouse, or a father applying with an unmarried son or daughter. A co-applicant also can be a business partner if both parties will own the property bought with the loan. Having a co-applicant for home loan increases your chances of approval and of getting a low interest rate.

Improved Creditworthiness

Even though your credit score is just a number, lenders place a large emphasis on it because it predicts how likely you would be to default on the loan. If your own credit score is low, or if your co-applicant’s credit score is high, having a co-applicant for home loan makes your application stronger overall and increases your chances of approval.

Lower Interest Rate

Even if you’d be likely to be approved on your own merits, a co-applicant can help you get a lower interest rate on the mortgage. Lenders reserve the lowest interest rates for loans that pose the smallest risk of default. By adding another creditworthy borrower to your application, you lower the bank’s risk. The bank might reward you with a lower interest rate than you’d pay when you were the only one applying for the loan.

Higher Income

A co-applicant’s income is included when determining how much of a loan the bank thinks you can afford. Adding a co-applicant might mean that the person’s income is added to yours when the bank considers how much to lend you. For example, say the bank doesn’t want payments to exceed 25 percent of your monthly income. If you have a monthly income of Rs.40,000, your maximum monthly payment is Rs.10,000. But if your spouse brings home another Rs.40,000 per month and becomes a co-applicant, your maximum monthly payment goes up to Rs.20,000.

Legal Requirements

In some cases a co-applicant is required on loans, so applying without one means you’d automatically be denied. Typically, if you’re applying for a secured loan, any co-owner of the property must be a co-applicant. For example,  Similarly, if you and a business partner are buying a store, you both must apply together for a mortgage.

## How to add a co-borrower when you refinance a home?

Refinancing is a way to create a new mortgage loan and lower your interest rate and house payment. When refinancing a mortgage, your lender reassesses your income and debt. Any change to your financial situation, such as a decrease in income, an increase in debt or a lower credit score, can affect your ability to refinance. If you fear that a lender will deny your refinancing application, you can add a co-borrower to the new mortgage. This can include anyone but typically would include a family member such as a spouse, parent or sibling.

Step 1

Ask your preferred co-borrower if she is willing to put her name on the refinance application. Make sure she understands that she is responsible for ensuring the loan payments are made on time and in full, or her credit score will suffer.

Step 2

Check your credit report as well as your co-borrower’s report to see whether you qualify for a refinance.  You can also get your credit score from CIBIL. Know more –  http://loanyantra.com/blog/how-is-your-cibil-score-calculated/

Step 3

Contact your existing lender or a new lender to get an application to refinance the home loan. When you fill out the application you will be asked to include your information and the co-borrower’s information. This includes both names, telephone numbers and Social Security numbers. Be sure both of you sign the mortgage refinance application.

Step 4

Submit the application along with other information the lender requests. This typically includes copies of your tax returns, bank statements and recent paycheck stubs. Since you’re applying for a refinance with a co-borrower, the lender will take both incomes and employment records into consideration.

Step 5

Wait for the lender to make his decision. If he approves the loan, you and the co-borrower will need to attend the loan closing and sign the mortgage papers. If the lender approves the refinancing and adds the co-borrower to the home loan, both parties must attend the loan closing. You’re both equally responsible for the loan, and closing on the loan is dependent on both signatures on the mortgage agreement. The new mortgage replaces the old loan.

## Home Loan Life Cycle. Know How Loanyantra Works For Your Home Loan

We believe in Organic Management, the complete and the structured. Every step is taken with attention to close your loan at the earliest.

Feel the difference as we take you to the tour, “How We Work”.

To make our and your work convenient, we place the customers in three phases.
1. Introductory Phase
2. Saving Phase / Servicing Phase
3. Achievement Phase.

Introductory Phase :

STEP 1
Enter your details and apply for a new home loan or a balance transfer. Get eligible for the bidding by the leading banks in the industry.

STEP 2
Know the status updates about the sanction of your loan. Utilize our Live Support and Chat with the Banker and our representative.

STEP 3
Quick disbursal of your loan with a minimum of 0.10% discount on the ROI, for an year.

Saving Phase :

Congrats, you are our priority customer now. All your details are in our database / into our algorithm.
Our work begins where everybody else’s end!!!

STEP 4
We track your ROI constantly and send you alerts about part payments and interest rates of your bank and other banks as well.

Get alerts under the following subject lines.

a)Get stuck to the lowest interest rates and save the maximum.
b)Don’t let your money sit unattended. Learn with us how to reduce the tenure of your loan with your hard-earned savings.
c)Be the first one to know about the change in repo rates and the banks spread.

STEP 5
Want to follow our alerts? Just click on the suggestion link. We take you along the process.

STEP 6
Get into this step and refer more of your friends to save more.

Achievement Phase :

You finally, reach this stage before your estimated tenure.
Following the procedure to close the home loan is also equally important.

STEP 7
Apply for the loan closure. Doorstep service assured.

STEP 8
Get updated with the process. We get all your documents back in your hand.

STEP 9

Our team works like a clock, to maintain your ROI at the lowest, every time. Loan Rate Shield guards as a screen and sends alerts and tips how you can close your loan before the estimated tenure.

Stay connected, all time, with us while we work on your loan life cycle.

## Property Registration? Which state do you belong to?

Stamp and registration charges are charged by the state government on your property. Usually it is calculated on the cost of the property. This is penny-pinching for many of us, as loan is granted excluding this by the nationalised banks, though some NBFCs might opt. So, when you calculate your finances, put this expenditure too on the paper

.

It varies from state to state. However, registration of Property is compulsory in any case. Registration of the property is a full and final agreement signed between two parties. Once a property is registered, it means that the property buyer in whose favor the property is registered is the lawful owner of the premises and is fully responsible for it in all respects.

The registration of property is to be done in the Registrar’s Offices by the Sub-Registrar. One has to present the Sale Deed in the concerned Sub-Registrar Office where the land is situated and then have to pay prescribed fee of stamp and registration charges. Once the registration is complete, the purchaser has to apply to the local municipal authority to get the title of the property concerned transferred to his/her name. This is commonly referred to as mutation of the title of the property.

Here is the list with respect to the different states.

## Types of Home Loan

Mr. Trump want to know various kinds of home loans offered by financial institutions in India.

Home Purchase Loan

These are the basic home loans for the purchase of a new home. These loans are given for purchase of a new or already built flat/bungalow/row-house. Home purchase loan is most popular variety among home loan product offered by the Financial institutions, even government encourages Loan seekers by giving tax incentive.

Home Improvement Loan

These loans are given for implementing repair works and renovations in a home that has already been purchased by the customer. It may be requested for external works like structural repairs, waterproofing or internal works like tiling and flooring, plumbing, electrical work, painting, etc. Generally people consider option of personal loan to do this kind of works, home improvement loans are lesser than personal loan interest rate.

Home Construction Loan

These loans are available for the construction of a new home. The documents required by the banks or bank for granting customer a home construction loans are slightly different from the home purchase loans. Depending upon the fact that when customer bought the land, the lending party would or would not include the land cost as a component, to value the total cost of the property. Some banks don’t deal with this type of loan.

Home Extension Loan

Home Extension Loans are given for expanding or extending an existing home. For example addition of an extra room, etc. For this kind of loan, customer needs to have requisite approvals from the relevant municipal corporation. However subject to technical valuation of the bank.

Land Purchase Loan

Land Purchase Loans are available for purchase of land for both home construction or investment purposes. Therefore, customer can be granted this loan even if customer is not planning to construct any building on it in the near future. However, customer has to complete construction within tenure of three years on the same land. only few banks in india offer this type of loan and sanctioned amount is based on title and location of the property.

Bridge Loan

Bridge Loans are designed for people who wish to sell the existing home and purchase another. The bridge loan helps finance the new home, until a buyer is found for the old home. This loans are short period in nature having a tenure of minimum 2 weeks to 24 months maximum.

Balance Transfer

Balance Transfer loans help customer to pay off an existing home loan and avail the option of a loan with a lower rate of interest. Customer can transfer the balance of the existing home loan to either the same banks or any another banks, people opt for these type of loan if they realize fact i.e. small change in interest will influence the burden of EMI’s to them. For more details check “Cost of switching home loans to new lenders?”

Stamp Duty Loan

These loans are sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.

NRI Home Loan

This is a special home loan scheme for the Non-Resident Indians (NRI) who wish to build or buy a home or land property in India. They are offered attractive housing finance plans with suitable reimbursement options by many banks in the country.

## Know-how, Before You Close Your Home Loan

One of the best days in life for any home loan payer is the day when you have to close your home loan. The loanyantra.com customer can experience this day, much before the estimated time line, as loanyantra manages the loan and helps in the process of closing the home loan earlier.

The very usual reasons to close the home loan

a) Either you pay off prematurely or,

b) Your loan might naturally reach the end of the tenure.

However may be the case, take note of these points before closing the home loan.

1. No Due Certificate (NDC) – The bank will issue a loan closure letter or NDC stating that all dues have been repaid and there is no outstanding amount in your name. Check and re-check all your details.
2. Original Documents – After you obtain NDC, take back all the original documents you had submitted at the time of approval or disbursal. The documents can be the original sale deed, prior title deed, power of attorney, builder-buyer agreement, property cost break-up, possession letter, payment receipts, cancelled cheques, tripartite agreement, encumbrance certificate, land and building tax receipts.
3. Home Lien – Get the home lien removed, if any. You need to submit the bank’s NDC to the local registrar to get the lien removed.
4.  Inform CIBIL – Request your bank to inform CIBIL about your successful loan closure. The bank will inform you once they have shared the details with CIBIL and you can check your credit score to confirm.

Note : Take back Post-Dated Cheques (PDCs) you may have, earlier, issued to the bank.

Even after successful loan closure, make sure you have all the details of the loan, including bank statements, NDC and prepayment records, in place, for future use.

## Monitor Your Home Loan Without Any Hassle

From the childhood days when you used bits and pieces of bricks to construct a miniature house to the point when you received your first salary, purchasing an abode you can call your own has been in your mind for as long as you can remember. However, when you scour the market for that ideal home you are confronted with the necessity of conducting thorough backgrounds checks and finally settling on that perfect home loan. It doesn’t always have to be long drawn out and difficult if you are empowered to monitor your home loan not only before you make the commitment but even during the span of the loan repayment.

Forgetting the loopholes and paving the road to the home of your dreams was never as easy before!

Step 1: Are you even eligible for a home loan?

Whether you are eligible for a home loan or not depends on a variety of factors. Your home loan application might end up being impressive or get rejected at the beginning based on even the most trivial of details. Home loan eligibility tests help you see exactly where you stand on the home loan eligibility scale. You would be required to input your gross monthly salary, state the number of your existing EMIs truthfully and the name of your company. You might even be required to state your age, mobile number and email id for information regarding exciting home loan offers on certain websites. After you have expressed your desire to settle in at a particular location and specified the type of loan you would need, the system would evaluate the possibility of you availing a great home loan deal in the near future.

Step 2: Wisdom lies in comparison

Your home loan might pertain to either availing a brand new one, engaging in a resale, purchasing a plot of land and even balance transfer. Most people who are not tech savvy make the fatal mistake of getting lost in the piles of documents, which need to be filled up or have to be kept track of. They blindly believe in the word of their realtor or banker without even considering the idea that might be paying an exorbitant sum for their dream home. However, in the age of the internet, you can easily monitor your home loan transactions without any glitch whatsoever. Once you are afforded the real picture of the market prices, you would be equipped with all the knowledge to choose the home loan that would be the most optimum to your purposes.

Step 3: Monitor your home loan

The prospect of monitoring the home loan has emerged as nothing short of a lifesaver for all future home owners. Not only will you be assured of the regular analysis of the current market price but would also be updated with the recent market trends, rate of interests, new loan requests and even some additional services. Though there are not many websites out there who transparently monitor your home loan, the genuine ones can even help you close your 20-year loan in a matter of 11 years.

Choose carefully, and even you would be able to monitor your home loan without any