HDFC starts the slide for a Home Loan Run

HDFC (Housing Development Finance Corp) kicks of the low interest rate home loan buzz with the launch of just above 10 percent home loans. Though private banks always have a profit angle to operate with, HDFC yet again show its mettle by launching such public friendly schemes. Considering that just recently the rates were reduced by state run banks, HDFC clearly shows that it is ready for a twin battle against the state run banks as always and its private counterparts as well. No wonder HDFC still runs in the top ranks of the private bank while others have always had a choppy ride.

The slide is further enhanced for the female borrowers and have an even better discount rate compared to the existing offer. Meanwhile the SBI had started the discount trend in the home loan segment with 10.1 percent interest for the women loan applicants for loans till 75 lacs and 10.15 percent for the others. 

HDFC on the other hand will hand out the home loans at a rate of 10.25% for home loans up to Rs 75 lakh but the home loan has to be applied before January 31, 2015 and the participant must clear all the formalities and get the first disbursement amount by February 28, 2014. 

On the ruling from RBI in September, the situation was different after lending rates where spiked by 25 basis points and further topped up by another 25 basis points in October. This led to SBI increasing its home loans from 9.8% to 10%. HDFC also followed suit with addition of 10 basis points for both the new and old home loan customers.

However, in spite of these moves, the spending remains a major concern and hopefully with big players bringing in the offers should spice up the home loan market. Meanwhile the Punjab National Bank too has gone all out by removing the processing charges and offering a lower interest rate as well.

With respect to the low interest in the home loans for women, one must note that the lower interest rate applies if the applicant is only a woman. If the entire loan amount is borne by the woman applicant or if the woman is the first of the applicants in case of a joint home loan, or if the property is under the ownership of the woman. Only then they will get the extended discount in the home loan interest rate.

One might not feel a huge difference in terms of the .5 or .10 percent but if the loan amount is close to 75 lakhs or above the 75 lakh margin, then it surely reflects in the overall savings of the loan amount in the long run.

 
Punjab National Bank is also offering a 'Festival season Bonanza' home loan scheme for the individual applicants or only retail customers. The new home loan is expected to be priced at just 10.25% and this extends for all the home loans up to 2 crore rupees. The icing on the cake is further adorned with no processing fees and zero documentation charges not only for home loans but also for vehicle loans.

Simple process for Home Loans Approval with Bad Credit

Buying a home is measured as an excellent investment in today’s date and as overviewed by real estate professionals, the building market is now much friendlier towards buyers. But bad credit home loans are not that easy to procure. Lenders tend to make funds tighter while shelling out money as loan to bad credit holders.

However, buyers possessing less than perfect credit scores can also get home purchase loans by following the steps listed below.

Check your credit profile & fix errors, if any

First and foremost, you must check your credit record and get a clear idea of where you stand. All banks and every lender would check your credit score before sanctioning you a loan. You can do this beforehand by checking your CIBIL Transunion Score from the CIBIL website by paying a nominal charge of Rupees 470.

By doing this you can fix errors, if any, and take active steps in improving the score through responsible financial behavior prior to applying for a loan. There are several credit repair agencies too which can help you in revamping your credit record so that your credit score is pushed higher and you qualify easily for a low-interest loan.

Although it’s a fact that that almost 80% of loans that are approved go to individuals with higher than 750 credit scores, it’s also true that a score of 620-680 - though not perfect – is still approvable, if the underwriting queries are satisfied.

Choose your home wisely

It is wise to have a realistic attitude towards the home you plan to buy. If you are having a bad credit score its more than likely that you would procure a home loan, if at all, at a higher rate of interest. It’s important therefore that you trim your expectations and settle for a home that’s not too heavy on your budget. Otherwise, repaying your loan back in future would be financially strenuous, and in effect a massacre for your credit report yet again.

In simpler terms, buy what you can afford and choose not to default.

Shop around

To shop around for a home loan is easy these days, more so, because there are finance portals operating in the cyber area that are dedicated towards finding for patrons customized loans in accordance to their suitability. This is a better idea because you don’t need to apply separately to different lenders for getting your bad credit house loan and get denied repeatedly if things don’t work out. That is also supposed to affect your credit report adversely.

Simple filling of a form with required details in a reliable finance portal instead can bring available loan offers your way faster, and from here you can apply right away to lenders who provide bad credit house loans for your credit score.

Before you apply

• Improve your credit score.
• Have explanations and supporting documents ready to clarify instances of default in your credit record.
• Exhibit a steady income to your lender.
• Eliminate all debts.
• Exhibit responsible financial behavior.

Taking a loan jointly with a family member who holds a good credit record is another way of securing a housing loan with bad credit. However, financial agreement of that sort would mandate that person to be named as a co-owner of your home.

Merits and demerits of 30 year tenure on Home loans In India

Currently most of the banks have risen the home loan tenure up to 30 years owing to the increase in the interest rates from last 18 months depicting an increase of 250 – 300 basis points. This increase have led the borrowers into huge financial trouble in order to match up their EMI’s with their paying capacity. Having a look on this increasing trouble, RBI has given a permission to increase the tenure of home loan up till 30 years. And the result is that the most of the banks have increased the loan repayment tenure by 10 years. For some people it is a matter of an advantage but for some other, it is looking more like a disadvantage. So, let’s find out its merits and demerits. Have a look below:

Merits of 30 year tenure on Home Loans:

Decrease in the EMI’s: As a result of increase in the loan tenure up till 30 years, the loan EMI gets reduced by 16% (as per the research). This is because the interest period gets extended and the amount of interest gets distributed for longer period and hence, the EMI’s gets reduced. This has given a benefit for those whose EMI payment capacity is less and to those who feels little bit overburdened with huge EMI’s.

Affordable housing and a sigh of relief: Many of us dream of our own house but the huge prices and high rate of interests on home loans always discourage us to take a crucial step. But, now with the increase in the loan tenure by 10 years, have actually made the housing affordable with less EMI’s and distributed interest amount. Many of the borrowers gets a sigh of relief owing to the reduction in EMI’s and increase in loan tenure.

Increase in Loan Eligibility in terms of loan amount: As the tenure gets increased, people gets more loan eligibility in terms of loan amount. As there is an increase in tenure, it is assumed to have an increase in income of the borrower in future and thus his/her eligibility in terms of loan amount gets increased.

Increase in Loan Eligibility in terms of age of the borrower: Earlier the borrower gets a home loan up to the period of his retirement or 60 years. But, now with an increase in the loan tenure, the borrower can get a loan for the maximum age of 70 years (maximum in case of repayment of loan).

More beneficial to young people getting less salary: People who are getting less salary and who are young can be benefitted the most with an increase in the loan tenure. As people with less salary can afford the low EMI’s and can opt for longer term as they would be capable enough at that point of time to repay the loan, a 30 year loan tenure for younger people would not be more.

In pre closure cases, this option works out fruitful: In case you want to prepay the loan (in any case after certain period), this option works out fruitful as from your pocket less EMI’s would go, rendering no overburden and a financial crunch to you and your family.

Demerits of 30 year tenure on Home Loans:

High amount of interest: Although you are paying low EMI’s but still the total amount of interest that you are paying over a period of 30 years is very high, which is indigestible once you calculate the amount of total interest.

Burden for 30 years: There would be a huge burden on your shoulders till you prepay the loan amount. For 30 years, carrying a stress of debt can render you certain types of diseases like blood pressure, depression and heart problems.

Not relevant for aged people: If you are an old man nearing an age of 40’s and 50’s, then this option will not work out for you. As 30 years will be very high to determine your stable and regular income.

In case of floating interest rates, there is a huge risk of increasing interest rates: Over a period of 30 years, there is a huge risk of increase in interest rates when you are opting for floating interest rates. Such rise with an inflation can dig your pocket so deep, keeping it all empty.

Therefore, these are the merits and demerits of increase in loan tenure up to 30 years. In nutshell, it is a beneficial option for those whose EMI paying capacity is less and those who are young.

Home Loans: Understanding Your Amortization Schedule

What is an amortization schedule?

A home loan amortization table is the repayment schedule depicting the EMI components of interest and principal and the outstanding balance for every month for the entire home loan period.

How is it calculated?

In order to prepare the amortization schedule you will need to first calculate the EMI on your loan. To do this you will require data on the loan amount or principal, the loan tenor and the interest rate applicable on your loan.

The overall EMI remains constant every month but the way the amount is split between interest and principal payments differs for each month.

At the start of the loan period, a larger part of the amount repaid every month is apportioned towards interest payments. With a progression in tenor, the amount apportioned towards interest reduces and the principal repayments are larger.

This happens because interest is calculated on a monthly reducing balance method. Under this, interest payable is calculated on the balance outstanding at the end of every month. The balance outstanding reduces as more and more of the loan is repaid, thereby reducing interest payable in the subsequent months.

The below illustration details the calculations involved:

Loan Amount	Loan Tenor	Interest Rate
Rs.10,00,000	5 years	10% p.a.

EMI = (P*i)^\ X (1+i)^n

            {(1+i)^n} - 1

where,

P= Principal or Loan Amount

i = interest rate p.m.

n = loan tenor in months

EMI = (10,00,000 * 0.00833) X (1 + 0.00833) ^ 60  =  Rs. 21,247

[(1 + 0.00833) ^ 60] - 1

where,

Principal = Rs.10,00,000

Interest rate p.m. = 10%/12 = 0.00833

Loan tenor (i.e. 5 years) in months = 60 months

Total Amount Payable = EMI * Loan Tenor in months

 = Rs.21,247 * 60

 = Rs. 12,74,820

Total Interest Due = Rs. 12,74,820 - Rs.10,00,000 = Rs.2,74,820

Based on this data, the repayment or amortization schedule is presented as given below:

Month	Opening Balance	Principal Repaid	Interest Paid	Outstanding Balance
1	10,00,000	12,914	8,333	9,87,086
2	9,87,086	13,021	8,226	9,74,065
3	9,74,065	13130	8,117	9,60,935
4	9,60,935	13239	8,008	9,47,696
5	9,47,696	13350	7,897	9,34,346
…..	…..	…..	…..	…..
55	1,23,845	20215	1,032	1,03,630
56	1,03,630	20383	864	83,247
57	83,247	20553	694	62,694
58	62,694	20725	522	41,969
59	41,969	20897	350	21,072
60	21,072	21071	176	0

The figures in the table are arrived at as follows:

First Month:

Interest paid = Principal X Interest rate p.m.

         = Rs.10,00,000 X 0.00833

         = Rs.8,333

Principal repaid = EMI - Interest

              = Rs.21,247 - Rs.8,333

              = Rs.12,914

Balance Outstanding (i.e. Opening Balance 2nd month)

= Principal - EMI

= 10,00,000 - 21,247

= Rs.9,87,086

Second Month:

Interest Paid = Balance Outstanding X Interest rate p.m.

                      = Rs.9,87,086 X 0.00833                                                           

          = Rs.8,226

Principal Repaid = EMI - Interest

                = Rs.21,247 - Rs.8,226

                = Rs.13,021

Balance Outstanding (i.e. Opening Balance 3rd month)

= Opening Balance 2nd month - EMI

= 9,87,08 - 21,247

= Rs.9,74,065

Third Month:

Interest Paid = Balance Outstanding X Interest rate p.m.

                      = 9,87,086 X 0.00833

                      = Rs.8,117

Principal Repaid = EMI - Interest payable

                = Rs.21,247 - Rs.8,117

                = Rs.13,130

Balance Outstanding (i.e. Opening Balance 4th month)

= Opening Balance 3rd month - EMI

= 9,74,065 - 21,247

= Rs.9,60,935

These calculations are repeated for every month of the loan period. In the last month i.e. the 60th month, the last interest payment is made and the entire principal is repaid leaving no balance outstanding.

EMI and Amortization Calculators:

The calculations on your home loan may appear tedious and time-consuming, and they well may be, especially for those who find it difficult to deal with numbers. The process becomes even more time-consuming when trying to make comparisons between lenders or incorporating pre-payments in the schedule. To resolve this issue, online financial tools like EMI calculators and amortization calculators are made available by various online financial services providers. Among the leading sites is that of Bank Bazaar’s, who's online financial tools allow users to not only arrive at required answers but also displays data in a user-friendly format.