Why you must thank RBI for ending penalties on pre-paying home loans

The Reserve Bank of India has given millions of loan borrowers respite from pre-payment penalties.It had done away with pre-payment penalty on home loans long ago. This time, the apex bank has instructed all banks to abolishpre-payment penalty on all floating interest loans. The ruling applies to home loans, corporate, vehicle and personal loans, auto loans, personal and education loans that are repaid with a floating rate of interest.

RBI’s new regulations, especially on prepayment penalties, have brought a lot of cheer for the common man.In its first bi-monthly monetary policy statement for 2014-15, the RBI has directed banks to consider allowing their borrowers the facility of prepaying floating rate term loans without any penalty."...it is advised that banks will not be permitted to charge foreclosure charges or pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect," RBI said in its notification.

Prepayment penalty has been a demotivating factor to all loan customers, whenever they are in a position to pre-pay their loans. Especially, home loans are usually in lakhs and even a pre-payment penalty of 2 per cent of the total loan amount causes a big dent on your pockets – on a 20 lakh loan, it would comet Rs 40,000. Thanks to the RBI, you don't have to pay such huge sums of money to repay your loan. 

Many of you tend to go for pre-payment of loans when you find that interest rates show a continuous upward movement. Some of the customers opt for switch-over of their loans with existing banks to the lenders offering lower interest rates on loans.

Banks and other lending institutions have been very reluctant to part with the extra interest charge on the pre-payment charges on loans as it is their main source of income. The expansion plans of these institutions usually hinge upon their income on loan repayments. So, if you pre-repay your loan, in part or in totality, they lose a lot of their future income. So, customers are discouraged by banks to close off loans by way of levying-these penalties with considerable monetary implications.

As the prepayment penalties now-stand annulled, lending institutions would have to explore channels of raising their funds from alternative resources. But it is not that much of your concern as borrower.

As mentioned earlier, the RBI had forbidden foreclosure charges or pre-payment penalties on home loans on floating interest rate basis. The move aimed at ending the discrimination between existing and new borrowers and bringing uniformity across the banking system in the home loan segment, which was a logical course. Now the benefit same has been extended to floating rate term loans, which will help small and medium enterprises as well. Banks will no more be allowed to deny the benefit of lower loan liability to all their customers.

So, you have every reason to profusely thank the RBI for ending penalties on pre-paying all debts taken on floating interest rates, including home loans.

Financial institutions offering special home loan rates for women

As women are getting economically independent, they are increasing participation in financial decisions and planning, whether it concerns themselves or their family. Financial awareness is no longer a male bastion. Not surprisingly, home financiers have come up with special schemes for woman borrowers of home loan products. Prominent among them are State Bank of India (SBI), LIC Home Finance, Tata Capital Housing Finance (TCHF) and Dewan Housing finance Corporation Ltd (DHFL).  

The country's largest bank, SBI has launched a special home loan scheme offering concessional rate to women borrowers. Under this scheme, it offers women borrowers loan at 10.10 per cent for loan up to Rs 75 lakh and 10.25 per cent for loan above Rs 25 lakh. These rates are 5 basis points lower than other customers. In simple terms, if loans up to Rs 75 lakh are offered to new borrowers at 10.15 per cent, for women borrowers, the concessional rate would be 10.10 per cent. This scheme is valid for women borrowers in a number of ways: as sole applicants; the first of the co-applicants; the sole or the first of the co-owners of the property.

The TCHF has a discount scheme, under which it offers women home loans of up to Rs 40 lakh at a discounted rate of 10.15 per cent vis-a-vis its present rate of 10.50 per cent for other borrowers. Thus, women borrowers can save as much as Rs 864 a month on a 15-year loan and Rs 935 a month on a 20-year loan. To avail this facility, the property must be in the single/joint name of the borrower and the borrower must have sufficient income to service the EMIs.

As woman borrower, your choice should not be limited to a few housing finance institutions. Home loan is a very competitive market these days, so enquire about home loan interest rates of all financial institutions for women, and you may end up getting the lowest rate.

Similarly, LIC Housing Finance has a special scheme ‘Bhagya Lakshmi’ forwomen borrowers where it offers them a fixed rate of 10.10 per cent for loan up to Rs 75 lakh.

Dewan Housing finance Corporation Ltd (DHFL) also offers a home loan product exclusively for women customers, the ‘DHFL Home Loan for Women’. Under the scheme, all single/first woman applicants who are also the sole/co-owners in the property are eligible for a 25 bps (0.25 per cent) waiver on the rate of interest. As Rakesh Makkar, president, DHFL, puts it, the special loan for women is a part of the company’s endeavour to empower women by encouraging them to invest/buy a home.                                                                                           

Going by the above trends, it is clear that it helps to be a woman. Already, in several states, the stamp duty for registration of property is lower for women. For a male property-buyer too, it makes sense to register the property in his wife’s name as well as make her first co-applicant in the home loan.

What are the eligibility conditions for a home loan?

Home Loans are generally given to three categories of individuals by banks - salaried individuals, self employed professionals and self employed non professionals. The eligibility conditions vary for these three categories in most banks. The repayment capacity and eligibility of the borrower is determined based on several factors like age, tenure of loan, income, employment type and status, spouse's income, stability and continuity of occupation etc.

Let’s look at the main eligibility conditions:

Age of Borrower: Banks prescribe a minimum and maximum age of the borrower. The minimum age is usually 21 years of age. The age of the co-applicant is also specified by banks. The maximum age is given in terms of the age of the borrower at the time the loan ends. So while ICICI specifies this to be 65 years of age or retirement age, Axis Bank is more stringent for salaried borrowers at 60 years on loan maturity. Self employed individuals and professionals in Axis Bank have the maximum age at loan expiry criteria to be 65 years. Some banks like HSBC give different age limits for salaried individuals in private companies, government companies and self employed individuals.

Employment: Generally, all borrowers are expected to be either salaried with private or government companies, self employed professionals or self employed non professionals. As a home loan is a large liability, banks would want to make sure of the stability and continuity of employment while granting the loan. It is for this reason that in some cases, the eligible loan amount is lower, as the job may be viewed to be more risky compared to others.

Income criteria: Banks determine eligibility criteria based on the income of the individual. Although many public sector and private sector banks do not specify this amount in black and white, some banks like HSBC do so. For example, HSBC has minimum net income criteria of Rs. 5 lakhs per annum for salaried borrowers and Rs. 7.5 lakhs per annum for self employed borrowers. Some banks look at income on gross basis, while others consider the net take home salary for determining eligibility.

Spouse’s income: Most often, borrowers take a joint home loan along with the spouse to enhance loan eligibility. Banks also suggest this option. In this case, both the applicants’ incomes are considered. As the income base is increased, the repayment capacity is higher and therefore the amount of loan you are eligible to borrow increases.

Other loan commitments: When you borrow a home loan, the repayment capacity is of paramount concern for the bank. Therefore, the loan eligibility is worked out by calculating backwards on the Equated Monthly Installment (EMI) amount. This is compared with your monthly outflows, most important of which are payment of other loan commitments like car loan, education loan, etc. and the ability to pay is determined. This is a major determinant of the loan eligibility.

Other factors: Banks have internal stipulations on minimum and maximum loan amount, maximum tenure etc. Although these do not determine your eligibility directly, they have an indirect effect. For instance, the tenure you choose will determine your EMI, which in turn will be checked to determine the repayment capacity and hence the eligible loan amount.

BankBazaar.com online eligibility calculator can be used to check the eligibility for a home loan. This calculator would ask for details such as the monthly income, current loan obligations, loan tenure, interest rate, age of borrower and employment type, based on which the borrower’s loan eligibility is calculated and given instantly.

State Bank of India to Hold Home Loan Rates

Among the several loans offered by banks and housing finance companies in India, SBI home loan products are the most preferred options among home buyers. Being the apex financial institution in India, State Bank of India disburses a wide range of standard as well as personalized home loans to interested customers. With a range lying in between Rs.5 Lakh to over Rs.5 Crores, SBI aims at catering to the housing finance needs of people from all walks of life. All it takes is a little homework and one can easily secure ideal home finances at the best SBI home loan interest rates.

With several lenders revising their interest rates, while keeping the interests of their valued customers in mind, the mortgage market is experiencing a gradual growth lately. However, when it comes to SBI home loan deals, customers might be a bit disappointed by the recent decision taken by the topmost public sector financier in India. In a recent public meet, a senior official of the bank announced that SBI will retain its home loan interest rates for an undisclosed period of time.

The Reserve Bank of India (RBI), the Indian banking watchdog, lately kept its policy rates stable. However, in a recent announcement, the RBI lowered the borrowing limit for banks from the overnight facility. The lowering of the borrowing limit is generally followed by a rapid rise in the cost of funds for the lenders. Though the cost of funds is likely to go up in the near future, there will certainly be no change in the SBI home loan interest rates. However, there are some banks that have raised their lending rates, following the reduction in the borrowing limits, which is likely to increase the demand of SBI home loan deals in the market.

Being the most preferred lender in India, SBI still aims at providing maximum benefits to the customers by offering stable interest rates, personalized tenure, flexible repayment terms and superior customer service. As of now, the State Bank of India is charging an interest rate of 10.10% p.a. for a SBI bank home loan up to Rs.75 Lakhs from woman borrowers. However, for the amount of home loan exceeding Rs.75 Lakhs, the bank is now charging an interest rate of 10.25% p.a. Last month, SBI also decided to extend its special home loan scheme for women for an indefinite time period (earlier valid till 31st March), seeing the tremendous response it received all across the nation. On the other hand, from the regular borrowers, SBI demands an interest charge equivalent to 10.15% p.a. of the SBI bank home loan amount to Rs.75 Lakhs and 10.30% p.a. for amount above Rs.75 Lakhs.

Being categorized on the basis of the amount borrowed by an individual, home loan SBI can serve every distinct purpose of the borrower, ranging from new home/plot purchase or constructing a new home, to renovating or expanding a current residential property. One just needs to be careful while comparing the SBI bank home loan products with personal need and wants for making a wise selection to fulfill the long cherished dream of owning a house.

Documents List for HDFC Housing Loan

The evolution of home loan market in recent times has meant that a large number of people have been able to relive their dream of owning a house. If it was not for easy availability of home loans, the rising real estate prices would have meant, buying a home out of bounds for the average Indian citizen with limited income. A number of public banks, private sector banks and non banking financial companies offer home loans subject to minimum eligibility criteria. Any individual with a well oriented financial health capable of repaying his or her home loan obligation can avail the advantage of housing loans.

Let us take a look at home loan eligibility criteria and documents required for home loans from HDFC home finance limited.

Home Loans from HDFC Home Finance: 

HDFC home finance limited is a leading non banking financial company offering home loans to a large number of projects across the country. HDFC limited offers housing loans for existing freehold properties as well as on flats, bungalows and row houses from developers including properties in existing or proposed co-operative housing societies. HDFC home finance is one of the most popular non banking financial companies for housing loans offering easy repayment options. HDFC home finance limited has collaborated with Bankbazaar.com offering lucrative interest rates for housing loans with instant approval and quick online submission.

Home Loan Eligibility:  

Home loans from HDFC home finance limited and Bankbazaar.com are available for both salaried and self employed individuals having a decent loan repayment capacity. Housing loans are available for both Indian citizens as well as NRIs between the ages of 21 years to 65 years. The individual filling for a housing loan must have a good credit score from CIBIL. BankBazaar.com offers a housing loan eligibility calculator tool allowing users to check for their eligibility criteria for home loans.  The amount of home loan that can be availed depends on the cost of the property. HDFC home finance offers a home loan to the tune of 80% of property value in case of loans less than Rs. 20 Lakhs and up to 85% of the property value in case of loans higher than Rs. 20 Lakhs.

Documents Required for HDFC Home Loan: 

HDFC home finance requires basic documentation check before housing loan approval. The documents required for HDFC home loans include the following:

·         Duly application form with latest photograph,

·         Address and identity proof,

·         Latest salary slip for salaried individuals

·         Proof of business for self employed individuals.

·         Salaried persons also need to submit form 16 with their latest salary slip.

·         Self employed individuals must submit their business profile for housing loan approval.

·         Self-employed individuals would be required to submit income tax returns both for self and business for the last three years.

·         Both salaried and self employed home loan borrowers need to submit their last six months bank statement. 

·         Self employed individuals must attach bank statement for both self and business.

·         Processing fee is taken through cheque that must be submitted along with the home loan application form.

Ever Reliable Banks with Impressive Home Loan Interest Rates and Advantage for Home Owners

Buying a home is once in a lifetime opportunity for a large majority of people. Due to easy availability of home loans, a vast majority of people have finally cherished their long pending dream of owning a house. While home loans are now a common financial instrument offered by virtually all private and public sector banks, some banks continue to be the proffered choice amongst users due to their easy loan approval process, lower interest rates and no hidden charges. A home loan applicant is recommended to always compare home loan quotes from multiple banks before selecting the best suitable bank for his or her home loan. Let us look at some of the reliable and popular banks with impressive home loan interest rates and an overall positive track record.

Five Reliable and Popular Home Loan Banks: 

Public sector banks are largely preferred when it comes to home loans as they offer slightly lower rate of interest. However the slow approval rate and sluggish nature of work in public sector banks usually make people embrace Non-banking financial companies and popular private sector banks who are known for their quick loan approval process and professional dealing. Here is a list of the top five reliance banks and non banking financial companies that users prefer when it comes to applying for home loans.

State Bank of India: 

State Bank of India popularly known as the SBI is the largest public sector bank of the country and one of the popular banks when it comes to home loans. Although the heavy rush of home loan applications and slow loan approval system can sometimes mean a longer waiting period for loan approval, lucrative interest rates makes SBI a popular choice with home loan borrowers. State Bank of India charges a minimal processing fee of Rs 1000 or 0.25% of the loan amount for loans up to Rs. 2 Lakhs. For loans between Rs. 25 Lakhs to Rs. 75 Lakhs, the bank charges a flat processing fee of Rs 6500. Loans higher than Rs. 75 Lakhs come with a loan processing fee of Rs. 10,000.

LIC Housing Finance: 

If any non banking financial company comes close to public sector banks in terms of home loan popularity, LIC Housing Finance tops the list. One of the unique advantages of LIC Housing Finance is the option of having a fixed interest rate for a period of five years. LIC Housing Finance offers a discount of 0.25% on home loan interest rates in case the borrower has an insurance or investment policy with LIC more than Rs 15 Lakhs.

Axis Bank:

Axis Bank is a popular choice for home loans due to its zero pre payment charges and quick loan approval mechanism. Axis Bank also charges quite competitive loan processing charges which are up 1% of the total loan amount of a minimum of Rs. 10,000.

HDFC Bank: 

HDFC bank is a popular choice for home loans for private sector banks. HDFC bank has been a pioneer in the home loan market and has active tie ups with good and respectable builders across the length and breadth of India. HDFC bank charges 0.5% f the loan amount towards processing fee charges excluding cess and service tax.
Click here to know more on home loan provided by HDFC Bank

Punjab National Bank: 

Punjab national bank is a popular public sector bank offering lucrative home loan interest rates. A large number of people are still biased towards public sector banks when it comes to home loans and roughly so as public sector banks offer slightly lower rate of interest and lower loan approval charges. Punjab National Bank charges 0.5% of the loan amount towards loan processing charges for home loan up to Rs 3 crore.

Home Loan Repayment Calculator Online

Earlier, people relied completely on the EMI’s calculated by a lender for the repayment of home loan. However, as time passed, the technology became more advanced and the level of awareness increased among borrowers, and online calculators came up as the ideal tool for getting a fair idea about monthly EMI’s. Now, borrowers get a rough estimate of EMI’s for any particular amount of home loan at a given interest rate and time period, for planning the repayment in a smart manner.

Somehow, many customers stick to a false notion that calculators help in choosing the right home loan only and are of no use thereafter. However, in reality, they do much more than just helping one compare home loans offered by different lenders or crosschecking the monthly EMIs. Home loan repayment calculator is an amazing tool that helps borrowers manage their debt in a smart and well-planned manner, without exerting much pressure on their regular finances. Here is how this relatively simple tool helps in selecting a loan, planning repayments and managing it over the loan period in an effective manner. 

Home Loan Selection

Home loan repayment calculator can prove to be helpful when making several important decisions. One can easily determine the maximum amount of home loan that can be borrowed and what portion of monthly income must be set aside for servicing the EMIs. Alternatively, some calculators even provide the facility of checking affordability by entering the loan amount one wishes to secure and getting a rough estimate about the monthly payments.

There are several ways in which calculators benefit the potential borrowers when shopping for an ideal housing finance. One can check what kind of effect different tenure periods will have on the monthly outgo and finalise the term that guarantees maximum savings and easy repayment over a period of time. Home loan repayment calculator can also be used for making a choice between variable interest options and fixed rate options. This helps in getting a fair idea about how affordable and efficient would each option prove to be in the long run. 

Planning Repayments

There is no denial to the fact that effective loan repayment plans help in saving more and gaining more equity on the property in a short span of time. To get precise numbers in the results, one must enter different amounts of EMI’s, preferably more than the original one, in the home loan repayment calculator. This presents a clear picture regarding how a borrower can repay their debt quickly and how much they will save while doing so. Some more advanced tools enable users to know about the possible effect of bulk payments or extra annual payments on the overall debt and financial standing of the borrower. It certainly helps in comparing the probable repayment options and settle with the most economical one.

On the whole, home loan repayment calculator is a boon for choosing an ideal home loan deal and planning the repayment across the home loan tenure. One can determine how much amount should be repaid over a period of time and whether or not it will result in savings and prove to be a cost-efficient option. All it takes is entering the required parameters and comparing the results generated to make the right decision.