IDBI Bank has already increased its one-year MCLR rate to 8,65 percent, making its loans more expensive for customers. The bank has also increased its two-year and three-year MCLR rate to 8.7 percent and 8.8 percent, respectively
By ZeeBiz WebTeam | Updated: Mon, May 14, 2018 06:12 pm | ZeeBiz WebDesk
If you are thinking of taking a home loan then you must do it as early as possible, as banks are likely to increase their interest rates in near future. IDBI Bank has already increased its one-year MCLR rate to 8,65 percent, making its loans more expensive for customers. The bank has also increased its two-year and three-year MCLR rate to 8.7 percent and 8.8 percent, respectively. This rate has been made effective from May 12. The bank has increased MCLR in the range between 0.5 bps and 0.10 bps.
This is the base rate at which banks provide loans to its customers. If banks get cheaper loans then they also lend at cheaper rates to their customers and vis-a-vis. An increase in the MCLR means, your loans will come at a higher rate, and you will have to shell out more for auto loans, home loans, personal loans or any other loans.
The country’s largest lender State Bank of India (SBI) recently increased its home loan rate for up to Rs 30 lakh from 8.35 percent to 8.65 percent. Allahabad Bank is also providing the home loan amount up to 30 lakh at 8.35 percent.
Other banks including Axis Bank and Bank of India are giving home loans up to Rs 30 lakhs at 8.4 percent, according to Bank Bazaar. For home loans between Rs 30 lakh and 75 lakh, Allahabad Bank, Dena Bank and SBI are charging 8.35 percent. These banks are also charging the same rate for loans over Rs 75 lakhs, according to the financial services company website.
ICICI Bank, however, is charging between 8.75 and 8.95 per cent for loans over Rs 75 lakh, while HDFC Bank is providing loans at 8.6 percent for the amount exceeding Rs 75 lakh. As the banks are increasing their loan rates, this is the right time to go for home loan.
Rachel Chitra | TNN | Updated: May 16, 2018, 09:51 IST | Times of India
BENGALURU : Are banks gearing up to reward you for good behaviour? After Bank of India (BoI) and Bank of Baroda (BoB) announced such measures, IDBI Bank on Tuesday said that it will reward good borrowers by giving them differential pricing on their home loan interest rates based on their Cibil scores.
According to Cibil COO Harshala Chandorkar, this could point to a larger trend of “loan interests more aligned towards a carrot-and-stick policy – where good borrowers can reap the benefits of their financial prudence and bad borrowers get weeded out or have to pay steeper rates”.
With all four credit bureaus in India – Cibil, Equifax, Experian and CRIF Highmark – looking at wider coverage and criteria, from whether you paid your electricity bill on time to whether your parents paid off for the bike they got you in college, this score could affect your loan prospects.
In the last few years, with non-banking financial companies (NBFCs) and micro-finance institutions also sending information on borrowers to credit bureaus, lenders now have a wider and more comprehensive data set to assess. This could further widen as Cibil is currently in talks with telecom regulator Trai for access to data on prepaid recharges, and other agencies for utility bill payment history.
Banking analyst Hemindra Hazari said, “The whole point of Cibil assessing a customer’s data is that at some point it should translate into benefits. Corporates are always being graded on their term loans, unsecured debt and convertibles, AAA or BB++ rating, and that gives a better picture of their credit worthiness.”
In IDBI Bank’s case, it will be offering loans at 5-15bps (1 percentage point = 100 basis points, or bps) cheaper for customers whose Cibil score is above 700. A credit score normally ranges between 300 and 900 – based on credit behaviour and repayment history. Therefore, the higher the score, the more the chances of securing a fresh loan. IDBI Bank ED Jorty Chacko said, “We are keen to provide all aspiring consumers with access to credit. But while doing so, it is important to reward those consumers who have exhibited consistent credit discipline through timely payments and responsible credit management.”
But with many customers unaware of the role credit bureaus play and whether decisions taken earlier in life can come back to haunt one, Hazari said, “I am concerned about the privacy of our data. In India, there is a very low premium on methods employed for data collection and aggregation. And also, many a time, your consent is not required before financial institutions share additional sets of information over and above what is mandated.”
Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said.
By: PTI | New Delhi | Published: May 7, 2018 7:35 PM | Financial Express
Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said. Customers with CIBIL score of 760 and above will be offered loan at the minimum home loan interest rate or the marginal cost of lending rate (MCLR) for an year, the bank said in a statement. MCLR is the minimum interest rate of a bank below which it cannot lend. Those with a score of 759 and less, the rate of interest for loans of Rs 30 lakh and above will come at MCLR plus 0.10 basis points for a year.
One basis points is 100th of a percentage point. Bank of India said borrowers availing home loans of over Rs 30 lakh will be benefited from the reduced rate of interest. A consumer’s CIBIL score is a three-digit numeric summary of the credit information report (CIR) — summarising the past credit behaviour and repayment history — and ranges from 300 to 900.
The higher the score, the better are the chances of loan approval. Most banks check a consumer’s CIBIL score and report before approving a loan. “Consumers with a good credit discipline should be rewarded, as it helps propagate the importance and need to maintain a good financial history. Our preferential pricing model aims to reward high-scoring home-loan aspirants with competitive ROI, thereby helping them making their dream home a reality,” Bank of India said in a statement.
Credit information company TransUnion CIBIL’s Head of Direct to Consumers Interactive Hrushikesh Mehta said: “Bank of India’s CIBIL score-based incentive helps further highlight the need to monitor and build a positive credit profile through good credit habits.”
By Sunil Dhawan | ET Online | Updated: May 05, 2018, 12.32 PM IST | Economic Times
Buying that dream home can be rather tedious process that involves a lot of research and running around.
First of all you will have to visit several builders across various locations around the city to zero in on a house you want to buy. After that comes the time to finance the purchase of your house, for which you will most probably borrow a portion of the total cost from a lender like a bank or a home finance company.
However, scouting for a home loan is generally not a well thought-out process and most of us will typically consider the home loan interest rate, processing fees, and the documentary trail that will get us the required financing with minimum effort. There is one more important factor you should consider while taking a home loan and that is the type of loan. There are different options that come with various repayment options.
Other than the plain vanilla home loan scheme, here are a few other repayment options you can consider.
I. Home loan with delayed start of EMI payments
Banks like the State Bank of India (SBI) offer this option to its home loan borrowers where the payment of equated monthly instalments (EMIs) begins at a later date. SBI’s Flexipay home loan comes with an option to go for a moratorium period (time during the loan term when the borrower is not required to make any repayment) of anywhere between 36 months and 60 months during which the borrower need not pay any EMI but only the pre-EMI interest is to be paid. Once the moratorium period ends, the EMI begins and will be increased during the subsequent years at a pre- agreed rate.
Compared to a normal home loan, in this loan one can also get a higher loan amount of up to 20 percent. This kind of loan is available only to salaried and working professionals aged between 21 years and 45 years.
Watch outs: Although initially the burden is lower, servicing an increasing EMI in the later years, especially during middle age or nearing retirement, requires a highly secure job along with decent annual increments. Therefore, you should carefully opt for such a repayment option only if there’s a need as the major portion of the EMI in the initial years represents the interest.
II. Home loan by linking idle savings in bank account
Few home loan offers such as SBI Maxgain, ICICI Bank’s home loan ‘Overdraft Facility’ and IDBI Bank’s ‘Home Loan Interest Saver’ allows you to link your home loan account with your current account that is opened along with. The interest liability of your home loan comes down to the extent of surplus funds parked in the current account. You will be allowed to withdraw or deposit funds from the current account as and when required. The interest rate on the home loan will be calculated on the outstanding balance of loan minus balance in the current account.
For example, on a Rs 50 lakh loan at 8.5 percent interest rate for 20 years, with a monthly take home income of say Rs 1.5 lakh, the total interest outgo for a plain vanilla loan is about Rs 54,13,875. Whereas, for a loan linked to your bank account, it will be about Rs 52,61,242, translating into a savings of about Rs 1.53 lakh during the tenure of the loan.
Watch outs: Although the interest burden gets reduced considerably, banks will ask you to pay that extra interest rate for such loans, which translates into higher EMIs.
III. Home loan with increasing EMIs
If one is looking for a home loan in which the EMI keeps increasing after the initial few years, then you can consider something like the Housing Development Finance Corporation’s (HDFC) Step Up Repayment Facility (SURF) or ICICI Bank’s Step Up Home Loans.
In such loans, you can avail a higher loan amount and pay lower EMIs in the initial years. Subsequently, the repayment is accelerated proportionately with the assumed increase in your income. There is no moratorium period in this loan and the actual EMI begins from the first day. Paying increasing EMI helps in reducing the interest burden as the loan gets closed earlier.
Watch outs: The repayment schedule is linked to the expected growth in one’s income. If the salary increase falters in the years ahead, the repayment may become difficult.
IV. Home loan with decreasing EMIs
HDFC’s Flexible Loan Installments Plan (FLIP) is one such plan in which the loan is structured in a way that the EMI is higher during the initial years and subsequently decreases in the later years.
Watch outs: Interest portion in EMI is as it is higher in the initial years. Higher EMI means more interest outgo in the initial years. Have a prepayment plan ready to clear the loan as early as possible once the EMI starts decreasing.
V. Home loan with lump sum payment in under-construction property
If you purchase an under construction property, you are generally required to service only the interest on the loan amount drawn till the final disbursement and pay the EMIs thereafter. In case you wish to start principal repayment immediately, you can opt to start paying EMIs on the cumulative amounts disbursed. The amount paid will be first adjusted for interest and the balance will go towards principal repayment. HDFC’s Tranche Based EMI plan is one such offering.
For example, on a Rs 50 lakh loan, if the EMI is xx, by starting to pay the EMI, the total outstanding will stand reduced to about Rs 36 lakh by the time the property gets completed after 36 months. The new EMI will be lower than what you had paid over previous 36 months.
Watch outs: There is no tax benefit on principal paid during the construction period. However, interest paid gets the tax benefit post occupancy of the home.
VI. Home loan with longer repayment tenure
ICICI Bank’s home loan product called ‘Extraa Home Loans’ allows borrowers to enhance their loan eligibility amount up to 20 per cent and also provide an option to extend the repayment period up to 67 years of age (as against normal retirement age) and are for loans up to Rs 75 lakh.
These are the three variants of ‘Extraa’.
a) For middle aged, salaried customers: This variant is suitable for salaried borrowers up to 48 years of age. While in a regular home loan, the borrowers will get a repayment schedule till their age of retirement, with this facility they can extend their loan tenure till 65 years of age.
b) For young, salaried customers: The salaried borrowers up to 37 years of age are eligible to avail a 30 year home loan with repayment tenure till 67 years of age.
c) Self-employed or freelancers : There are many self-employed customers who earn higher income in some months of the year, given the seasonality of the business they are in. This variant will take the borrower’s higher seasonal income into account while sanctioning those loans.
Watch outs: The enhancement of loan limit and the extension of age come at a cost. The bank will charge a fee of 1-2 per cent of total loan amount as the loan guarantee is provided by India Mortgage Guarantee Corporation (IMGC). The risk of enhanced limit and of increasing the tenure essentially is taken over by IMGC.
VII. Home loan with waiver of EMI
Axis Bank offers a repayment option called ‘Fast Forward Home Loans’ where 12 EMIs can be waived off if all other instalments have been paid regularly. Here. six months EMIs are waived on completion of 10 years, and another 6 months on completion of 15 years from the first disbursement. The interest rate is the same as that for a normal loan but the loan tenure has to be 20 years in this scheme. The minimum loan amount is fixed at Rs 30 lakh.
The bank also offers ‘Shubh Aarambh Home Loan’ with a maximum loan amount of Rs 30 lakh, in which 12 EMIs are waived off at no extra cost on regular payment of EMIs – 4 EMIs waived off at the end of the 4th, 8th and 12th year. The interest rate is the same as normal loan but the loan tenure has to be 20 years in this loan scheme.
Watch outs: Keep a tab on any specific conditions and the processing fee and see if it’s in line with other lenders. Keep a prepayment plan ready and try to finish the loan as early as possible.
Nature of home loans
Effective from April 1, 2016, all loans including home loans are linked to a bank’s marginal cost-based lending rate (MCLR). Someone looking to get a home loan should keep in mind that MCLR is only one part of the story. As a home loan borrower, there are three other important factors you need to evaluate when choosing a bank to take the loan from – interest rate on the loan, the markup, and the reset period.
What you should do
It’s better to opt for a plain-vanilla home loan as they don’t come with any strings attached. However, if you are facing a specific financial situation that may require a different approach, then you could consider any of the above variants. Sit with your banker, discuss your financial position, make a reasonable forecast of income over the next few years and decide on the loan type. Don’t forget to look at the total interest burden over the loan tenure. Whichever loan you finally decide on, make sure you have a plan to repay the entire outstanding amount as early as possible. After all, a home with 100 per cent of your own equity is a place you can call your own.
A high credit score certainly boosts the chances of your loan approval. However, if you fail to qualify on other parameters, even your high credit score will not help.
Published: March 14, 2018 4:37 PM | Financial Express
A high credit score certainly boosts the chances of your loan approval. However, it doesn’t guarantee it. Credit score is just one of many parameters used for credit approval by lenders. If you fail to qualify on other parameters, even your high credit score will not help. Here are the some of the most common reason why loan applications are rejected despite a good credit score:
1. Minimum income eligibility: Most lending products have minimum income criteria for loan applicants. Lenders may also set varying income eligibility criteria depending on your location, i.e. metro, urban, semi-urban and rural areas. As this is often the first filter that lenders apply for processing loan applications, those who fail to meet this criterion are usually rejected outright, even without the consideration of other eligibility factors, such as credit score and EMI affordability. As this criterion may vary across lenders, visit online lending marketplaces to find out the loan options available to you basis your monthly income.
2. Age: Most lenders cap the age of loan applicants at 60 years. This is because monthly incomes usually dip after retirement, which increases of the risk of default. Some credit products may also cap the age by which the repayment has to be completed. For example, most lenders require the borrowers to complete their home loan and loan against property repayment before they turn 70. Those who fail to meet these requirements may have their loan applications rejected. If you too are approaching your retirement age, improve the chances of loan approval by making your spouse or employed children your co-applicants.
3. Frequent job changes: Nowadays it is quite common to frequently change jobs for better career prospects and higher income. However, frequent job changes is considered as a sign of an unstable career and hence, job hoppers are regarded as less creditworthy, especially for longer tenured loans like home loans and loan against property. If you too are planning to avail a longer tenured loan, avoid job changes for some time.
4. Guarantor of other loan: Whenever you become a guarantor to someone else’s loan, you become equally liable for its repayment. Hence, during fresh loan application, lenders will reduce your loan eligibility by the amount of outstanding loan guaranteed. This might lead to the rejection of your loan application. As banks do not allow changes in guarantor(s) unless requested by the borrower himself, ask the primary applicant of the loan to find another guarantor as your replacement.
5. High FOIR: Fixed obligation to income ratio (FOIR) is the proportion of your total income which goes out as EMIs (including the EMI for the new loan application) and other repayment obligations like house rent, insurance premiums, etc. As lenders prefer to lend to those with FOIR of 40-50% or lower, those exceeding it may have their loan application rejected. Hence, those with higher FOIR should prepay their existing loans in whole or part to increase their loan eligibility. Alternatively, opt for lower EMI for the new loan if that contains your FOIR within 40-50%.
6. Job and employer’s profile: Many lenders also consider your job description and/or your employer’s profile while processing your loan application. Lenders prefer government employees and those working with top corporates and MNCs the most due to their higher job certainty, whereas those working with lesser-known or financially-strained companies are less preferred. Employees with hazardous job profile have lower loan approval chances. Consider loans from NBFCs if banks reject your loan application due to your job or employer’s profile.
(By Naveen Kukreja, CEO & Co-founder, Paisabazaar.com)
PTI | March 5, 2018 | India Today
Mumbai, Mar 5 (PTI) Even as rivals continue to be reluctant about adopting external benchmarks for setting lending rates, American lender Citi today launched the countrys first market benchmark rate-linked lending product.
The bank has introduced a home loan product that will be linked to the rate of treasury bills, which is used by government for its short-term borrowings.
The lender, which already has similar external benchmark-linked products in other markets like the US and Singapore, said it does not see any impact on net interest margin (NIM), a key determinant of profitability, because of the launch of the product where a borrowers rates will be reviewed every three months.
Frustrated at poor transmission of its policy moves into lending rates for borrowers, the Reserve Bank had last October mooted the idea of moving to a market-linked benchmark and suggested three such instruments, including the T-bills rate, the rate for certificate of deposits and its own repo rate to determine the interest rate.
Bankers, led by their lobby grouping Indian Banks Association, had opposed such a move, claiming that the existing marginal cost of funding based lending rates is working well and also pointed out that deposits are not linked to any market benchmark.
Citis country business manager for global consumer banking Shinjini Kumar, said a shift to a market benchmark like the T-bill is transparent, simple and will also help with better transmission.
Loans will be sold at a fixed spread above the T-bill rate which will be maintained throughout the loan tenure, she said, adding there will be quarterly readjustments for the borrower.
There will be a range of spread above the T-bill rate which the bank will follow, its head of secured lending Rohit Ranjan said, adding the average spread will be 2 percentage points. Existing customers will also be able to move to the new product without any refinancing costs, he added.
The banks country treasurer Badrinivas NC sought to downplay concerns surrounding customers being exposed to T- bill rate volatilities, which may happen due to external events like the taper tantrum in 2013 and hinted that the rates also reflect the policy decisions at a particular point of time which get captured through the quarterly resets.
He said the bank has a diversified liability profile, including a high 60 per cent composition on the low-cost current and savings account deposits and also other retail term deposits, which will make it possible for it to offer such a product.
The bank feels the RBI will be on a long pause and may go for a hike in rates only if there is a surge in inflation, he said.
In a few cases, especially concerning top corporates, the bank has been benchmarking rates against market benchmarks but those were deals done on a one-on-one basis, and this is the first time that any lender is going to the market with such an offering, Kumar said.
The bank had a gross home loan book of Rs 9,000 crore, while the overall India book stood at Rs 57,000 crore as of December 2017. Even as rivals struggle with dud assets, its NPAs on the mortgage lending is a healthy 0.05 per cent, the bank said.
Commenting on the recent changes in priority sector lending (PSL) requirements for foreign banks, Kumar said Citi is already compliant on PSL requirements, including the sub- categories and in some cases it uses priority sector lending certificates.
The bank will be resorting to use of digital technologies and tying up with partners to comply with the new requirements, she said. PTI AA BEN BEN SDM
After a few hikes in marginal cost based funding rate (MCLR) by some banks in past two months, banks first raised the rates on bulk deposits.
Nikhil Walavalkar | Mar 01, 2018 01:13 PM IST | Source: Moneycontrol.com
The largest public sector bank in India – State Bank of India – has decided to increase the interest rate payable on retail deposits, followed by an increase in MCLR (marginal cost of funds-based lending rate) – the rate charged on loans – by up to 20 basis points. As the largest lender revises its interest rates, should you be worried with your financial plan?
Before getting into corrective measures and means to exploit the rate action, you should spend a minute understanding why rates have gone up.
“Towards the end of the financial year the liquidity in the market has gone down. The banks are keen to raise money. The rates are hiked as a lagged response to the rising bond yields,” said Mahendra Kumar Jajoo, head – fixed income, Mirae Asset Management.
For the uninitiated, the benchmark 10-year bond yield has moved up to 7.78 percent from a low of of 6.18 percent on December 7, 2016.
Banks typically take time to raise their fixed deposit rates. After a few hikes in MCLR by some banks in past two months, banks first raised the rates on bulk deposits. Now interest rates on retail fixed deposits are being hiked. This is a sign of relief for most fixed deposit investors who were forced to consider investing in the volatile stock markets through mutual funds.
Though the interest rate hike on fixed deposits is good news for conservative investors, one should not expect fireworks in the form of aggressive rate hikes in near future.
“As of now the liquidity tightening is the cause behind the fixed deposit rate hikes. RBI has maintained its neutral stance on the monetary issues. This may change to hawkish over next six months,” said Joydeep Sen, founder of wiseinvestor.in, a Mumbai-based wealth management firm.
Though the interest rates are set to go up and others are expected to follow SBI, the process of rate hikes will be gradual. “Bank fixed deposit investors may see higher rates over next six to twelve months. You can consider opting for six months to one year fixed deposits and rolling it over at higher rates when they mature,” Sen advised.
Rising interest rates, however, ring alarm bells for both bond fund investors and borrowers. The increase in yield suppresses the prices of bonds and thereby hurts investors in bond funds as net asset values of the bond funds go down. Recent spike in bond yields have taken a heavy toll on bond funds. Long term gilt funds lost 2.1 percent over past three months, on an average.
The prevalent bond yields are a result of the market discounting RBI’s hawkish stance one year down the line, according to experts. Although opinions are divided on the extent of a further surge in yields, there seems to be a consensus when it comes to volatility in the bond market.
If you are not comfortable with the volatility, you should stay away from long-term bond funds and income funds that invest in longer-term paper.
“Short term bond funds are good investment option at this juncture as they invest in bonds maturing in two to three years, where the yields are attractive,” said Jajoo. If you are comfortable with some amount of volatility and expect a sideways move in yields, you may consider investing in income funds and dynamic bond funds.
While fixed income investors see a mixed bag in the rising interest rate regime, borrowers, especially those on floating rate liabilities, are expected to see tough times ahead. The banking sector is undergoing a situation of extreme pressure on margins due to an increase in non-performing assets like never before.
The rise in yields and fixed deposit rates will ensure that banks will be forced to raise their MCLR. This will result in an increase in the floating rate for home loan borrowers. For example, if you have a Rs 50 lakh home loan for 15 years and the rate is hiked to 8.45 percent from 8.25 percent, then the EMI changes to Rs 49,090 from Rs 48,507, an increase of Rs 583. You may ascertain the possible impact on you using EMI calculator.
“Other banks will definitely follow the MCLR hike action of SBI. The rates on home loans may be hiked by the end of this month or in early April,” said Sukanya Kumar, founder of RetailLending.com.
Banks may postpone their rate hikes to attract home loan volumes and close the financial year with good numbers. But home loan borrowers should be prepared to pay higher EMIs in the near future.
Rates will be revised depending on the MCLR time frame. For example, if your home loan is linked to 6-month MCLR, you can expect rates to change after six months from the last reset. The 6-month MCLR prevalent at that time will be applicable to your home loan at the time of reset.
If interest rates continue their journey northward, cash flows do change for you. Account for them well in advance to ensure that you do not get caught off guard.