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.
ET CONTRIBUTORS | By Raj Khosla | Mar 12, 2018, 02.30 PM IST | Economic Times
Major banks and housing finance companies have raised their lending rates. Whenever home loan rates are hiked, borrowers want to know whether they should prepay their loans to save on interest. In the past, there was no clear answer because there were several investment opportunities that could yield better returns than the interest paid on the home loan.
Not any longer. Stock markets are looking jittery, fixed deposits are tax-inefficient and debt funds are giving poor returns. If a penny saved is a penny earned, prepaying a home loan may be the best investment option available. Where else can you get 8.5% assured ‘returns’ on the surplus cash? Another compelling reason to rework the math and at least partially repay your home loan is the new tax rule that caps the deduction on home loans at Rs 2 lakh a year. If you have a large home loan running, you would do well to make partial prepayments as soon as you can.
There are some obvious benefits of foreclosing a long-term loan. The longer the tenure, the higher is the interest outgo. Just like long-term investments build wealth for you, longterm debt burdens you with high interest. Yet, a long-term loan may be unavoidable in some circumstances. A young person who has just started working may not be able to afford a large EMI. The loan tenure would have to be increased so that the EMI fits his pocket.
In such situations, borrowers are advised to go for a ballooning repayment, where the EMI increases every year in line with an increase in the income. This can have a dramatic impact on the loan tenure. If you take a home loan of Rs 50 lakh at 8.5% for 20 years, the EMI will be Rs 43,391. But a 5% increase in the EMI every year will end the loan in 12 years and two months. If you tighten your belt a bit and increase the EMI by 10% every year, you can become debt-free in less than 10 years (see grphic)
Pay off a 20-year loan in less than 10 years
Hiking the EMI every year reduces the tenure drastically.
Contrary to what T.S. Eliot said, April is not the cruellest month. Any salaried individual will vouch for this. While annual increments are something to celebrate, people with large outstanding debts should also try and increase their EMIs in line with the increase in income. In a few weeks, they will also get their annual bonuses. At least some of that should be used to prepay the home loan.
Reducing your outstanding debt or closing the loan is naturally a psychological boost. It gives the individual a sense of financial freedom.
Some people argue that prepaying the home loan robs the individual of liquidity. That’s not correct. Several banks offer home loans with an overdraft facility that allows the borrower to withdraw money as and when he needs it. Though overdraft facilities normally entail annual maintenance charges, home loan overdraft facilities are exempt from this charge. It’s also a good idea to use a loan against property to repay other costlier loans. For instance, an unsecured personal loan that charges 18-20% can be replaced with a loan against property that costs 8.5%.
(Author is founder and managing director, Mymoneymantra.com)
Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of http://www.economictimes.com.
By Vandana Ramnani | Sep 14, 2017 03:54 PM IST | Source: Moneycontrol.com
Jaypee home buyers want interim relief from court that they should be allowed to stop paying EMIs until flats are delivered to them as they have no hope yet
More than 100 homebuyers, who have invested their hard-earned money in Jaypee projects, are planning to move court to grant them interim relief to allow them to stop paying their equated monthly instalments (EMIs) until completed residential units are delivered to them.
“Why should we pay EMI for a non-existent property? What is the monetary relief we are getting from the September 11 SC order? We are not asking for suspension of EMIs – we are only asking for deferment of our EMIs until the insolvency resolution professional (IRP) comes up with a resolution plan and preferably possession of the flat is given to us without any interest or penalty to ensure that we are not charged or penalised for the delay in paying EMIs,” says Shilpa Vij, a buyer who bought a house under the subvention scheme in 2011and started paying EMI in 2013 in the hope of getting her house in 2014.
“We want an interim relief. EMIs and monthly rents are draining us and there is no hope yet that we will get a flat,” she says.
Ramakant Rai, Trilegal, who is advising Jaypee home buyers, says that buyers have two options – one, they can write to RBI or the National Housing Bank concerning their problems and two they can file a writ petition either in the High Court or the Supreme Court concerning the issue.
“Many buyers have already sent complaints to RBI and NHB. RBI can act on the basis of these complaints. Also, in case the issue is raised through a writ petition before the Supreme Court, the SC on grounds of equity to protect the interests of home buyers can issue directions to RBI, NHB or directly to banks to allow them to hold EMIs until units are fully developed,” he says.
Homebuyers have alleged that banks did not do their due diligence and disbursed loans even when project approvals were not in place and that banks had given pre-approved loans for the project.
“We have filed RTIs with the Noida Authority and received a response from them that approvals were sanctioned only in 2012 whereas projects have been sold since 2008. The requisite permissions were not in place at the time of the project launch. There was lack of due diligence on the part of banks as they had disbursed loans even when plans were not in place,” says Pramod Rawat, a buyer.
S K Suri, a home buyer, who has filed RTIs with the authorities for information regarding dates of applications made by the developer and final approval of plans, says that he has been given copies of approval letters for seven Jaypee projects, details of the builder filing an application for approval and the date of the authority granting approval.
“Most of the approvals were received only after 2011 whereas most bookings/loan disbursements started way back in 2008,” he says, adding it took him nearly four months to get a response to his RTIs and several rounds to the authority’s office. One response is still awaited.
Most homebuyers have decided against not paying their monthly EMIs for fear that their CIBIL score and future credit history may get impacted. But legal experts say that in case the court intervenes in this matter, it can direct CIBIL to not touch their scores. “Also, buyers are not asking for a refund, they are only asking not to pay EMIs until they get possession of the flats which has been delayed by almost five to eight years,” they say.
Legal experts also say that the September 11 SC order puts a moratorium on all cases against Jaypee. ‘All suits and proceeding instituted against JIL shall in terms of Section 14(1)(a) remain stayed as we have directed the IRP to remain in Management,’ says the order. “Homebuyers can argue that this is a uni-dimensional order as homebuyers cannot file cases against the builder in other courts such as NCDRC or RERA. It should also protect home buyers and allow them to stop paying EMIs and banks should not proceed against buyers until the time homes are delivered,” they say.
“The only possible way that home buyers have recourse to the bank is if the deal has been brokered by the bank’s real estate arm or if the bank has disbursed the full amount rather than construction-linked progress payment. Even in such cases they should issue a notice to the bank first claiming damages before taking any precipitate action such as stopping pre- EMI interest payment,” says CA Harsh Roongta, a fee only investment adviser.
The couple were forcibly evicted from their home which has been auctioned as part of the loan recovery procedure.
Press Trust of India, Kochi | Updated: Aug 25, 2017 11:19 IST | Hindustan Times
An elderly couple was on Friday evicted “forcibly” from their house in Kochi for failing to repay loan to a cooperative society but were brought back within hours after Kerala chief minister Pinarayi Vijayan’s intervention.
Condemning the eviction, video footage of which was purportedly telecast by TV channels, Vijayan directed the Ernakulam district collector to initiate steps to ensure their stay in the house at Thrippunithura, an official release said.
The couple, said to be Tuberculosis patients, were admitted to a government hospital after being forcibly evicted from their home, which has been auctioned as part of the loan recovery procedure.
After Vijayan’s intervention, officials brought them back to their home.
The state human rights commission also intervened in the matter.
According to the neighbours of the couple, they had taken a loan of Rs 1.5 lakh from the cooperative society by pledging their property seven years ago.
They, however, could not repay the loan amount due to their illness following which the firm initiated the recovery proceedings.
The chief minister also directed the district collector to take steps to provide them food.
The person who bought the auctioned house has agreed to let them stay in the house for the next three months, officials said.
RADHIKA MERWIN | February 14, 2016 | Hindu Business Line
SBI’s FlexiPay lets you to borrow more. But don’t bite off more than you can chew
Buying a home is a major milestone for most young people with a secure job.
But it can also be one of the most stressful financial decisions you take at the start of your career, as it can set you back financially by a few years.
If you have put off buying your dream home because you could not afford to pay the hefty equated monthly instalments (EMIs), the recently launched home loan product by State Bank of India could appear attractive.
For one, the product, known as SBI FlexiPay, helps you get a higher loan amount than you would normally be eligible for under a regular home loan.
Two, for the initial three-five-year moratorium period, you will pay only the interest on your loan, after which you will have to pay moderated EMIs. These will be stepped up in later years.
The ability to borrow more and the lower EMI in the initial years may tempt you to go for that sprawling villa you have been eyeing for some time now. But here are a few things you need to take note of before signing up.
Most banks decide on your eligible loan amount based on the value of the home and your affordability. Banks offer loans at about 75-80 per cent of the value of the house (loan-to-value ratio). But banks may offer you a lesser amount than this if your affordability is lower.
Do you need more?
Say, for instance, you decide to buy a house worth ₹80 lakh. Based on a 75 per cent loan-to-value-ratio, the bank can offer you a loan up to ₹60 lakh. But, based on your income, the bank may offer you only a ₹50-lakh loan.
Under SBI’s FlexiPay, you can now be eligible for ₹60 lakh (20 per cent more than that under a regular home loan).
The reason for the bank’s largesse is the assumption that your income level will increase over the years, and you will be able to pay the additional loan amount comfortably.
It may seem an attractive option for you, too, as the additional loan amount will bring you closer to your dream home.
But it will also mean that you are stretching yourself thinner on your income. If earlier the bank offered you a loan that translated into an EMI of half your monthly income, you will now be able to get a loan in which your monthly payments are maybe about two-thirds your monthly income.
You may want to assess your monthly expenses to see if you can actually afford a higher loan.
To relieve you of the additional burden on your EMI (on the higher loan amount), SBI makes the deal sweeter by allowing you to pay a lower amount in the initial years.
The product allows you to pay only the interest component in the first three (for a ready-to-buy home) to five (under construction house) years.
Hence, on a ₹60-lakh home loan at 9.5 per cent for 25 years, while your EMI works out to about ₹52,420 under a regular home loan scheme, under the new SBI scheme, you have the option of paying only about ₹47,500 a month (the interest portion) for the first three years.
A clear saving of about ₹4,900 a month for three years sounds like a good deal. But this respite comes at a cost.
The EMI on your home loan, normally, goes towards payment of both the principal and the interest components of the loan. In the initial period, say, three-five years, a chunk (85-90 per cent) of your EMI goes towards payment of the interest component.
As you move towards the end of your loan period, the major portion of your EMI goes towards paying your principal amount.
Even so, by paying only the interest component in the first three years, you end up increasing your total outgo on the loan by the end of the tenure.
In the above example, after three years, on your principal of ₹60 lakh, the bank will calculate EMI based on the original tenure of 25 years (assuming the same rate of 9.5 per cent).
So your monthly payment from ₹47,500, will go up to ₹52,420, a straight 10 per cent jump from the fourth year.
So, you will have to ensure that you can afford the bump up in monthly payment after three years.
SBI calculates your EMI from the fourth year, based on the original tenure (25 years) and not the remaining tenure (22 years) after the three-year principal moratorium period. This is to start you off with a lower EMI.
Remember, if the loan is spread out over a longer tenure, it results in lower monthly payment. Since you pay a lower EMI from the fourth to the sixth year, SBI gradually steps your EMI from the seventh year onwards, to make good the lower amount. So, from ₹52,420, the bank will increase the EMI by about 5 per cent to about ₹54,900 from the seventh year.
In the above example, under SBI’s FlexiPay scheme, you may pay about ₹4 lakh more on your loan over the tenure of 25 years compared with a regular home loan.
The scheme offers you flexibility at a cost that is not too high. But be sure that you are able to afford the higher EMIs in subsequent years.
Source : http://goo.gl/dpDt3z
By Rishi Mehra | 25 Jun, 2015, 10.21AM IST | Economic Times
Personal loan has been a very popular product in the country because of the flexibility it brings in. Often taken to tide over a temporary shortfall in money, personal loans are taken for weddings, to buy consumer durable, medical emergencies, vacation and to fulfill many other needs.
While interest rates on a personal loan continue to be the single biggest factor in deciding which bank to take a loan from, another important factor in deciding the bank is on prepayment provisions. Since many take a personal loan to repay it back before the stipulated tenure, prepayment policies around a personal loan are important. Also, personal loans are a form of “bad loans” and often do little to increase your asset or improve your financial position. Hence, it makes sense to repay the loan if possible. In such a case, prepayment policies play a vital role in choosing the bank.
There are generally four reasons to prepay a personal loan:
The amount is less – Many choose a full payoff of the loan when the principal amount left is relatively small and the borrower wants to save on whatever interest he can by paying off the loan early. Full payoff generally happens when the loan has been serviced for a considerable period of time and the remaining loan balance is small.
Refinancing – A prepayment also happens when the borrower decides to switch banks to take advantage of a lower interest rate. Personal loans often carry very high interest rates and borrowers often switch banks to refinance their loans at a much lower interest rate. Once the lock in period (generally a year) is over, a large percentage of borrowers refinance their loans. In such cases prepayment provisions are very important.
Increase in Salary – When a personal loan is first taken, a borrower’s financial condition can be quite different from what it is say two years down the line. An increase in salary or a bonus may lead to greater cash in hand. Keeping such eventualities in mind, it may make sense to factor in provisions of prepayment for the personal loan before taking one.
No Tax Savings – Unlike a home loan that helps a borrower save taxes, there is no such provision when it comes to a personal loan. In such a case it makes sense for a borrower to look to prepay off the loan and save on the high interest outgo. Coupled with the fact that personal loan, often does not lead to an increase in asset, looking to prepay the loan is a very important factor when choosing a bank.
People tend to prepay personal loans, especially since the interest rates on the product are significantly higher. Interest rates on personal loans often range anywhere between 12 %- 26 % and borrowers look at paying off this loan before they look to tackle any other credit. Also, since the amount in questions is significantly lower, unlike a home loan, it is possible for a borrower to, perhaps, save and prepay the loan. For a shorter time frame, even a few thousand can be a significant savings generated out of prepaying the loan.
The personal loan prepayment is also a relevant factor since it is easier to refinance a personal loan since there are very less documents involved. Unlike a home loan where the property documents are with the bank that has originally extended the loan, a personal loan has no such documents with the bank and is relatively easy to be refinanced.
What a borrower must look at before taking a personal loan that he intends to prepay is whether it has a prepayment fee tied to it. Banks often charge this rate because they have to forego the interest that they would have got if the borrower would have stuck to the agreed loan agreement. Some banks in India have a prepayment fee and as a borrower it is very important to find out if the benefit of prepaying is more than the fee you have to pay.
Bank Prepayment Charges: ICICI Nil (For Loan amount >10 lakh & 12 EMI paid), else 5% HDFC Nil (For Loan Amount > 10lakh with >Salary 75k) else 4% Bajaj Finserve Nil Tata Capital Part Prepayment with ZERO Charges SBI Nil Kotak Mahindra 0% – 5% Fullerton India Zero after 3yrs (Otherwise 4%) Axis Bank Nil
Personal loans are relatively easy to understand when it comes to their terms and conditions. While rate of interest is the most important factor when choosing a bank, the often neglected, but equally important factor is prepayment provisions of the lender.
(The author is co-founder deal4loans.com, which is a platform for online comparison for retail loans in India. Views expressed are personal)
Source : http://goo.gl/POYl3H
Preeti Khurana of Cleartax.in | Updated On: May 23, 2015 17:54 (IST) | NDTV Profit
Several new home buyers purchase their property jointly with spouse or with parents. Pooling of funds and getting a higher loan sanction limit are some of the advantages of joint purchase. Joint ownership of a house property also has some tax benefits, let’s understand them in detail.
Any deduction for interest on home loan can be availed by a person when they meet these conditions.
1. Firstly, one must be ‘owner’ of the property. For example, Vinay helped his retired father buy a property by contributing to his father’s pool of funds and then taking up a home loan to repay from his salary. Can Vinay claim interest deduction on the home loan? No, not unless he is an owner of property.
2. Secondly, one must be a ‘co-borrower’ in the home loan. Besides being a co-owner, one must also be a co-borrower to avail tax deductions. Take the case of Ritu and Arun who pooled in their savings to buy their first home. The property was bought in both their names, since adding Ritu’s name helped save on stamp duty. Arun who had a larger salary took up a loan for the money they were short of. Will Ritu be able to claim interest deduction? Ritu can claim deduction on interest only when she is a co-borrower in the home loan.
The joint owners, who are also co-borrowers of a self occupied house property can claim – deduction on interest on home loan up to Rs 2,00,000 each. And deduction on principal repayments, including deduction for stamp duty and registration charges under section 80C within the overall limit of Rs 1,50,000 each. These deductions are allowed to be claimed in the same ratio as that of the ownership share in the property.
As a family when you take up a joint home loan, your tax benefits will be larger where your interest outgo is more than Rs 2,00,000 or where availing a deduction moves one of the joint owners in a lower slab.
It’s pertinent to note that tax benefits on a house property are available when the construction of the property is complete. These tax benefits are not available for an under construction property.
If you have a joint owner, who is also a co-borrower but does not contribute to EMI payment; you may claim the entire interest as a deduction in your income tax return.
(Preeti Khurana is a chartered accountant and chief editor at http://www.cleartax.in)
Disclaimer: All information in this article has been provided by Cleartax.in and NDTV Profit is not responsible for the accuracy and completeness of the same.
Source : http://goo.gl/Ys6ziY