Adhil Shetty | Last Updated: February 15, 2017 | 13:23 IST | Business Today
Over the last two years, the Reserve Bank of India has steadily reduced lending rates. Any rise or fall in the RBI’s repo rate will have a direct impact on your home loan interest rate. Therefore, in the recent past, lenders have reduced their interest on home loan products in tandem with the lowering of repo rate. Additionally, several lenders took an axe to their own lending rates following the culmination of the 50-day demonetisation drive.
In an ideal scenario, existing loan owners should benefit from these rate cuts. But in the past, this wasn’t often the case, with repo rate cuts not being adequately transmitted to borrowers. Which is why the RBI mandated banks to switch to the MCLR regime from the base-rate regime.
Since April 1, 2016, all new loans are linked to the bank’s marginal cost of lending rate (MCLR). These loans are more responsive to rate cuts in the sense that the rates change automatically on specified intervals of time mentioned in a loan agreement.
The question now is this – if you have a home loan now, should you consider transferring to another loan with a lower interest rate?
What existing borrowers can do
If you borrowed before April 1, 2016, your loan would be linked to the base rate, which is known to be less responsive to rate cuts. Assuming that you’re paying over and above the prevalent interest rate (in the region of 8.6%), you may be tempted to move to a cheaper loan. But this decision should be arrived at after carefully calculating the benefits of the transfer.
Lower interest rates are not the only reason why you should transfer your loan. You also have to look at the quantum of long-term savings as well as loan transfer costs.
Here’s a look at how you can weigh your transfer benefits.
The transfer costs: Transferring to another loan with your current lender may not involve costs. However, transferring to another lender will cost you some money. You have to pay processing fee on the balance of the loan transferred, administrative expenses, pre-payment penalty if you had a fixed rate loan, legal charges, stamp duty, etc. The aggregate of these costs lower the savings you make on the transfer.
The Remaining Tenure: If your loan is nearing its end, a transfer may not make sense. You may save costs on EMIs, your loan transfer costs may outweigh any savings.
The Long-Term Savings: This the gross of what you will save over the remaining term of your loan through a reduction in your EMIs, factoring in the transfer costs. If your savings appear to be significant, you have a case for transferring to another loan. Don’t forget that any MCLR-linked loan you move to will have a fluctuating interest rate. Currently, the interest rates are low, but at some point in the future, the rates will start increasing again due to factors such as inflation.
When It Makes Sense To Transfer
Here’s a look at the illustration below to understand when transferring your home loan makes sense.
Suppose you had taken a home loan for Rs 25 lakh for 20 years at an interest rate of 10.50% per annum. You want to transfer this loan to another bank offering you an MCLR-linked interest rate of 9.5% per annum. Now, consider the two different scenarios.
Conclusion – Shift, Only If There Are Savings
As the illustrations reveal, opting for a loan transfer in Scenario 2 is not an economical option for the borrower. It could lead to a loss, therefore the borrower can stick to his current repayment plan.
In fact, he can make the best use of the prevalent low interest rates and pre-pay on his loan. This would help him make significant progress in terms of repayment, and put him in a stronger position when the interest rates start rising again.
Conversely, when there’s a sizeable part of the loan tenure remaining, there may be significant long-term savings from moving to a loan with a lower interest rate.
In conclusion, do not make a hasty decision related to your home loan transfer. Calculate all the costs of transfer. You can take the help of various online calculators to calculate these costs and your savings. You could also approach your lender to ascertain these numbers.
(The writer is CEO, BankBazaar.com)
Chandralekha Mukerji | ET Bureau | October 5, 2016
2016 is looking to be one of the best years for home buyers.
More tax benefits, rate cuts on loans, stagnant property prices, new launches in the ‘affordable’ segment with freebies and attractive payment schemes.
Many of you will be looking to take advantage of these benefits and buy a house.
While hunting for a house at the right price, you’ll be haggling with the bank to cut a loan deal too.
Even if you get a discount on both, your tax bill can burn a hole unless you know the rules well. Here goes a list of six lesser known and often-missed tax benefits on home loan.
You can claim tax benefit on interest paid even if you missed an EMI
Unlike the deduction on property taxes or principal repayment of home loan, which are available on ‘paid’ basis, the deduction on interest is available on accrual basis.
Meaning, even if you have missed a few EMIs during a financial year, you would still be eligible to claim deduction on the interest part of the EMI for the entire year.
“Section 24 clearly mentions the words “paid or payable” in respect of interest payment on housing loan.Hence, it can be claimed as a deduction so long as the interest liability is there,” says Kuldip Kumar, partner-tax, PwC India .
However, retain the documents showing the deduction so that you can substantiate if questioned by tax authorities. The principal repayment deduction under Section 80C, however, is available only on actual repayments.
Processing fee is tax deductible
Most taxpayers are unaware that charges related to their loan qualify for tax deduction.
As per law, these charges are considered as interest and therefore deduction on the same can be claimed.
“Under the Income Tax Act, Section 2(28a) defines the term interest as ‘interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, claim or other similar right or obligation)’.
” This includes any service fee or other charge in respect of the loan amount,” says Kumar. Moreover, there is a tribunal judgement which held that processing fee is linked to services rendered by the bank in relation to loan granted and is thus covered under service fee.
Therefore, it is eligible for deduction under Section 24 against income from house property .Other charges also come under this category but penal charges do not.
Principal repayment tax benefit is reversed if you sell before 5 years
You score negative tax points if you sell a house within five years from the date of purchase, or, five years from the date of taking the home loan.
“As per rules, any deduction claimed under Section 80C in respect to principal repayment of housing loan, would get reversed and added to your annual taxable income in the year in which the property is sold and you will be taxed at current rate,” says Archit Gupta, CEO, ClearTax.in.
Thankfully , the loan amortisation tables are such that the repayment schedule is interest heavy and the tax-reversal rule only apply to Section 80C.
Loans from relatives and friends is eligible for tax deduction
You can claim a deduction under Section 24 for interest repayment on loans taken from from anyone provided the purpose of the loan is purchase or construction of a property.
You can also claim deduction for money borrowed from individuals for reconstruction and repairs of property .
It does not have to be from a bank. “For tax purposes, the loan is not relevant, the usage is.
” The taxpayer should be able to satisfy the assessing officer how the loan has been utilised for constructing or purchasing a house property and completion of construction was within five years and other conditions are met,” says Gupta.
“The interest charged should be reasonable and a legal certificate of interest should be provided by the lender along with name, address and PAN,” says Gupta.
This rule, however, is only applicable for interest repayment.You will lose all tax benefits for principal repayment if you do not borrow from a scheduled bank or employer. The additional benefit of Rs 50,000 under Section 80EE is also not available.
You may not be eligible for tax break even if you are just a co-borrower
You cannot claim a tax break on a home loan even if you may be the one who is paying the EMI. For one, if your parents own a property for which you are paying the EMIs, you can’t claim breaks unless you co-own the property.
“You have to be both an owner and a borrower to claim benefits. If either of the titles are missing you are not eligible,” says Gupta. Even if you own a property with your spouse, you can’t claim deductions if your name’s not on the loan book as a co-borrower.
You can claim pre-construction period interest for up to 5 years
You know you can start claiming your home loan benefits once the construction is complete and you receive possession.
So, what happens to the installments you made during the construction or before you got the keys to the house? As per rules, you cannot claim principal repayment but interest paid during the period can be accrued and claimed post-possession.
‘The law provides a deferred deduction on the interest payable during pre-construction period. The deduction on such interest is available equally over a period of 5 years starting from the year of possession’, says Vaibhav Sankla, director, H&R Block.
PTI | Aug 2, 2016 07:29 IST | FirstPost.com
To attract the beneficiaries of 7th Pay Commission, SBI has launched cheaper home loan schemes for defence and other government employees with installment tenure extending up to 75 years of age. It will offer two new home loan products ‘SBI Privilege Home Loan’ for government employees and ‘SBI Shaurya Home Loan’ for defence personnel without any processing fee.
“Under the new schemes, employees of central/state governments, defense forces, public sector banks, public sector enterprises of central government and other individuals with pensionable service will be offered home loans tailored to their specific needs,” State Bank of India (SBI) said in a statement. The bank said the tailor-made products will help customers purchase a spacious or luxurious home without stretching their post-retirement finances.
The new product includes extending the repayment term till the borrower turns 75 years from the existing 70 years, and also a full waiver of processing fees, it said. There will be a lower EMI burden post-retirement and 0.05 per cent concession over the home loan interest. “Benefit of lower interest rate as a concession of 5 bps (0.05 per cent) over the home loan card interest rate is available wherever check-off facility is extended by the government under tie-up arrangement with the bank,” SBI said.
Among others, customers of other banks or financial institutions will have an option to switch over their home loan outstanding balance to SBI. “The launch of ‘SBI Privilege Home Loan’ and ‘SBI Shaurya Home Loan’ products is timed with the notification of 7th Pay Commission recommendations. Surplus income can thus be utilised by government employees and defense personnel towards purchase of new/better house,” SBI said.
Source : http://goo.gl/auJujF
Lower interest rate should not be the only criteria for initiating the transfer of your home loan.
By: Naveen Kukreja | Published: June 14, 2016 2:01 PM | Financial Express
Sachin had taken a fixed rate home loan of Rs 40 lakhs in December 2013, with 20-year tenure at 10.5 per cent p.a. Although the bank has progressively reduced its home loan rates since, he has not benefited from it as he had opted for fixed interest rate. His requests for converting the loan to floating-rate were declined by his lender. Finally, he decided to transfer his home loan to a new lender, at lower rate of interest.
Falling interest rate has been prompting many borrowers to opt for home loan balance transfer, like Sachin. However, lower interest rate should not be the only criteria for initiating the transfer of your home loan. There are other scenarios that work in favour of home loan balance transfer. Let’s look at what home loan balance transfer entails:
When to opt for home loan transfer
Lower interest payouts: Reduced interest payout due to lower interest rates is the primary driver behind the decision. However, remember that the earlier you transfer your loan, the more will be your savings. Opt for home loan transfer if the savings generated is large enough to leave you with sizeable amounts for further investment apart from covering the cost of transferring the loan.
Poor service from existing lender: Poor service from your existing lender can also be a valid reason for you to transfer your home loan. Opt for it if your existing lender does not extend special offers or privileges (even after consistently repaying your outstanding balance) or refuses to bring the interest rates at par with the ones offered to new lenders.
Non-approval of top-up loans: Consider switching your loan if your existing lender does not allow you to avail top-up loan. Banks and NBFCs may offer such loans to existing borrowers in case they need funds over and above the existing home loan amount. These are quite similar to personal loans in the sense that lenders don’t monitor the final use of loan proceeds and hence, you may use it for home renovation, buying consumer durable or even for meeting emergency expenses. The interest rates on top-up loans are usually lower than the ones charged on personal loans.
Renegotiation of terms and condition: As transferring your home loan is similar to availing a fresh loan, you can negotiate with the new lender for changing some terms and conditions. You can opt for increasing your loan tenure to reduce your EMI or for decreasing it if you are comfortable with paying higher EMIs. However, remember that increasing your loan tenure will increase your interest payout.
Freeing up collaterals: As you must have already paid a substantial amount of your existing home loan, your collateral for the new lender should be based on the outstanding amount. This will allow you to free up some of the collaterals. You can then use the freed up collaterals take new loans for your business or other uses.
When not to opt for home loan transfer
If fees and charges are high: As the new lender will treat your home loan balance transfer as a new loan application, the new lender will charge various fees and charges, such as processing fees, conversion fee and administrative charges. Calculate these charges and compare them with the amount saved on reduced interest payout. If the savings is not substantial, continue with your existing lender.
If existing loan is in its last leg: Transferring your loan at the end of its tenure will not make much sense as the reduction in interest payout will be balanced out by the efforts and costs incurred while transferring the home loan.
Opt for home loan balance transfer only if the benefits outstrip the costs and efforts involved by a significant margin. Have a frank conversation with your current lender about your intention to transfer the loan. If your current lender agrees to reduce the rates and the resultant savings is more or less equal to the savings from loan transfer, consider continuing with your current lender.
The author is CEO & Co-founder, Paisabazaar.com
Source : http://goo.gl/7Hw9ql
Sukanya Kumar – Director, RetailLending.com | Jun 13, 2016 | on LinkedIn
Nityanand Bajaj is a successful businessman and well-known in his business circle of dealing in exotic fruits. His counter-sales is upwards of 50,000/- per day, plus his fruits go to retails shops in Mumbai and Pune. He is planing to expand his business into exporting, and this trading business is reaping him benefit since the last 20 odd years.
All seems good, right? Not for a home loan lender, but. Bajaj does not show his cash sales completely in books and files a nominal income tax return file.
Category: No or low income documents.
Prahlad Tanti is buying a property in outskirts of Mumbai where most developers are making only holiday homes, as it is too far from the main city to travel daily. Prahlad will have his parents staying there as they desire a home of their own, and Prahlad can’t afford one within the main city-limits. Lenders were not comfortable lending even when he had the loan eligibility.
Category: Beyond approved geographical limit
Asokan V. has been brought up in a joint family in Chennai. When his grandfather expired, his five children, 4 sons and 1 daughter decided to sell the ancestral house in village, as no one was going to stay there. With the sum received, they had also decided to buy a new home in the city for renting it out and share the rental income equally. So far, so good. Sounds like a real fairytale. When they had shortage of fund and approached lenders, they all rejected as there were ‘too many owners’.
Category: Too many co-borrowers
Rajat Acharya was buying a huge penthouse from a highly reputed developer in Delhi. The price of the South Delhi property is close to about 24 crores and he needed 15 crores in loan. This was as per the advise from his CA, and not that he couldn’t afford it. Most bankers denied giving him the loan and the couple who agreed to, wanted additional securities.
Category: Loan amount too high
Shalini Bhagwat works in Delhi and she wanted to gift a small house in Allahabad to his parents who are currently staying in Nagpur. Why Allahabad? Because her mother was originally from that city and has her childhood memories attached to that house. Shalini incidentally found that same house to be on sale and could not keep her excitement of buying that for her mom. Lenders, however, do not share the same spirit.
Category: Property located in a city where the borrower is neither employed nor stayed ever.
Wondering what is this story about? Nityanand, Prahlad, Asokan, Rajat and Shalini fall in the same category. A risk-based profiling by the lender. Their rate of interest will have to be higher than other general applicants, processing fee will swell up and there will be more scrutiny while proceeding for sanction. If you find yourself in any of the above categories, I would suggest that you seek service from an experienced mortgage broker who will do the research for you, basis their experience and contacts and let you apply with the solo lender who will surely approve your loan. Getting your loan application rejected is definitely not a good experience.
Risk-based lending is a product of all lenders, depending on the risk appetite of a particular lender but it is crucial for you to know before you apply. Applying in multiple banks/NBFC-s will not only make you feel dejected, will also lower down your credit score.
But does this mean unlimited expenditure in the name of rate, fees etc.? Not any more. RBI has recently made a policy that all lenders will have to submit a range for a particular category, wherein they will have to lend with that span. For example, if for self-employed businessmen the range is 9.50-9.90%, then under no circumstance, for sake of #RiskBasedFunding, can be given a rate higher than 9.90%.
Priya Nair | Mumbai Feb 01, 2016 10:40 PM IST | Business Standard
Banks and housing finance companies often have campaigns where they waive processing fees in a bid to increase their home loan portfolios. Currently, banks like State Bank of India, Bank of India, Union Bank of India and Dena Bank have waived processing fees on home loans till March 31. But, it need not always be cheaper than a loan where you have to pay processing fees, points out Gaurav Gupta, of Myloancare.in.
“Sometimes charges such as technical fees, legal fees, valuation fees all put together can add up to more than processing fees. And if processing fees have been waived, you may still have to pay other fees. As against this another lender that charges processing fees, but not other fees, may be cheaper,’’ he says.
Legal fees or advocate fees are charged for property search and the title investigation report. Valuation fees are charged for valuation report. In many cases, these are not refundable because the lender has incurred charges for providing these services.
Some lenders charge a separate login fee that may be non-refundable. While some others may deduct it from the processing fee. In some cases the lender may take the cheque upfront but does not encash it unless the loan is approved.
“Many customers are wary of paying processing fees upfront, in case the loan application gets rejected. It may happen if the particular project is not approved by the lender. It could also happen in case of resale property, where the bank gets a negative report about the property. In such cases, the customer may have to forego the processing fees,’’ Gupta points out.
Processing fees are usually charged as a percentage of the loan amount, usually 0.5-1 per cent, or a minimum fixed amount, whichever is higher. So, if you are availing a loan of Rs 50 lakh, the processing fees will be in the range of Rs 25,000-50,000. In some cases, lenders offer a capping on processing fees for salaried borrowers and this may vary based on the city.
“These are not usually disclosed on lenders’ websites and customers get to know of them only when they approach the lender for the loan,’’ says Gupta.
Login fees can be as high as Rs 4,000-10,000, but may be adjusted against the processing fee if loan is approved.
Adhil Shetty, chief executive officer (CEO), Bankbazaar.com says customers are willing to pay higher interest rates if they get a waiver on processing fees. “If customers are not sure whether their loan will be approved, they feel it is better not to pay the processing fees upfront,’’ he says.
Other factors to consider is the turnaround time for the loan to get sanctioned or if the lender is willing to offer a higher loan amount or a longer loan tenure. “If, for instance, there is cut-off date for making the payment to the builder, but the lender is slow with disbursal, then you will lose the chance to buy the property. In such cases a lender that offers faster service may help more than one that waives off processing fees,’’ Shetty says.
Source : http://goo.gl/3HgEaQ
SUKANYA KUMAR Founder & Director, RetailLending.com | Nov 04, 2015, 05.20 PM | Source: Moneycontrol.com
Home loans attract interest. However, there are many other fees a borrower has to pay. Here is a curtain raiser.
“Apart from the interest rate burden on home loan, what all are the other fees that I will need to pay?” The common query almost all borrowers will ask. Here’s a list to make sure you do not get a ‘surprise’ later.
Application fee: Banks take a minimal fee to cover their preliminary expenses towards home, office verification etc. This can range between Rs 1000/- to Rs 5000/- depending upon the lender.
Processing fee: This is a fee charged by the lender to service the cost of the credit appraisal. This fee can be ranging from Rs 10,000/- upto as high as 1% of the loan amount depending upon (i) Profile of the borrower, (ii) Product that you choose, (iii) Income sufficiency in available documents, (iv) Profession of the borrower, etc.
Administrative fee: This fee is not applicable for many. However, sometimes this fee could be higher than the processing fee. Some lenders split the processing fee into two parts. The one taken post sanction of the loan is called admin fee.
Legal fee: Most lenders engage external law-firms to scrutinise the legal documents of the borrowers. Generally lenders absorb this cost in the processing fee itself. But some PSU lenders take the fee separately from the borrowers.
Technical evaluation fee: For properties which are of high value (depends on lender to lender as to which value they consider as high), there are two valuations done for higher caution. The lower of the two valuations is considered for the lending. Fees if not absorbed by the lender, is collected from the borrower by some PSU lenders.
Franking fee on the sale agreement: In some states of India, there is a stamp duty payable on the property agreement with the builder or seller. This used to be a flat fee of Rs 200/- earlier but now been revised to 0.1% of the property cost subject to a maximum of Rs 20,000/-. The good news is, in those states which follow this, allow adjusting the amounts with the final property registration deed upon submission of the agreement in which the fee was paid to the Sub-registrar’s office.
Franking Fee on the loan agreement: Some states in India do not have it at all, some have 0.1%-0.2% of the loan amount being payable. For example, if you are taking a 1.50 crores loan, then the stamp charges payable is Rs 30,000/- in Maharashtra & Karnataka.
Intimation of registration: Intimation to the sub-registrar’s office is a new introduction of process in Maharashtra. Generally, this is not done by any other state as of now. Though the cost is very low, only Rs 1300/-, but to visit the SRO and doing it is tedious.
Notary: If you are an NRI, then all your KYC and the POA (power of attorney) you are executing, depending on the bank’s requirement, needs to be notarised by the Indian Embassy or a local Notary available abroad.
Adjudication: If you are the POA-holder of an NRI, then the notarised POA needs to be adjudicated here in India before submission to the lender for starting to process the Home Loan application.
Indemnity: This is the way you safe-keep the interest of the lender. the documents reads that if there is any issue because of unavailability of the said document, the sole responsibility is on the borrower and that the borrower indemnifies that the cost of such risk will be completely borne by the borrower and not the lender. There could be indemnification required for many aspects in your borrowing. For example, if the builder is yet to receive some minor approval from authority or the property tax is yet to be paid completely by the seller or the ‘Khata’ (in Karnataka) is not yet transferred in the seller’s name though the deed is registered in his name or the OC (occupancy certificate) is yet to be received by the builder, then the borrower needs to indemnify the lender. There is stamp fee of a few hundred rupees (depending upon the State) and a notarisation may also be required.
Mandatory fire insurance: Most lenders who are having a wing of bankassurance insist on this. There is a debate whether this can be forced on a borrower, but we are not here to judge that. This is just a list of expenses a borrower might incur.
Documentation fee: For getting the loan agreement signed, getting the ECS mandate activated or a few other formalities, few lenders still do charge this fee. This is generally nominal, say Rs 500/- to Rs 2000/- approximately. Note: All fees attract a service tax amount of additional 14% levied on the fee amount.
Source : http://goo.gl/T5trZq