PTI | Published Date: Jan 02, 2018 07:52 am | FirstPost.com
Mumbai: In a major boost to homebuyers, the country’s largest lender State Bank of India has extended the processing fee waiver till March-end and also reduced the base rate by a sharp 30 basis points to 8.65 percent.
The reduction in base rate, effective from Monday, is going to bring relief for nearly 80 lakh customers of the bank whose loans are still linked to the base rate and not the marginal cost of funds-based lending rates (MCLR).
Flushed with excess liquidity, SBI had announced processing fee waiver for auto and home loans late August. In fact, since last fiscal, and especially after the November 2016 note-ban, all the banks have been saddled with excess liquidity amidst continuing degrowth in industrial credit.
For the first time in over two years, credit uptake by corporates entered the positive terrain but with a paltry 1 percent growth in November this year. “We’ve decided to extend the ongoing waiver on home loan processing fees till March 31, 2018 for new customers and others looking to switch their existing loans to us,” SBI said in a statement on Monday.
Managing director for retail and digital banking P K Gupta said that with stability returning to the realty space after the implementation of the Real Estate Act (Rera), he sees lots of demand for home loans going ahead. “With most states having the realty regulator Rera now, stability has returned to the market in terms of project approvals. The teething troubles of the initial Rera months are behind the market. So, we foresee lots of demand for home loans. So, we think this is the right time to continue with that waiver to enable people for buy homes,” Gupta said in a concall.
The bank revised down the base rate to 8.65 percent for existing customers from 8.95 percent, while the BPLR (benchmark prime lending rate) is down from 13.70 percent to 13.40 percent.
The bank, however, did not change the marginal cost of funds-based lending rate (MCLR). The one-year MCLR of the bank stands at 7.95 percent.
“We had done the rate review in the last week of December, and based on whatever deposits rates we had, our base rate was brought down by 30 basis points to 8.65 percent now,” Gupta said.
The move is going to give nearly 80 lakh customers of SBI who were on the old lending rate regimes and have not moved to MCLR. Banks review MCLR on a monthly basis, while the base rate revision happens once a quarter.
“The MCLR was reduced earlier also as the gap between MCLR and base rate had become quite wide. This reduction will help in reducing that gap,” he said.
Due to weak transmission of policy rate by banks under the base rate system, the Reserve Bank had introduced the MCLR from 1 April, 2016.
With the banks not fully passing on the rate cuts that the central bank has done in the past two years, the regulator is not happy even with the base rate regime and has mooted an external benchmark to better reflect market realities and speedier transmission.
Gupta said the current revision of base rate will ensure transmission of the policy rate cuts in the recent past.
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
Top up loans have costs such as processing fee and in takeover cases foreclosure charges of previous home loan. Top up loan need not necessarily offer tax sops.
Adhil Shetty, Bankbazaar.com | Source : MoneyControl.com
Ravi, an IT professional received a call from a bank offering a home loan. When Ravi told that he already had a home loan with a different bank, the caller suggested a loan transfer to their bank, with an offer of an additional Rs 10 lakh as top up loan.
The offer seemed lucrative for Ravi who was eyeing a new sedan and was looking to fund his buy. His existing bank had offered him a car loan at an interest rate of 11.5%. Hoping to save on his interest outgo, he had approached his existing bank for a top up loan to fund his car buy, only to be offered a top up loan of Rs 5 lakh at 10.5%.
The top up loan offer from the new bank sounded attractive for Ravi, as they not only offered to takeover his existing loan at 10.25% but also offered a higher top of loan of 10 lakhs, which would be sufficient for his car purchase.
All in all, Ravi’s problems appeared to be solved. But, is it really? Let’s take a closer look.
Understanding ‘Top-up’ loans
Top up loans are offered only to existing home loan borrowers with a good repayment track record. Top up loans work on the basic principle that since you have started reducing your outstanding loan amount by repaying it, a margin money by way of a top up can be added to your loan account. The amount taken as top up loan can be used for any purpose like wedding expenses, medical expenses, car purchase, or any other.
If you are transferring your existing home loan to a new bank, they will also offer you a top up loan, provided you have a good track record with the other bank.
Now let’s run the numbers in Ravi’s case.
The math in Ravi’s case
In Ravi’s case, his existing home loan was at a fixed interest rate of 10.5%. The new bank offered him a takeover, plus a top up loan of Rs 10 lakh at 10.25%. Ravi who was in need of money didn’t think twice on hearing the offer. But, let’s do the math.
Ravi’s current principal outstanding was Rs 38 lakhs. As it was a fixed rate loan, he had to pay 2% of the outstanding as pre-closure fee, which comes to around Rs.76,000. Now, the new bank charged Ravi a processing fee of 1%, i.e., around Rs.48,000. So altogether, he paid around Rs.1.24 lakhs for the transfer.
What Ravi did not realize was that the difference in the interest rate was only marginal, i.e., 0.25%. So, the additional expense he incurred during the switching process in fact exceeded the amount he saved on interest outgo, which was around Rs. 1 lakh.
Here are few things you should know before taking up a top up loan.
A lucrative top up loan offer may lead to a bad loan take over: A top up loan offer along with a takeover may sound lucrative, but weigh the deal after calculating the possible charges associated with it.
No tax advantage: You will get a tax advantage for a top up loan only if you use the loan amount exclusively for repair, renovation and construction activity of the home. Otherwise top up loans are loans with no tax sops, unlike a home loan.
Charges for the loan: Banks charge a processing fee to facilitate top up loans. For customers who are shifting their home loans from a different bank, the processing fee is applicable for the takeover as well as the top up amount. Also, most top up loans are offered at 0.5-1.0% higher interest rates than a usual home loan.
No say in property price appreciation: Most banks offer top up loans in accordance with the amount of money which is reduced by the outstanding amount of the home loan through repayment. Even if the property price witnesses an increase in price index, the quantum of top up loan may not be increased by the bank. Many customers who wait for top up loans realize this at a later stage.
Banks have the final call: While top up loans may have their benefits and are even considered superior to personal loans, banks are the final authority in approving or rejecting any top up loan plan. Even if you receive a deal from the tele-sales person, the final call on approving your loan lies with the credit department.
The Bottom Line: Even if you may not need a loan, the prospect of an easily approved loan where the funds can be used in any way is far too alluring for many borrowers. So, if you think the persuasive telesales representative who is asking you to consider a loan takeover by offering you a top up loan is doing you a favor, ask the right questions, analyze the deal end to end, and then take a final decision.
India Infoline News Service | Mumbai | June 10, 2015 11:00 IST
Find out a competitive rate and focus on the other aspects of the loan. Cheapest is not the best deal. I keep repeating it in my various comments. Look beyond it.
There are as many as 50+ lenders in India who will be willing to give you a Home Loan. But whom should you choose? Pretty easy, if you follow the simple path & do not get distracted by what your colleagues say or go by your friends’ experiences. Also remember that a credit card service with the same lender could be way different than their mortgage. So, do not tread the easy way of taking it from whosoever arrives first.
Here are the 10 most important things you should ask to know whether it is your match:
Do not chase the cheapest rate of interest. Find out a competitive rate and focus on the other aspects of the loan. Cheapest is not the best deal. I keep repeating it in my various comments. Look beyond it.
Choose a floating rate of interest over Fixed, even if fixed has an attractive rate offer. There will be twists in fixed products. Many of you miss to note that there’s a foreclosure penalty applicable within the fixed term. And moreover the margin changes after the fixed period is over, if the offer rate was for teaser period.
Make sure you opt for a lender who offers daily reducing balance and not monthly. It will not make any difference unless you plan a partial repayment. In a monthly reducing balance plan, even if you partially close an amount in between two EMI dates, they consider the repayment only from the next EMI date, thus making you pay interest even on the repaid sum for those days! You will not know, but it will cost you heavy.
Do not get biased by your previous experience with another product, or what your friends & colleagues preach, or your relatives feel for. This is finance, a pure mathematical product. No emotions attached. Do your maths & decide. You experience with the lender’s credit card or your colleague’s irritation with a lender or your uncle’s comfort with certain type of lending institutes mean nothing to you. It’s your loan.
Read all online remarks, which you will anyways do. But 99% of them are otherwise motivated. You will find that those who are badmouthing a lender probably uses dummy ID-s like kingpin, lisahayden, bigboy, greatguns etc. funny ones. You can take their comments as seriously as their identity suggests.
Your wealth manager, bank relationship manager, chartered accountant, tax-planner and your finance controller or CFO in office are great. Take their help to get guided to the right mortgage broker. Since you trust them, their reference will matter. But, don’t let anyone else handle the transaction, negotiation with lenders etc. unless you find the right mortgage adviser. Mortgage is a specialised product. Ever heard a heart surgeon treating patients for skin rashes? Similarly, a mortgage broker selling mutual fund and insurance will be as good as a real estate broker selling tour-tickets and running an STD shop with photocopy machine! Chose the best in industry.
Try opting for a new-age product which saves you money. Standard vanilla home loan are cliche’ and won’t work for most of my clients who has surplus funds and taking the loan for tax-savings or waiting another property to be sold and pay off the loan. These days, borrowers have various requirement rather than just borrowing for the need of money. Borrowers may not identify it, but a mortgage adviser must & counsel accordingly.
Look at the service perspective carefully; you are getting into a long-term relationship. Don’t jump on the first lender approaching you or the lowest rate of interest or may be, what your friend’s father suggests. You will need a lot of services like- tax certificates, provisional amortisation, list of documents, part closure services, reduction in the tenure/EMI upon partial repayment. There will definitely be requirement of change of address if you are gong to continue the loan for long term. You might shift city or even country. Do not compromise on the aspect of post-sales service.
Always ask for a comparison between at least 6 major lenders from your mortgage adviser. And, again….. do not decide on basis of the lowest rate. Look at the base rate, the margin offered, whether any other product is being pushed, how many times the lender has reduced rate in past two years, what is the maximum tenure offered, and how is the eligibility calculated and most importantly whether your property or similar has been funded by this lender earlier.
Time taken for processing the loan. This may sound unimportant, but my noting it last, doesn’t indicate that at all. When the builder start sending you delay-penalty notices or the seller withdraws from the deal or increases the sale value, trust me, this becomes the top priority on the chart. What will be the point of checking out so many lenders and settle for the one who can only offer, but can not execute?
If you can look beyond cheap interest-rate, you will see an ocean of options. There is a difference between ‘price’ and ‘value’. Identify the need first.
8 Jun, 2015, 08.00AM IST | Economic Times
Subir Mehta and his wife are both working. They have been living in a rented accommodation for the last eight years. They are now keen to purchase a house worth Rs 1 crore. They have built a kitty of Rs 30 lakh for the down-payment. They are now evaluating banks as well as housing finance companies for the loan.
Each lender has made an offer. The Mehtas have decided to go ahead with the lender offering the lowest interest rate. Should interest rate be the sole parameter on the basis of which a choice should be made? What if the lenders offer the same interest rate?
When lenders offer a loan, they take the risk on their books. Therefore, the onus of choosing well is on the lender. The borrowers can make their choice based on the product and service features. The core features of a loan are the tenor, fixed and floating components, and administrative and processing costs. The Mehtas must ensure that they review the terms and conditions of different lenders prior to narrowing down on any deal.
The amount of loan or the percentage of cost of the property that the lender may be willing to cover can vary. As borrowers, the Mehtas may be keen to minimise the monthly outgo in the form of EMIs.
The EMI varies, based on the amount of loan, tenor and interest rates. The Mehtas should see which combination works best for them and find out if any of these features can vary during the period of the loan. For example, any modification in the interest rate can modify the EMI or tenor. The interest rate might be the same across two lenders, but these specific features may be different.
Also, lenders typically use various criteria while ascertaining the loan eligibility. These primarily include the borrower’s monthly income and expenses, age, number of dependents and such.
While the Mehtas may like to maximise the amount of loan, they need to be sure that the administrative costs, and the EMI, are comfortable to bear.
The time period taken for sanctioning the loan, the paperwork involved, the legal and compliance issues, and the time for disbursal are all service issues that may vary across lenders. Therefore, the Mehtas may be better off making their choice after evaluating these aspects.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta
Harsh Roongta | Tuesday, 2 June 2015 – 6:55am IST | Agency: dna | From the print edition
In recent times the major issue faced by home loan consumers is the tendency of the lenders to keep their interest rates high even as they welcome new home loan consumers with much lower interest rates.
In the last decade when experts addressed home loan consumers they asked them to avoid lenders who took EMIs on a monthly basis but calculated interest on annual basis. Competition soon put a stop to this consumer unfriendly practice. In recent times the major issue faced by home loan consumers is the tendency of the lenders to keep their interest rates high even as they welcome new home loan consumers with much lower interest rates. Ironically, they may not have to envy the new home loan consumer too much as he could be paying much higher than he bargained for.
In a shocking incident a home loan consumer bought to my notice a pernicious practice of charging steep processing fees hidden away in the first EMI. This consumers’ real life example is given in the box below. The consumer was being charged interest for the full month in the first EMI even though only 16 days had passed between the disbursement date and the first EMI payment date. He was paying an additional amount (0.41 % of the loan amount in his case) over and above the contracted interest amount. This was also contrary to the loan agreement entered into between the lender and the consumer. This particular consumer did not ignore it. He spoke to a few of his other friends who had borrowed from the same bank and realised that the bank was overcharging interest on a systematic basis rather than just in his isolated case. In fact, the overcharging was much more in other cases because home loan disbursement are bunched around the month end and the EMIs tend to be payable in the first 10 days of the month and hence the overcharging is much higher than the 14 days of interest as in his case. He has not received any response from the bank officials to his written complaints.
Many senior officials of the bank visited him and verbally offered to make good the overcharged amount to him but he wanted the facts to be put in writing to him so that he could take up the matter on a systemic basis rather than for his isolated case. The bank officials were unwilling to offer anything in writing. He also wrote to RBI but did not receive any response. This practice is not in accordance with the lenders own loan agreement with the borrowers and is a clear case of overcharging. Since this bank lends more than Rs 20,000 crore of home loans every year the additional amount charged can be as high as Rs 100 crore per annum if 0.50% overcharge is assumed on an average. The impact of this kind of overcharging on car loans and unsecured personal loans and all other EMI loan products disbursed by the bank could also be similarly high.
Only a detailed investigation can conclude if this consumers’ case (and those of his couple of friends whom he has spoken to) is a one-off case or is a system-wide problem within that bank. It clearly does not seem to be an industry wide practice from my preliminary chats with the major players in the industry. To their credit, major public sector banks have always touted their daily rests basis of interest calculation. And thus by definition do not follow this kind of practice.
RBI’s grievance redressal mechanisms do not help since by design they only help solve a specific consumer’s grievance and these systems do not look at systemic issues such as the one highlighted above. Meanwhile, this consumer is not taking this lying down and has now filed a public interest litigation in the Bombay High Court against the RBI for permitting this practice to continue.
I am not sure if the courts will entertain this petition but I earnestly hope that the issue will gain enough traction so that the top management of the concerned bank or the regulator is forced to take notice and take remedial steps. As consumers you should take care to double check the interest and principal breakup of your first EMI to ensure that you are not paying more than what you bargained for.
The writer is director, ApnaPaisa.com
His home loan of Rs 1.55 crore was disbursed on April 24, 2014. As per the agreement the EMI date was fixed as the 10th of every month and @ 10.50% p.a. the EMI for 180 months was Rs 1,71,337. Logically he should have paid only the interest amount for the first 16 days (from April 24, 2014 to May 10, 2014) amounting to Rs 71,342 (being Rs 1,55,00,000 * 10.50%/365 * 16 days) and then the regular EMI payments of Rs 1,71,337 should have begun on June 10, 2014. Instead to his shock and surprise the entire EMI of Rs 1,71,337 was debited on May 10, 2014 and furthermore when he checked his statement of account he realised that the interest has been charged for an entire month i.e. Rs 1,35,625/- (being Rs. 1,55,00,000 *10.50%/12) and only the balance amount of Rs 35,712 (being EMI of Rs. 1,71,337/- minus interest of Rs 1,35,625/-) was adjusted against the principal loan outstanding. This effectively meant he had paid extra interest of Rs 64,283/- or 0.41% of the loan amount).
By Sangita Mehta, ET Bureau | 13 May, 2015, 10.48AM IST | Economic Times
A bank’s facilities typically come loaded. For the unsuspecting customer, it could just be a question of filling out a fixed deposit form or being granted a home loan. But there are some entrapments the bank will slip in that you need to be aware of, says Sangita Mehta.
HOME LOAN: Double Trouble
Watch out: When you apply for a home loan, the bank will sell you property insurance — which covers damage to property — and mortgage protection term insurance, which covers the loan in the event of the borrower’s death
What you should know: The housing society may already have property insurance. You don’t have to opt for an insurer the bank has a tie-up with. Ensure the premium is not clubbed with the loan, in which case, you will have to pay interest
CREDIT CARD: Take it or Leave it
Watch out: Banks often sell credit cards with the promise that for the first year, they will not charge any fee and the customer can discontinue it from the second year. However, at the end of the second year, the card company sends an innocuous mail stating they will renew the card for a fee unless the customer explicitly rejects it.
What you should know: The Reserve Bank of India has banned banks from giving such negative options. Customers should ideally use the credit card of a bank they do not have a savings bank with. In case of a dispute, banks often debit money from the borrower’s account
DEPOSITS: Auto Route
Watch out: When you’re opening a fixed deposit, watch out for ‘auto renewal’ in the fine print
What you should know: If you do not opt for auto renewal, the money is transferred to the savings account after maturity, where the bank offers about 4% interest as against 7-9% on FDs. You may forget to renew the deposit and the bank won’t remind you. When you tick that ‘auto renewal’ box, the bank cannot charge you a penalty on premature withdrawal of the deposit
ATM, CYBER FRAUD: Cry ‘Thief’
Watch out: If you find a fraudulent transaction in your account, immediately notify the bank
What you should know: If you are the unfortunate victim of an ATM or e-transaction fraud, watch out: the bank is liable to prove its innocence. If the bank is not notified, the maximum loss to you is `10,000 Postnotifi cation, the customer is not liable to bear any cost
LOCKER FACILITY: Keep your Freedom
Watch out: Banks put a price tag on a ‘scarce’ commodity like the bank locker
What you should know: Your bank may ask you to invest in fi xed deposits or mutual funds or even third party insurance, with the bank locker, even though they are not allowed to to do so by the RBI. You anyway need to pay an annual rental
PERSONAL LOANS: Don’t Rush to Pre-pay
Watch out: Banks have stiff conditions on prepayment of personal loans
What you should know: The RBI has mandated banks to not charge a penalty for pre-payment of a home loan if the interest is on a floating rate. But the rule does not apply for other personal loans. Some banks charge as much as 5-10% on pre-payment of loans. Some banks don’t even permit you to repay the loan for the fi rst six months or one year
PROCESSING FEES: No Free Lunches
Watch out for: For every home loan, auto loan and personal loan, banks charge a processing fee, which can be steep
What you should know: This fee is mostly at the discretion of the bank and can be as high as 1 percentage point, which itself will infl ate your outgo. If any bank says they have a lower rate, ensure the processing fee is also low.
Source : http://goo.gl/r0S6eK