BUILDING BLOCKS FOR YOUR HOME
India is a vast country, having a population of more than 1000 million. Many are without shelter of their own. After independence, the successive governments have addressed this problem with various government-sponsored programmers. They targeted the poorest of poor and houses with barest facilities were provided.
The problem was too gargantuan to be met by the government alone. The government of India established National Housing Bank, under the supervision of Reserve Bank of India. Scheduled Commercial Banks, Co-operative Banks, were also directed to lend for purchase/construction of houses. In the beginning 1.5% of incremental deposits of commercial banks were earmarked for housing finance sector during the year 1988, which was enhanced to 3% during the year 1999 and subsequent years. The banks were given freedom to exceed this stipulation depending upon their resources. The slow down of economy, slump in the demand for loans from corporate sector goaded banks to aggressively market housing loans. In course of time, banks have overtaken the housing finance companies in the market. The easy availability of finance, the tax benefits extended by the Union Government and increased earning/spending capacity of middle class, mostly wage earners, have fueled the growth of this important sector.
Change of Mindset
Owning a house, previously was the last priority, mostly at the time of retirement from out of the terminal benefits savings as one could rarely find the means of finance for the purchase/construction of house. This mindset is changed. Youngsters in early twenties are earning substantial salaries with increased spending capacity. They prefer to own houses out of borrowed funds which is repayable over a period of time. This helps them to avail of lower interest rates and also tax benefits for longer period.
Eligibility
The repaying capacity is the single determining factor. There must be regular monthly income with enough surplus to meet the monthly repayments. The maximum age limit is 55 years which may be extended to 60 years in deserving special cases. If the applicant is more than 50 years, any of the legal heirs may have to join as co-borrowers. Salaried person should have a confirmed job with at least minimum five years of balance service. Professionals like Advocates, Doctors, Engineers, Chartered Accountants, Company Secretaries etc, should have established income of at least three years. Retired persons / pensioners are generally not entertained to avail the Housing Finance. Further rental income can be added for eligibility for higher loan.
Legal Scrutiny Report and Valuation
It is very important to have legally established ownership of the property to avail of the Housing Finance. The applicant should have all the documents to establish his title to the property. He should verify the documents available with him/or with the seller and perfect the title to the property. Financing Institutions will rely on the legal scrutiny report of their advocates on panel. In view of the severe competition in the field, many institutions are ignoring the importance of the legal scrutiny and title to the property and are giving much importance to the repayment capacity
Apart from perfect title to the property, valuation of the property is also very important based on which the loan component will be determined. Banks have approved valuers on their panel who will value the property and arrive at the market value.
Loan Amount
Many institutions have a maximum ceiling of one crore-per party. The loan depends upon the cost of construction, land purchase cost, stamp duty, registration charges, legal charges and also other additional expenses. The borrowers may have to bring in 10 to 15% of the cost as margin money. There are institutions which finance full cost without insisting on margin money. In addition to these parameters, the income of the applicant, repaying capacity of all the borrowers are considered.
Repayment Schedule
The loan is to be repaid in monthly instalments comprising of interest and principle called equated monthly instalments (EMI). The amount of repayment remains the same during the entire tenure of the loan.
In case of construction, the loan amount is disbursed in instalments depending upon the progress of construction. The regular repayment commences after the completion of construction or after expiry of certain stipulated time. Interest for intervening period from the date of loan to the commencement of equated monthly installment is called pre-EMI. This has to be paid quarterly or monthly.
Though repayments offered vary upto a maximum of 20 years, it is preferable to avail of the period of 10-15 years considering the interest rates, tax benefits and repayment capacity. The repayment period of 5 years attract heavy monthly instalments, which prove to be burdensome; in repayment beyond 15 years, one has to pay heavy interest. There are institutions, which offer repayment period beyond 20 years also.
Certain banks have special schemes under which any surplus amount available may be paid in excess of equated monthly instalment with facility to with draw such amount in case of necessity. The account operates like a current/over draft account. This would be useful for business people. Such schemes are called Home Loan Saving Schemes where by paying off the loan early substantial amount of interest is saved.
Recently, the repayment has become flexible to suit the borrowers. Step up payment is useful to young borrowers where EMI in the beginning is small which increases as the income of the borrower grows. Step down payment is useful for aged borrowers where EMI will be more during the beginning and goes on reducing as the income diminishes.
Interest
At present loans are available at 9 % interest. There are two different types of interest rates floating and fixed.
Floating Rate
Here the rates are not constant, but keep on changing. These are linked to the market conditions. They may increase or decrease. The lending institutions are very reluctant to pass on the benefits of reduced interest rates to borrowers. They adopt different strategy to keep the borrowers paying higher rates. In most of the case the old borrowers pay higher rate than a new borrower for a similar loan.
India is a vast country, having a population of more than 1000 million. Many are without shelter of their own. After independence, the successive governments have addressed this problem with various government-sponsored programmers. They targeted the poorest of poor and houses with barest facilities were provided.
The problem was too gargantuan to be met by the government alone. The government of India established National Housing Bank, under the supervision of Reserve Bank of India. Scheduled Commercial Banks, Co-operative Banks, were also directed to lend for purchase/construction of houses. In the beginning 1.5% of incremental deposits of commercial banks were earmarked for housing finance sector during the year 1988, which was enhanced to 3% during the year 1999 and subsequent years. The banks were given freedom to exceed this stipulation depending upon their resources. The slow down of economy, slump in the demand for loans from corporate sector goaded banks to aggressively market housing loans. In course of time, banks have overtaken the housing finance companies in the market. The easy availability of finance, the tax benefits extended by the Union Government and increased earning/spending capacity of middle class, mostly wage earners, have fueled the growth of this important sector.
Change of Mindset
Owning a house, previously was the last priority, mostly at the time of retirement from out of the terminal benefits savings as one could rarely find the means of finance for the purchase/construction of house. This mindset is changed. Youngsters in early twenties are earning substantial salaries with increased spending capacity. They prefer to own houses out of borrowed funds which is repayable over a period of time. This helps them to avail of lower interest rates and also tax benefits for longer period.
Eligibility
The repaying capacity is the single determining factor. There must be regular monthly income with enough surplus to meet the monthly repayments. The maximum age limit is 55 years which may be extended to 60 years in deserving special cases. If the applicant is more than 50 years, any of the legal heirs may have to join as co-borrowers. Salaried person should have a confirmed job with at least minimum five years of balance service. Professionals like Advocates, Doctors, Engineers, Chartered Accountants, Company Secretaries etc, should have established income of at least three years. Retired persons / pensioners are generally not entertained to avail the Housing Finance. Further rental income can be added for eligibility for higher loan.
Legal Scrutiny Report and Valuation
It is very important to have legally established ownership of the property to avail of the Housing Finance. The applicant should have all the documents to establish his title to the property. He should verify the documents available with him/or with the seller and perfect the title to the property. Financing Institutions will rely on the legal scrutiny report of their advocates on panel. In view of the severe competition in the field, many institutions are ignoring the importance of the legal scrutiny and title to the property and are giving much importance to the repayment capacity
Apart from perfect title to the property, valuation of the property is also very important based on which the loan component will be determined. Banks have approved valuers on their panel who will value the property and arrive at the market value.
Loan Amount
Many institutions have a maximum ceiling of one crore-per party. The loan depends upon the cost of construction, land purchase cost, stamp duty, registration charges, legal charges and also other additional expenses. The borrowers may have to bring in 10 to 15% of the cost as margin money. There are institutions which finance full cost without insisting on margin money. In addition to these parameters, the income of the applicant, repaying capacity of all the borrowers are considered.
Repayment Schedule
The loan is to be repaid in monthly instalments comprising of interest and principle called equated monthly instalments (EMI). The amount of repayment remains the same during the entire tenure of the loan.
In case of construction, the loan amount is disbursed in instalments depending upon the progress of construction. The regular repayment commences after the completion of construction or after expiry of certain stipulated time. Interest for intervening period from the date of loan to the commencement of equated monthly installment is called pre-EMI. This has to be paid quarterly or monthly.
Though repayments offered vary upto a maximum of 20 years, it is preferable to avail of the period of 10-15 years considering the interest rates, tax benefits and repayment capacity. The repayment period of 5 years attract heavy monthly instalments, which prove to be burdensome; in repayment beyond 15 years, one has to pay heavy interest. There are institutions, which offer repayment period beyond 20 years also.
Certain banks have special schemes under which any surplus amount available may be paid in excess of equated monthly instalment with facility to with draw such amount in case of necessity. The account operates like a current/over draft account. This would be useful for business people. Such schemes are called Home Loan Saving Schemes where by paying off the loan early substantial amount of interest is saved.
Recently, the repayment has become flexible to suit the borrowers. Step up payment is useful to young borrowers where EMI in the beginning is small which increases as the income of the borrower grows. Step down payment is useful for aged borrowers where EMI will be more during the beginning and goes on reducing as the income diminishes.
Interest
At present loans are available at 9 % interest. There are two different types of interest rates floating and fixed.
Floating Rate
Here the rates are not constant, but keep on changing. These are linked to the market conditions. They may increase or decrease. The lending institutions are very reluctant to pass on the benefits of reduced interest rates to borrowers. They adopt different strategy to keep the borrowers paying higher rates. In most of the case the old borrowers pay higher rate than a new borrower for a similar loan.
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