Loan for property (Courtesy: Economic Times, apnaloan & apnapaisa, Accommodation times, i-save & others)

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1 Loan for property (Courtesy: Economic Times, apnaloan & apnapaisa, Accommodation times, i-save & others) Frequently Asked Questions: Q. What are the steps involve in the process of loan & what fees it will attract? A. Grossly there are 2 steps viz; Sanction of loan. Disbursement of loan. The fees which has to be incurred are Processing fees Administrative fees Others vary from lender to lender and is as follow Interest Tax: is the tax payable on the interest paid on a home loan and not the principal. This tax is some times included in the interest rate of the loan, or may be charged separately as interest tax. Commitment Fees: Some banks levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned. Miscellaneous costs: It is somewhat possible that some banks may levy a documentation or consultant charges To attract customers, some banks/institutions waivers off processing/administrative fees. Q. What is the EMI? A. EMI or Equated Monthly Installments refers to the fixed sum of money that you will be paying to the bank every month. The EMI comprise of both interest and principal repayment. The amount of the EMI depends on the quantum of loan, interest rate applicable and the term of the loan. Q. How to make your home loan process hassle-free? A. Following things should be considered when applying for loan: Study the list of documents required by the lending institution thoroughly, as a failure to submit insufficient or all the documents in the prescribed format could lead to rejection of the application. If you do not fit into the bank/hfcs desired customer profile in terms of the minimum income level, you should put in a joint application, with your spouse as the co-borrower to meet the eligibility criterion. More ever, both borrowers are entitled to tax deductions on repayment of home loan principal (up to Rs1 lakh) and interest paid (up to Rs1.5 lakh) under section 80 C and sector 24, respectively. A copy of your credit report from CIBIL (Credit Information Bureau India Limited) prior to a submitting a loan request would help you get a clear picture about your credit history and its likely perception by the lending bank. It also provides you an opportunity to get your previous lender to rectify errors, if any, in the report. If you have multiple loans, extinguish personal & possibly other loans as it would affect your repayment capacity and thus chances of getting your home loan sanctioned. Buying property in a project developed by a builder with doubtful credentials could result in the bank denying the loan and/or lower the loan amount you are eligible for. Q. How is my Home Loan eligibility determined? A. Your Home Loan eligibility is determined by your repayment capacity, taking into consideration, factors such as your: Income Qualifications Age Spouse's income No. of dependants

2 Stability and continuity of occupation Assets/Liabilities. Savings history. The most important concern of banks in determining your loan eligibility is that whether or not you are contentedly able to pay off the amount you borrow. Q. What is the maximum amount I can borrow? A. The maximum amount that you can borrow depends on factors such as: The purpose of the loan. Whether it is for purchase of property or improvement or renovation. Or purchase of land for development etc. Besides, your residential status (whether resident Indian or Non-Resident Indian) will also be significant on the maximum quantum of loan that you can borrow. Typically Home Loans are provided for in the range of 75%-85% of the cost of the property, including cost of land, stamp duty and registration fees. Q. How long does it take to get my application processed and the loan sanctioned? A. It takes around two weeks for processing of one's application if all the necessary documents are in order and takes another week for the bank to inspect the property papers and make the disbursement. It would varies with bank, property and the borrower. Q. What are the documents required at the time of loan application? A. Please click menu: loan assistance & then follow the link given. Q. What are the documents needed at the time of disbursal of loan? A. After obtaining sanction of the loan, at the time of disbursal the applicant should have the registered agreement for sale document of the property with stamp duty and registration fees paid at the office of the Sub-registrar appointed by the State Government under the Indian Registration Act, Apart from that the society s NOC, Occupation Certificate, relevant municipal no due certificate or receipt of latest dues paid & all other utility dues paid should be attached. Every lender has their own requirements. Q. What security/collateral do I have to provide? A. Banks usually take some additional securities which are called collateral securities. Collateral could be in the form of guarantee from one or two persons, assignment of life insurance policies, the surrender value of which should be equal to the loan amount, deposit of shares, and units or other securities. These additional securities are taken just in case a loan is not paid back; recourse may be taken to such securities instead of depending upon the mortgage of the property which is the last resort. Q. Does the property have to be insured? A. Yes, and you will have to insure that the property for fire and other appropriate hazards, as required by the banks during the loan tenure. The banks will be the beneficiary of the insurance policy. You will also have to produce proof/evidence, whenever required by the banks. This is an added cost that will add to the final cost of purchase of the property. What are the types of home loans available? These are a range of Home Loans available: Home Purchase Loans: for the purchase of a new home. Home Improvement Loans: for implementing repair works/renovations in a home that you have already purchased. Home Construction Loans: for the construction of a new home. Home Extension Loans: for expanding/extending an existing home.

3 Land Purchase Loans: for purchase of land for home construction/investment purposes. Home Conversion Loans: for those who have financed the present home with a home loan and wishes to purchase/move to another home for which some extra finances are required. In Home Conversion Loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need for pre-payment of the previous loan. Balance Transfer Loans: helps you to pay-off an existing home loan and avail the option of a loan with a lower rate of interest. Bridge Loans: for people who wish to sell the existing home and purchase another. This loan helps you finance the new home, until you find a buyer for your old home. Refinance Loans: helps you pay off the debt you have incurred from private sources like relatives/friends, for the purchase of your present home. Stamp Duty Loans: is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property. Loans to NRIs: to build/buy a home in India. EMI is payable till the loan is paid back in full. It consists of a portion of the interest as well as the principal. Q. Can I take a Home Loan for construction in one city while working in another city? A. Yes, you can take loan for construction in one city while working in another. The banks usually service this loan after getting details of the plot legally verified. Q. What is margin requirement payment? A. The margin requirement payment is the margin amount of the deal which is paid by the applicant apart from the lender s contribution and varies from bank to bank like 15% to 30% depending up on the profile of the applicant, duration of loan period, type of property & other factors as decided by the bank. It is essential to have receipt of the margin payment done to the seller to disburse the loan. What is the range of interest rates offered? The home loan interest rate varies from banks to banks and normally ranges from 8.5% to 14% or as decided by the market players. How is the interest rates calculated on my loan? Most banks follow the yearly reducing-balance method, which accounts for your principal repayments only at the end of their financial year. As a result, you pay interest on the principal that you have already returned to the bank. The effective interest rate is therefore higher than the quoted interest rate by around 0.7%. Some banks may also follow the daily or monthly reducingbalance method, which results in a lower interest burden. What are the bases of interest rates calculation? The interest on Home Loans is usually calculated on Monthly Reducing or Yearly Reducing balance. In Monthly Reducing Balance, the principal on which you pay interest reduces every month as you pay your EMI. However in Yearly Reducing Balance, the principal is reduced at the end of the year, therefore you continue to pay interest on a certain part of the principal which you have actually paid back to the bank, which basically means the EMI for the Monthly Reducing system is effectively lesser than the Yearly Reducing system of calculating the interest. Hence always insists to know which type you have selected i.e; annual, monthly or daily reducing interest system. Q. What is fixed / floating rate loan? A. Fixed Rate Loan: The interest rate of loan obtained which is fixed for the entire duration of loan period whether it is applied on daily, weekly or monthly basis. It is independent of fluctuations of market regulators like RBI / All India Bank Association & only dependent on prime lending rate (PLR) of the respective bank. Floating Rate Loan: The interest rate of loan which fluctuates according to the fluctuations of market regulators like RBI / All India Bank Association & independent on prime lending rate (PLR) of the respective bank. It keeps varying from lender to lender.

4 Q. How to choose between Fixed vs. Flexible rate? A. The choice on this one is not really easy. Fixed interest rate products are usually 1-3% higher than floating interest rate products but bring a certain level of certainty to your financial planning since you are more or less certain of your monthly outgo. You may also want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which in any case will defeat any assumption of certainty that you may want to build into your financial planning. On the other hand, floating interest rate products, though cheaper, are linked to a base rate or benchmark rate and can go up or down with a change in the base rate. It would, therefore, make sense to go in for a fixed rate product only if you think the interest rates in the economy are bound to go up over the next few years. However, if the spread between the fixed and floating rates is fairly high, floating rate options continue to be better. For e.g. if the rate on fixed and floating rate products is 12.5% and 10% respectively, then as long as the increase in base rates is lower than 2.5%, floating rate products continue to be cheaper. Q. Do I get income tax benefits for Home loan? A. Yes, you are eligible for tax benefits on the principal and interest components of the loan under the Income Tax Act, However as the benefits could vary each year, do check out the current benefits available. Q. What are the repayment period options? A. The maximum period over which one can pay the loan varies for every bank, and is also different for every scheme. Also your residential status makes a difference. If you are a resident Indian, you could avail of a loan for duration of 5-25 years. Few banks offer a 25-year repayment period, generally at a higher interest rate. As a Non-Resident Indian, you can only avail of a loan for a maximum period of 7-10 years. Q. Can I repay my loan ahead of schedule? A. Yes, you can pay your loan ahead of schedule, if you want to. However, it must be noted that banks charge a fee for early redemption of loan. This fee can vary between 1-2% of the loan amount being pre-paid. Some banks especially nationalized banks do not charge any pre payment fees. Some banks do not charge after specific loan duration. Q. How to decide your lender / banker? A. Since you are borrowing money it is sensible to borrow from one who would lend you at lowest rate. Please look out for hidden costs like processing / administrative fees, prepayment fees, also in some cases disbursement fees. Please understand the type of interest; floating or fixed and also on daily, weekly, monthly or annual basis. Ask for break up of EMI (amortization) i.e; principal & interest parts and schedule of the entire loan period. If floating, ask whether it would change according to the market (insist on written document). After considering all the above & other relevant factors (reading fine print, hidden charges) you might decide on lender. Q. What are the criteria for acquiring the loan for commercial premises? A. It will depend upon lot of factors like nature of business, purpose of loan, tenure of loan, repaying capacity of the person/business, others. It is like taking business loan. Usually nationalised banks do not give for more than 5-10 years, but some private banks like ICICI Bank, others do give if their requirement is fulfilled. The requirements may vary from case to case. The interest rate is higher than normal home loan rates. Professionals like doctors, chartered accountants & others are considered as special cases.

5 Q. Can you transfer your loan from one bank to another? A. Having taken a loan, you may at some stage be tempted to transfer your loan to another bank or lending institution which is offering you a lower interest rate than you currently have. While taking this decision do make sure that you factor in any foreclosure costs associated with your existing loans (charges linked with an early closure of your loan). The bank you are transferring your loan to may also be charging you a processing fees. Do take these costs into account and ensure that the savings you make on lower interest rate are higher than the costs associated with the loan transfer. Q. Common mistakes while taking a loan A. Choosing the lender first: Most people want to know how much loan they will be eligible for before they finalize the property. Nothing wrong with that. But you don t have to go to your lender just to get the eligible loan figure from him. If you are below 40 years, just multiply your (and your spouse s) yearly gross income by four and that should be a rough and ready amount of loan that you should be able to get. The best way is to select your property and then find out if any other lender has funded for another flat in the same building. Also, if you approach lenders now, you are likely to get slightly better rates, as lenders reserve their best rates for immediate disbursement cases. Miscalculating the down payment: A lot of people buy property under construction, assuming they can pay the down payment amount proportionately while the bank disburses the rest. All lenders without exception insist on your bringing in the entire amount of the down payment before they will make the first disbursement on the property. No Window Shopping: The mantra here is to bargain and bargain some more. You should shortlist four or five banks and get the short-listed banks to compete for your loan. The cost of your loan depends a lot on your ability to negotiate. Remember that all terms and conditions of a housing loan are negotiable. Interest rates offered by banks take your income and repayment profile into consideration, apart from, of course, your negotiation skills. Apart from interest rates, also check various charges like processing fees, prepayment charges, legal fees, valuation fees and other hidden costs. Falling for teaser loans: The State Bank home loan scheme (popularly called the 8% scheme) is an excellent scheme but definitely costs more than 8% except in the first year. These days many lenders offer lower fixed rates of interest in the initial few years and shift to regular floating rate after the period. It is important to understand the impact on overall cost of such changes. Not insuring your home loan: Do you want to pass on the home loan to your family? If the answer is no, then buy a life insurance and critical illness policy when you take a home loan. Life insurance policies provide monetary benefit on death of the borrower and ensure that the family members inherit the home, not the home loan. Critical illness policy will take care of the home loan liability if your income gets interrupted due to any major illnesses such as a stroke or organ failure. Delayed or missed payments: can impact you not only financially but can also affect your credit history. On the one hand, you may have to pay a penalty or fees associated with delayed or missed payments, while on the other your credit history will reflect these missed or delayed payments. Q. What are tips for negotiating the loan from lenders? A. The tips are well explained as follow All interest rates are negotiable & depends up on your profile

6 Approach the perspective lender after finalising the property & just before the disbursement Try doing group booking, offering large loan requirement & if the property is in the same society then lot of the requirement will be common as valuation/verification, others Negotiating on month end as the lender have targets to achieve Good repayment records if any Wavering of processing/transaction fees Q. What would Hanchate Property Solutions advice clients on taking loans? A. At Hanchate Property Solutions we believe in older wisdom; taking a loan when you could afford it, i.e; your EMI should not affect your essential living standard. Take only that much where you can repay without disturbing your lifestyle. You can take the loan for longer duration according to your present repaying capacity but as your appetite increases repay as fast as possible. Leverage to your advantage & not to the lender. Please consider property insurance as it safe guards your family from any untoward event. Take the entire structure of your debt including other mortgages, credit card, consumer loans, car loan & others into consideration before deciding on it. Take chartered accountant advice before plunging into it.