Housing Finance being one of the safest lending avenues has. also contributed to the emergence of new players in the market.not

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1 Introduction: Housing Finance being one of the safest lending avenues has also contributed to the emergence of new players in the market.not only home loans easily available, with intense competition in housing finance industry; the companies are pulling out all stops to lure the potential customers. The home loan products are now not confined to the purpose of purchase, construction and improvement or extension but now there is a time to market innovative home loan products like reverse mortgage in which a home owner borrows against the equity in his home and receives a regular tax free payments from the lender.hdfc Ltd. As a pioneer in the field of housing finance in India, has also offering the competitive home loan products to cater the different need of different types of customer. The loan products offered by HDFC Ltd. are as follows:- 4.1 Home Loan HDFC Ltd. has been offering this product for the purpose of purchase of flat, new house, bungalow from developers, existing freehold properties, properties in an existing or proposed cooperative housing society or apartment owner s association, First 140

2 power of attorney purchases in Delhi for DDA flats allotted before 1992, self construction house. Features: (a) The maximum loan amount is confined to 85 percent of the cost of the property including the cost of the land and the amount is based on the repayment capacity of the customer. (b) The maximum term of the loan is 20 years which is subject to the retirement age of the customer. (c) The home loan can be applied for either individually by an applicant or jointly by co-applicants. The proposed owners of the property will have to be co-applicants. However, the co-applicants need not to be co-owners. (d) It is adjustable rate home loan which is linked to HDFC s Retail Prime Lending Rate (RPLR). The rate of interest is subject to be revised after every three months from the date of first disbursement, and if there will be change in RPLR, the interest rate would change. However the EMI on loan disbursed may or may not change with the change in rate of interest. 141

3 (e) The interest rate is depends on the current rate of interest in the home loan market and based on the RPLR and policy of the concern. (f) There are no charges for:- Part or full prepayment of loan under adjustable rate (except in case of prepayment through a refinance from other bank or institutions prepayment charges will be applicable) Fixed Rate Part prepayment upto 25% of opening loan outstanding in a financial year. Replacement of cheques Income Tax Certificate Accelerated Repayment Option Repayment Options: There are multiple repayment options in this loan product. Such as:- 1. There is step up Repayment Facility according to this young executives can take much bigger loans based on an increase in their future income. 2. There is an option of Flexible loan installments plan under which parents and their children 142

4 combine their income and take a long term home loan wherein the installment reduces upon retirement of the earning parent. 3. There is a facility of Tranche Based EMI in which customer can fix the installments they wish to pay till the property is ready for possession. As customers purchasing an under construction property need to pay interest on the loan amount drawn based on level of construction till the property is ready for possession. In Tranche based EMI, the minimum amount payable is the interest on loan amount drawn. Anything over and above the interest paid by the customer goes towards Principal repayment. It makes repayment of loan faster. 4. There is an option of Accelerated Repayment Scheme under which loan can repaid faster by increasing the EMI. If the disposable income of a customer increases or customer has lump sum funds for loan repayment, he may get the following advantages:- (a) Increase EMI and repay loan before predetermined time. 143

5 (b) Saving of interest due to decrease in tenure of loan. (c) Customer can invest the lump sum funds rather than use it for loan prepayment. The return from investment also gives the comfort of paying the increased EMI. Security for the Loan: The security for the loan is a first mortgage of the property to be financed, normally by way of deposit of title deeds and or such other collateral security as may be necessary. Interim security may be required, if the property is under construction. Documentation Required: 1. For salaried customers, for the approval of loan, the documents required are application form with photograph, identity and residence proof, latest salary slip, Form-16; last 6 months bank statements, processing fee cheque. 2. For self employed professional customers for the approval of loan the documents required are application form with photograph, identity and residence proof, education qualification certificate and proof of business existence, last 3 years income tax returns (self and business), last 3 144

6 years profit / loss and balance sheets, last 6 months bank statements, processing fee cheque. 3. For self employed Businessman for the approval of loan, the documents required are application form with photograph, identity and residence proof, education qualification certificate and proof of business existence, business profile, last 3 years income tax returns (self and business), last 3 years profit / loss and balance sheets, last 6 months bank statements (self and business), processing fee cheque Home Improvement Loan The home improvement loan is for the purpose of external repairs of house, tiling and flooring, internal and external painting, plumbing and electrical work, waterproofing and roofing, grills and aluminum windows, water proofing on terrace, construction of underground / overhead water tank, paving of compound wall (with stone/tile/etc), bore-well, etc. 145

7 Features: (a) The maximum loan on customer as for existing customer the loan amount is 100 percent of the cost of improvement. And for a new customer the loan amount is 85 percent of the cost of improvement. The cost of improvement or loan amount is subject to market value of the property. (b) The maximum term is 15 years subject to the retirement age of the customer. (c) (d) Applicant s eligibility is same as in case of home loans. This is adjustable rate, home loan based on RPLR as similar to home loan s case. If interest rate increase, the interest component in an EMI will increase and principal component will reduce resulting in an extension of the term of loan, and vice versa when the interest rate decrease. (e) The fees payable is 0.50 percent of the loan amount applied plus applicable service taxes and cess. (f) (g) In this the case of no charges is same as in home loan. Documentation is similar to the home loan documentation in all the cases. 146

8 Security for the Loan: The security for the loan in case of existing customer is the extension of the mortgage already created on the property financed and/or other security as may be required by HDFC. In case of new customers, the security for the loan is a mortgage on the entire property being improved and/or other security as may be required by HDFC. 4.3 Home Extension Loan The purpose of home extension loan is to provide finance for extension or addition in space to the existing home. It may be additional room, a large bathroom, or even enclosing an open balcony. Features: (a) The maximum loan amount is 85 percent of the cost of extension. (b) The maximum term of loan is 20 years which is subject to the retirement age of the customer. (c) The applicant s eligibility is same as in case of home loan. 147

9 (d) The loan is under Adjustable Rate which is linked to HDFC s RPLR. It is similar as in case of home loan. (e) (f) Fixed rate of interest with certain conditions. The fees charged is 0.50 percent of the loan amount applied plus applicable service taxes and cess. (g) (h) The case of charges is same as the home loan. The documentation requirement is same as in case of home loan. (i) In addition, the detailed cost estimate from architect or engineer for the property to be extended is required. Security for the Loan: The security for the loan in case of existing customer is the existing customer is the extension of the mortgage already created on the property financed and/or other security as may be required by HDFC. For new customers, the security for the loan is a mortgage on the entire property being improved and/or other security as may be required by HDFC

10 4.4 Short Term Bridging Loans The short term bridging loan provides finance within the interim period between the sale of the old home of the customer and the purchase of new home by the customer. In this way customer can purchase a bigger and better home and he gets the time to sell his existing property to pay off loan. Features: (a) The maximum loan amount is 90 percent of the cost of the new property. (b) (c) The maximum term of the loan is 2 years. This type of loan can be applied for either individually or jointly. Proposed owners of the property will have to be co-applicants. However, the co-applicants need not be coowners. (d) (e) There is fixed rate of interest on the loan amount. The customers repay the loan by paying the monthly installment or pay the interest on the loan with a lump sum payment within 2 years. Hence the customer gets 2 years to sell the property and prepay the loan. 149

11 (f) The fees charges is 0.50% of the loan amount plus applicable service tax and cess. (g) The documentation formalities are same as in case of home loan. Security for the Loan: The security for the loan is a first mortgage of the new property to be financed, normally by way of deposit of title deeds and/or such other collateral security as may be necessary. The customer would have to give an irrevocable power of attorney authorizing HDFC to sell the existing home of customer. Moreover, both the proposed and existing homes would have to be insured against fire and other appropriate hazards. Interim security may be required, if the new property is under construction Land Purchase Loan The land purchase loan is for the purpose of purchase of land. It is for the purchase of plot of land from either a development authority or a society or a developer. 150

12 Features: (a) The maximum loan amount is 85 percent of cost of land and it is based on the repayment capacity of the customer. (b) The maximum term of the loan is 15 years which is subject to the retirement age of the customer. (c) (d) The applicant s eligibility is same as in case of land loan. The case of adjustable rate of interest is same as in home loan. (e) (f) Fixed rate of interest is linked with certain conditions. The fees charged is 0.50 percent of the loan amount applied plus applicable service taxes and cess. (g) (h) The case of no charges is same as in home loan. The documentation requirement is same as in home loan. Security for the Loan: The security for the loan is a first mortgage of the property to be property financed, normally by the way of deposit of title deeds and /or such other collateral security as may be necessary. Interim security may be required, if the property is under construction

13 4.6 Loan to Professionals for Non Residential Premises The loan to professionals for non-residential premises is for the purpose of purchase, construction and improvement of the office or clinic. It is given to professionals like Doctors, Chartered Accountants, Lawyers, and other self employed professionals. Features: (a) The maximum loan amount is 85 percent of the cost of the property. (b) The maximum loan term in case of purchase and construction is 10 years. And for improvement of the office the maximum term is 5 years. (c) (d) The Applicant s eligibility is same as in case of home loan. It is adjustable rate home loan as same as in case of home loan. (e) (f) Fixed interest rate with conditions. The fees charges is 0.50 percent of the loan amount plus applicable service tax and cess. (g) The documents required are application form with photograph, identity and residence certificate and proof of business existence, last 3 years income tax returns (self 152

14 and business), last 3 years profit/loss and balance sheet, last 6 months bank statements, processing fees cheque. Security for the Loan: Security for the loan is a first mortgage of the property to be financed, normally by way of deposit of title deeds and / or such other collateral security as may be necessary. Interim security may be required, if the property is under construction Home Equity Loan The home equity loans helps in en-cashing the present market value of the property by taking a loan by mortgaging the property. The purpose of the loan can be any purpose as the use of loan is not being monitored by FIs, but the loan should not be used for speculation or any illegal purposes. The customer can meet the funding requirements like education, marriage expenses and medical expenses. The property may be residential or non-residential. It should be fully constructed, and should be freehold or leasehold property having a clear and marketable title. 153

15 Features: (a) The maximum loan amount for existing customers is balance of 60 percent of the market value and present loan outstanding. For the new customer it is 50 percent of the market value of the property including the cost of the land. The loan amount is subject to: i. Minimum market value of the property being Rs for Residential and Rs lakhs for nonresidential property. ii. Repayment capacity of the customers. (b) The maximum term in case of residential property, EMI based repayment is 15 years, in case of non-residential EMI based repayment is 10 years. In case of residential, simple interest based repayment is 2 years. The term is subject to the retirement age of the customers. (c) The fee charged is 0.50 percent of loan amount plus applicable service tax and cess. (d) (e) (f) The applicant s eligibility is same as in case of home loan. It is adjustable rate home loan as same as in home loan. Fixed rate of interest with conditions. 154

16 (g) The documentation is same as in case of home loan. In addition, Title documents of the property, approved plan is required. Security for the Property: The security for the loan is a first mortgage of the property against which HDFC has advanced the loan. In addition, HDFC may request for additional, interim, collateral security, liquid securities in the nature of shares, fixed deposits etc, may be accepted as additional securities on a selective basis Rate of Interest The rate of interest charged on the loan product which is a cost of capital for borrower and price of capital for lender are of two types fixed rate and floating rate. Fixed Interest Rate Loan: In fixed interest rate loan the rate of interest remains constant throughout the tenure of the loan. The rate of interest normally remains high than variable interest rate for a similar tenure. Some banks offer a re-settable fixed rate loan under which the rate remains 155

17 fixed for a particular period (say three years) and is then reset after every three years. The reset dates may be fixed dates of every year or it may be decided when the benchmark rates move. Variable or Floating Interest Rate Loan It is also called Adjustable Home Loan in which the interest rate is linked to the benchmark. The current trend is that the interest rates are charged at a certain percentage below the declared PLR of the bank. Since the banks lend a significant portion of their funds to blue chip companies at much lower rates than their PLRs. Hence PLRs for most of banks only serve as pegs or benchmarks for deriving the rates for the other customers. The Prime Lending Rate (PLR) is the rate of bank will charge to its best (prime) customers. 7 The fixed rate loan can be converted to floating rate loan without any penalty charges. A customer, after almost availing the loan can approach HDFC anytime thereafter to increase the Equated Monthly Installments (EMI) which may help him to loan faster. Housing Development and Finance Corporation offer Flexible (Customized) Repayment Schemes, keeping in mind the fact that each individual has a unique problem requiring unique solutions. With regards to Pari Passu / Second mortgage arrangements HDFC 156

18 has a tie up with a large number of Public Sector Organizations and Banks which enables it to offer loans to the employees of different organizations with the flexibility of their spouse also availing a loan facility from his/her own employer.hdfc has providing state of art storage facilities, which are theft and fire proof, at various locations where loan and property documents are stored. In this way valuable documents are stored safely over the period of the loan and are released immediately after customer repays the loan. 8 The HDFC offered Home Conversion Loan to its customers who are interested in moving to new house. Through this scheme customers can apply to have their existing loan transferred towards the purchase of new home. Customer may apply for an additional loan amount for the purchase of new loan. This gives the customer the option of selling their existing house, if they wish to, without having to repay their old loan. 9 The HDFC Ltd. has designed all its housing finance plans according the need and the extent of affordability of the Indian masses.it proves to be the strength of HDFC as it is still playing a dynamic role in the housing finance industry where there are numerous competitors and cut throat competition prevails. 157

19 REFERENCES: ibid 3. ibid 4. ibid 5. ibid 6. ibid 7. Information obtained by interviewing the staff member of HDFC Ltd, Dehradun Branch opcit, 158