Some Chat Questions on Home Loan

• Planning to take a personal loan for building a house at your native place. Is it a good move?

Ans: Taking a home loan would be better off rather than a personal loan as a home loan is cheaper.

Choose a bank which is active at your native place so that they can do the property verification. If that is difficult, then a personal loan could be taken though it will be quite expensive as compared to a home loan and will also be for a shorter duration. The EMI will also be much higher.

• Require Rs 20 lakhs for buying a flat but as home loan processing takes time, would it be better to take a personal loan and when the home loan is sanctioned, then repay the personal loan with it.

Ans: You need to disclose a huge amount of income for getting a personal loan worth Rs 20 lakhs. By making the banks complete for your home loan and providing you the best deal, you may end up getting more than expected as well as your home loan application would be processed faster.

• In an ideal scenario what should be the maximum EMI percentage an individual should/could afford, in percentage terms?

Ans: It depends on various components like -

1. Income - the higher the income, higher is the percentage you can afford to pay as EMI. However, as a general rule of the thumb, about 40 per cent of your net income is considered safe for an EMI. Anything above 55 per cent is in the red zone.
2. Loan Amount
3. Secured or unsecured loan

Some Loan Options for LAP

Overdraft option for LAP	Installment option for LAP
Limited Banks have this option with them	Both banks as well as housing finance companies who are offering LAP
Might have a higher processing fee, which also might be annually instead of one-time	One time Processing fee
Higher rate of interest (usually 0.5%) compared to the installment option	Slightly lower ROI
You pay interest only on the money you withdraw from the overdraft account to the extent you do not repay. You can keep withdrawing and repaying money as and when you like and incur interest expenditure only on the net outstanding amount from time to time.	You pay money on the reducing balance of loan amount outstanding as per the contract

Avail The Best Loan Against Your Porperty

FAQs related to Home Loan

1. Should you shift to a “fixed rate” home loan?

This is not advisable as very few banks provide genuine fixed rate loans anyway. Genuine fixed rate loans are those where the loan document does not have any clause in the agreement that allows the bank to change the “fixed rate” of interest. These loans are not available for less than 13.00% plus you will need to pay a fee for shifting to such loans. So your EMIs will go up immediately plus you will need to pay a fee to shift to such fixed rate loans. This shift will remain more expensive till the floating rates move beyond the current fixed rates of 13.00%. We must not forget that interest rates move in cycles and that over the long tenure of a typical home loan you will be able to benefit from the drop in rates (as and when they happen) also just like you have paid for the increase in rates.

Whilst the short term outlook on interest rates clearly points to an increase, an assumption that interest rates will forever remain high will be incorrect. We have already seen one cycle of interest rate movements in this decade (downwards from 2000 to 2004 and broadly upwards thereafter) and there is no reason to believe that this will not repeat itself again. Hence unless you are completely risk averse you should stick to the floating rate loan.

2. Should you shift to another lender offering a lower floating rate loan?

This is a worthwhile option. As a rule of the thumb if the new lender is providing a floating rate loan that is at least 0.50% cheaper than your existing lender and the balance tenure is not less than 7-8 years then this is an option that you should definitely explore despite pre-payment charges that you might have to pay to your existing lender. You need to be vigilant that you are getting the best possible floating rate loan in the market as some banks charge higher rates to existing consumers while giving lower rates to new consumers. So ask around in the market and keep yourself informed on this score. Remember your ignorance will prove quite expensive.

3. What are the other options to balance your monthly budget:
1. If you have the money pre-pay a portion of your loan to keep the EMI at the same level. In most cases banks do not charge for partial pre-payments and hence this is an excellent option, provided off course, you have the savings to make this pre-payment. In the given example you will need to pre-pay roughly Rs. 33,000/- for every 0.50% increase in interest rate to keep the Emi at the same level as earlier.
2. If you neither have the savings to make the pre-payment nor any money to pay the increased EMI then check whether the bank is willing to increase the loan tenure and keep the EMI at the same level. However normally the bank will not increase the tenure beyond the retirement age (normally assumed at 60 years for salaried people and 65 years for self employed people)
3. You can consider taking overdraft loans against your savings instruments (insurance policies with high surrender values, Mutual fund units, shares, etc.) to pay for the increase in the EMIs. The advantage of such loans is that for a small fee you get an option to draw upto the limit. You pay interest only for what you actually utilize and as long as the total amount does not exceed the limit you do not have to pay off either the interest or principal. Off course all this is only a temporary palliative. You should prepay the loan from your future savings or from the drop in your EMIs as and when the interest rates drop again.

4. If neither of the above options are feasible than you can consider approaching your existing lender to provide an additional loan on the security of the same house. You are likely to be eligible for the additional loan as house prices have gone up significantly in the last 2 years and your income would also probably have gone up.

5. Neither of option c or d are great options as you are actually borrowing money to repay your existing borrowings which is fiscally imprudent. Hence they must be exercised after due caution.

Source: http://www.apnaloan.com/articles/home-loan-india/homeloaninterestratehike.html

Loan Against Porperty - Mortaging your Home to get a loan

House, clothing and food are the basic necessities of life which a person acquires just for normal living.

During your financial crisis, out of these three, it is your home that will help you out of the situation. But then there is a problem attached to it again. Since our house being a non-liquid asset it take time to sell of our house during times of need and in case of emergencies it becomes all the mo9re difficult to find a good deal with the buyers.

Hence, it is always advisable to mortgage your house, as security, to take up the loan. This is what is "Loan Against Property".

But for banks or financial institutes even your house isn't much of any kind of asset, although it would be of more value than the loan take. It is difficult for banks as well to sell your property and get the money, in case of a default. Thats why they would require a proof of your income, although you would be mortgaging your property. Also, banks find it little difficult to evict the existing occupants to sell it off.

Therefore, banks also prefer that you pay them back through your salary and the situation of selling the security doesn't turn up only. Hence, you would be required to submit your proof of income while applying for Loan against Property as well.

Just remember few things:

• Banks will not lend you loan on the full value of your property, as the value of the property might deplete with time and area.
• Your loan would be based on certain percentage of the value of your property - 40-60%.
• Loan amount might also be given 2-2.5 times of your current income as compared to your house value, whichever is lower.

Don't Mortgage Property to the Bank for buying another property

It is always cheaper to get a home loan to buy a house rather than Taking loan against property (LAP) or in other words mortgaging your property.

The difference in cost can be as high as three per cent.

Bank Rates for Home Loans Compared

I was recently browsing this website and came across this comparison of the ROI offered by Major Banks. It is good enough as it gives us a broad idea of the current market rates and hence would be able to negotiate with the banks better.

Check out the link:

http://www.apnaloan.com/home-loan-india/rates.html