Home loan in india

We all know that most of us prefer to take home loan to buy home, but when it comes to transfer of Home Loan Balance, so only few us know about these kinds of options. Home Loan Balance allows the browsers to get benefit from a downward movement in lending rates, however; lending rates change as per the market conditions. New Year is about to come and its perfect time to start something new and do some exciting shopping’s to celebrate New Year with new zeal and excitement. On September 29^th 2015, Mr. Raghuram Rajan announced that RBI is cutting the rates and it will allow some of the banks to follow the same and lower their lending rates, so that loan browsers can get certain benefit. It is expected that this announcement will add some more cheer to the home loan market and it will attract the new buyers in the reality sector.

Like Mr. Sharma there are some buyers in market who already has a home loan which is at a higher rate and they are not getting any kind of benefit from these lower rates. But his one of the friend suggest that he should explore the option of home loan balance transfer as it will allow him to take the advantage of the lower rate regime.

What is Home Loan Balance Transfer?

Home Loan Balance Transfer is just options which allow you to get benefit from the downward movement in the lending rates as we all know that lending rates are subject to change as per market conditions. Sometimes floating interest rates can be much lower than the previous and it depends on the banks whether to transfer benefit or not, which means new home loans can be available at lower rates than previous. If you will opt for the Home Loan Balance Transfer option, so the entire principal amount of the loan will be transferred from your old or existing bank to a new bank and in that case if your old bank is not passing the benefit of lower interest rate, so you can avail that benefit with new bank, but before transferring home loan make sure that banks is ready to transfer the benefit of lower interest rate. However; as customer you will subsequently pays the EMIs to the new bank at the new rate.

You will get the benefit from Home Loan Balance Transfer or not?

Now the most crucial question; You will get the benefit from Home Loan Transfer or not? As procedure is complex, so there is no clear answer with “Yes” or “No” because Home Loan Transfer can be benefited with certain terms and conditions because in some cases even if bank is offering the lower interest rate, so it could not be the economically viable to transfer a home loan, if your savings are not enough to justify, effort, time and cost. However; in simple words there are some factors which can help you to get answer that decision of Home Loan Transfer of good for you or not?

1.  Amount of Outstanding Principal
2.  Total Cost of Home Loan Transfer
3. Your Remaining Loan Tenure
4. Time and Effort

Cost Involved in Home Loan Balance Transfer:

 If you are wondering that how much money it takes in Home Loan Balance Transfer, so when you transfer a home loan the cost involved processing fee, pre-payment penalty and some other charges such as; stamp duty and more as per banking policies. However; most of the banks prefer to waive off the pre-payment penalty as RBI and NHB discourage banks from charging it but other charges are unavoidable. Apart from that the total savings can be determined after calculating the total cost which is involved. On the other side remaining home loan tenure is also another important factor and if there are less time in the loan tenure, so it might not be worth to put the effort for a home loan transfer. However; if the loan duration is long, so the cost can be adjusted in the form of savings with remaining loan duration else the cost burden will not be justified.

In certain cases it is obvious that if you have bigger outstanding principal so it is better to go with Home Loan Balance Transfer as you will be able to save more, but keep in mind that loan transfer such as; new home loan will also take a lot of time, documentation and other efforts and if you are professional so you can also measure these things in monetary terms. You will have to research which bank to transfer the loan to, liaison with your bank and the new bank, get documentation in place, and submit applications and much more.

 Conclusion:

If you are thinking to take the benefit from Home Loan Balance Transfer, so before approaching another bank you must check that your existing bank is willing to reset the rate or not because there are some banks which prefer to negotiate. If the market conditions warrant that most banks would be willing to retain their customers and re-negotiate the loan rate. Even if your existing banks is offering little lower interest rate than previous and it is not much lower than the what competitor is offering, so transferring will not make much sense as it will involve processing fee, pre payment charges and a lot of time and effort.

It is recommended to explore the multiple options of a home loan transfer as it can be benefited for you in certain terms and conditions, however; before making the final decision you can also take the help of experts or you can do cost benefit analysis by yourself.

Home Loan in 2015

A good price appreciation on your property is undoubtedly the biggest opportunity to gain. Moreover, you can save on taxes, on interest repayments on an ongoing basis. Real estate is among the most complex asset classes and can have an asymmetric payoff during good times. Besides the pride of ownership, purchasing a house is also seen as one of the most effective ways to make money.

After having a dream run for over a decade, residential property prices hit the bottom, almost stagnating in most top cities. This was due to a combination of factors like ample supply, high interest rates on home loans and slow economic growth.

As the price slump continues, a bit of rethinking is advisable. Should you invest or even be holding on to a property? Does it make sense to continue with the existing home loan with a high rate of interest?

In a study of over 5,000 users of BigDecisions.com, Buy or Rent tool across 7 cities in India, between 60% and 80% of them expect a lesser than 10% appreciation per annum in property prices for the predictable future; which is lower than the cost of the loan.
We have listed below, some of the learnings from the above stated study:

• At such kind of expectations of price appreciation, it may take anywhere between 9 & 14 years for a purchase decision to pay off. If the consumer has a shorter time horizon, then it only makes sense to rent the property.
• It may be wise to rent a house in the city one works in (usually one of the larger cities) while buying a home as an asset in a smaller city, where the prices are likely to be lower, making a property easily affordable and the expected appreciation higher. Another way to save is to transfer your home loan to another lender at a reduced interest rate.From the time RBI directed banks to not charge pre payment or foreclosure charges on variable (or floating) interest rate loans, switching to the lender who lends at the lowest cost is a real opportunity for home buyers.

For instance, on an Rs 1-crore loan, you save more than Rs 80,000 per annum if your interest rate is reduced by 1%. This will add up to a total saving worth Rs 16.12 lakh over the entire loan tenure (assuming the loan is for 20 years). How many opportunities to save this kind of money exist today’?
Furthermore, you can top up or borrow the “paid back” amount resulting in the cheapest possible personal or business loan. Considering that your property was valued at Rs. 70 lakh at the time of purchase with a loan of 80% of the value that is – Rs. 56 lakh, after 3 years, it may be worth at least Rs 80 lakh. At this point of time, if you opt for a refinance (loan transfer), considering the outstanding loan amount to be about Rs 53 lakh, the new lender would give you 80% of Rs 80 lakh (existing market price), which is Rs 64 lakh. Even after clearing the outstanding balance (Rs 53 lakh), you would be left with an extra cash of Rs 11 lakh. This money has a cost of 10% annually. Since most business or working capital loans come at rates ranging from 14 to 24%, money at 10% could be extremely helpful.
The ideal approach to save the most is to prepay a certain portion of your loan and reduce the tenure. This will not only reduce the interest burden but continue giving you the same amount of tax benefit. Fundamentally, you can minimise the interest outflow firstly by reducing the amount you owe to the lender and secondly by decreasing the amount of time the money is borrowed for.

However, sometimes, reducing the tenure even at a lower interest rate might increase your EMI but if overall savings is the ultimate objective and you can afford to pay the increased instalment amount, it is totally worth it!

Home loan tips

Contemplating on buying a home on loan? Here are some quick tips before you finalize.

It is certainly tempting to opt for a longer tenure on a home loan as it reduces the EMI amount. However, in a long-term loan, the interest outgo is too high. Let us see how.

Lenders easily offer home loans for 25 – 30 years. According to financial experts, taking a loan is negative compounding. The longer the tenure, the higher is the compound interest that the bank earns from you.

Considering a 10-year loan at 10 per cent, the interest paid is 59 per cent of the borrowed amount. This shoots up to 131 per cent if the tenure is 20 years. For illustration, if you take an Rs 50-lakh loan for 25 years at 10 per cent, you will end up paying Rs 86.3 lakh (or 172 per cent of the loan amount) in interest alone.

Take another case where a young person with lesser income will not be able to borrow adequately if the tenure is short, say 10 years. He will have to necessarily increase the tenure to ensure that the EMI fits his pocket. For such borrowers, the best option is to increase the EMI amount every year aligned with an increase in the income.

Increasing the EMI amount brings down the tenure radically. A bare minimum of 1 per cent hike in the EMI every year can trim off three years from a 20-year repayment term. Supposing that the borrower’s income rises 8 – 10 per cent every year, increasing the EMI in the same proportion should not be very difficult. A 5 per cent increase in the EMI every year will shrink the tenure by more than eight years. A further enhancement of 10 per cent every year would end the loan in just nine years and three months. A little more tightening of   the belt by a 20 per cent increase in EMI every year, will guarantee a debt free life in just seven years!

Home loan EMI

Borrowing to purchase an under-construction property? Is all you know about home loans confined to simply paying an ‘x’ amount every month till the completion of the tenure?
Some of you feel joy when the lender offers the ‘facility’ of starting EMIs only after you receive the possession of the property. You believe this is an opportunity to save money and consider this as a ‘flexibility’ that will allow you to start the repayment only after you enter your new home. Caution! You haven’t noticed whether your repayment mode is a pre-EMI or EMI.
Before accepting any proposal from the lender, understand things first.
In the following paragraphs, we shall help you get the clarity. Let’s begin with the basics –

What is EMI?
Equated Monthly Installment (EMI) is a repayment option where you pay both interest and principal to the lender in a systematic monthly fixed amount. The interest payable throughout the loan tenure gets computed over a chart called amortisation schedule. This plan portions the interest and principal in a descending and ascending order respectively.
What is Pre-EMI?
Pre-EMI is the simple interest payable on the principal drawn for the number of days of usage payable to the lender on a specific day of every month. Upon drawing down further amount, it keeps increasing since the interest payable on the principal increases accordingly. This mode of payment can be applied only in case of under- construction purchases as the loan disbursement takes place in tranches.
What are the benefits of opting for either EMI or Pre-EMI?
Paying the EMI directly, that is, both principal and interest from the beginning, it helps you reduce the outstanding principal as well as the tenure from the very first month. If you do not have spare money to start the EMI immediately, you may start paying the ‘interest-only’ on the partially disbursed amount i.e. Pre-EMI.
Who should opt for Pre-EMI?
If you are not comfortable starting to pay off the loan principal right away owing to constraint of funds, you may opt for Pre-EMI. However, it does not necessarily require you to wait till you get the possession of the property; you can switch to the EMI option at any time.
Who should opt for EMI?
Do you have stand-by cash to start the monthly EMI with the purchase of the loan? Then you can start the repayment right away. In this mode, the loan principal repayment starts simultaneously at the same time reducing the unexpired loan tenure.

Can the repayment mode be switched from Pre-EMI to EMI in the mid-term prior to possession?
It is advisable not to wait till possession to start the EMI. For example, you have drawn down 95% of the loan and the final 5% is payable on possession, but the project is delayed by 6 months, you end up paying Pre-EMI (simple interest) on almost the complete loan amount for the additional 6 months, which is about the same amount as the EMI itself. While the acquisition cost shoots up there is no repayment of the principal or reduction in the tenure either! So, switching to EMI mode after drawing down 70-75% is recommended. Although not all lenders allow that, those who allow, won’t initiate it for you. It is wise here to opt for a professional advice.
What is beneficial for you as the borrower?
The borrower himself has to decide what suits him. Nonetheless, when choosing the Pre-EMI mode, the following risks need to be kept in mind-

Some lenders do not allow the borrower to part-reclose the loan under Pre-EMI stage. They ask you to pay installments to the builder instead for a few tranches & won’t let you reduce the loan amount.

Some lenders give automatic Pre-EMI option without confirmation. This is very risky. In the loan application, there is no provision to opt for it and while loan agreement signing either you forget to check or the lender overlooks it.

You get no tax benefit by paying interest-only to the lender; some don’t even issue the interest certificate. If you are paying the EMI from the beginning, you can claim all the interest paid during the under-construction stage in a spread of 5 years, after taking possession. This cannot be done for payment of Pre-EMI in under-construction stage.

Your repayment starts only upon getting the possession. Hence, whatever sum you have paid so far neither reduced your principal nor tenure. If you had opted for a 20 year loan term 5 years ago and paid Pre-EMI for 5 years, then you pay 5+20 years. Some lenders consider this 5 year Pre-EMI term included in the 20 year and amortise your repayment in 15 years, making the EMI amount higher!

Delay in possession bleeds you bad. Meaning if the loan amount was 1 crore and 95% of that is drawn, you pay interest only on Rs 95 Lakh for all the months of delay without a single rupee repayment, for which the EMI could be lesser than Rs 1 Lakh a month, wherein you pay Rs 95,000/- of Pre-EMI unreasonably.

Indian real estate

In the absence of due diligence the Indian real estate market can loss basic fundamentals and get drive by the positive news stories. However there are no analytical techniques are available to support those stories. The market intelligence of the prospective buyers is only reflective in macro level market which often goes off track. Most of the buyers are agree that due diligence is the way for to manage the risk and returns in terms of property evolution. More than that, it can give the much needed facelift to real estate sector. Due diligence is probably the most important aspect of a transaction involving real estate immediately following a broad understanding of the commercials.

According to Bilateral business body of India and America and economics experts “when market is fulfill with potential of growth and debt price is higher than equity so it demands for a greater common sense”.  In the eco-system of Indian real estate market there is financial disorder, as investors are getting the higher interest rate in market, which is giving the best ROI. The problems with these investments are that, high returns are available in market with high risk with the absence of reliable data. The answer to the dilemma of the investors and funding of the serious developers lies in creating a plain and simple mechanism of due diligence.

A section of the analysts mention that due diligence has always been done in the Indian real estate, but the Bull Run made some of the developers a bit over ambitious to ignore the fundamental in order to get the higher profits with far higher risk. However the slowdown has taught  everyone a lesson and now developers are over cautious at the each level, but the fact remains that in the absence of scientific and industry accepted mechanism of due diligence the challenges and risk exposure are as much for the realtors as for the investors. According analysts the developers and independent property consultants should focus more on micro markets than general trends which could be misleading. Whenever there are many grey areas where in the absence of proper research and search and reliable data even assessment of ground realties is not feasible.

According to Rohit Gera, MD of Gera properties, agrees over the need of proper due diligence across the real-estate sector of country. Unfortunately the home buyers still do not undertake the requisite amount of due diligence especially when buying the homes from fly by night operations. The cost of reliable due diligence often is less than one month’s EMI and this offers peace of mind through 240 months of loan payment. Sometimes customers blindly believe that they will not be the victims and they can go forth without proper due diligence. There are number of reasons for the absence of due diligence in real estate sector.  The growth of real estate transaction combined with the growing participation of the organized sector in real estate, which resulted in heightened awareness of the risks involved and, consequently, the need for ensuring that the risks are identified and minimized in such transactions