ACKNOWLEDGEMENTS:<br />It is great pleasure to express my sense of gratitude to Prof. Rajkumar Darida , K.C College, Mumbai, without whose valuable guidance generous help and constant enthusiastic inspiration this assignment titled “Housing Loan” would have never been a success.<br /> I was almost convinced that I was aware of the Housing Loan granted by the various banking companies. However, once I started out working on the same, I realized how grossly inadequate my knowledge had been. I thank sir for giving me all the valuable inputs all along and guiding me to once again explore the sector I so much feel a part of.<br />Introduction<br />A Loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.<br />In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount.<br />A Home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education. A home equity loan creates a lien against the borrower's house, and reduces actual home equity.<br />Home equity loans are most commonly second position liens (second trust deed), although they can be held in first or, less commonly, third position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios. Home equity loans come in two types, closed end and open end.<br />Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages.<br />This is a revolving credit loan, also referred to as a home equity line of credit, where the borrower can choose when and how often to borrow against the equity in the property, with the lender setting an initial limit to the credit line based on criteria similar to those used for closed-end loans. Like the closed-end loan, it may be possible to borrow up to 100% of the value of a home, less any liens. <br />These lines of credit are available up to 30 years, usually at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due.<br />Typically, the interest rate is based on the Prime rate plus a margin.<br />Home Loans<br />OverviewYour Home is a place where you relax after coming back from your day’s tiring work, it is that place where you can give time to your family & spend beautiful moments with them. To acquire a home which can be christened your “Own House” is a life-time decision & has to be taken with a lot of planning & requires huge finances. Your Dream Home is not very far away with a Home Loan which will fulfill your Dream into a reality.What is a Home loan?Home Loan is a Secured Loan offered against the security of a house/property which is funded by the bank’s loan, the property could be a personal property or a commercial one. The Home Loan is a loan taken by a borrower from the bank issued against the property/security intended to be bought on the part by the borrower giving the banker a conditional ownership over the property i.e. if the borrower is failed to pay back the loan, the banker can retrieve the lent money by selling the property.<br />Unique Features of house loan:• Purpose: For purchase of house from builder / resale and construction / extension of existing house.• Loan amount: You can avail for Home loans ranging from Rs.2 lac to Rs.200 lac depending on your eligibility, income and repayment capacity. • Security: Home loan is a secured loan wherein collateral are required. • Loan tenor: The maximum loan tenure is 20 years.<br />Types of Home Loan<br />A person seeking investments for house or a property opts for Home Loans for a variety of purposes ranging from construction to renovation. The Housing Finance Companies (HFCs) now offer individuals with various alternatives to choose from while buying a home loan. There are different types of home loans available in the market to cater borrower’s different needs.• Home Purchase Loan : This is the basic type of a home loan which has the purpose of purchasing a new house.• Home Improvement Loan : This type of home loan is for the renovation or repair of the home which is already bought• Home Extension Loan : This type of loan serves the purpose when the borrower wants to extend or expand an existing home, like adding an extra room etc.• Home Conversion Loan : It is that loan wherein the borrower has already taken a home loan to finance his current home, but now wants to move to another home. The Conversion Home Loan helps the borrower to transfer the existing loan to the new home which requires extra funds, so the new loan pays the previous loan & fulfills the money required for new home.<br />• Bridge Loan : This type of loan helps finance the new home of the borrower when he wants to sell the existing home, this is normally a short term loan to the borrower & helps during the interim period when he wants to sell the old home & want to buy a new one, It is given till the time a buyer is found for the old home.<br /> • Home Construction Loan : <br />This type of loan taken when the borrower wants to construct a new home. The documents that are required in such a case are slightly different from the ones you submit for a normal Housing Loan. If you have purchased this plot within a period of one year before you started construction of your house, most HFCs will include the land cost as a component, to value the total cost of the property. In cases where the period from the date of purchase of land to the date of application has exceeded a year, the land cost will not be included in the total cost of property while calculating eligibility.<br /> • Land Purchase Loan : <br /> It is that loan which is taken to purchase a land for construction & investment purposes. <br />• Stamp Duty Loans: This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.<br />• Balance-Transfer Loans: Balance Transfer is the transfer of the balance of an existing home loan that you availed at a higher rate of interest (ROI) to either the same HFC or another HFC at the current ROI a lower rate of interest<br />• Re-finance Loans: Refinance loans are taken in case when a loan for your house from a HFI at a particular ROI you have taken drops over the years and you stand to lose. In such cases you may opt to swap your loan. This could be done from either the same HFI or another HFI at the current rates of interest, which is lower.<br />• NRI Home Loans: This is tailored for the requirements of Non-Resident Indians who wish to build or buy a home or property in India. The HFCs offer attractive housing finance plans for NRI investors with suitable repayment options.<br />Home Loan Process & various steps involvedThere are various steps involved in getting a Home Loan from selecting your property to filling up the loan application. Following are the various stages in Home Loan:• The first step involved in the process is to find your property which is followed by the verification of property documents, post that the documents are examined & simultaneously you can start searching for the lender who can offer the BEST Home Loan Deal after checking your eligibility criteria.• Know the Home Loan Eligibility : Banks offer the loan amount only after checking your profile & based on various eligibility criteria’s like age, income & salary banks lend you the money.• Select the Best Home Loan after evaluation: Comparing home loan interest rates is the primary feature in the home loan selection, however other fees & charges like Application fees, processing fees, legal charges should not be neglected when comparing various loan offers. • Applying for the Loan : After you have selected your lender, you have to fill in the application form wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs.• Documentation & Verification Process : You are required to submit the necessary documents to the bank which will be verified together with the details in the application.• Credit & default check : Bank checks out the borrower’s loan eligibility (through repayment capacity) & the amount of loan is confirmed. The borrower’s repayment capacity is reached which is based on the income, salary, age, experience & nature of business etc. Bank also checks credit history through the Cibil Score which plays a critical role in deciding & approving your loan application. Low Credit Score implies that the bank upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application.<br />• Bank sanctions Loan & Offer letter to the borrower : After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, the bank further sends an offer letter to the borrower which constitutes the details like rate of interest, loan tenure & repayment options etc.• Acceptance Copy to the Bank : The borrower needs to send an acceptance copy to the bank after the borrower agrees with the terms & conditions in the offer letter.• Bank checks the legal documents : The bank further asks the legal documents of property from the borrower to check its authenticity so as to keep them as a security for the loan amount given. The next step involved is the valuation of the property by the bank which determines the loan amount sanctioned by the bank.• Signing of agreement & the loan disbursal : The borrower signs the loan agreement & the bank disburses the loan amount.<br />Documents required in Home LoanGenerally the documents required to processing your loan application are almost similar across all the banks; however they may differ with various banks depending upon specific requirement etc. Following documents are required by financial institutions to process the loan application:• Age Proof• Address Proof•Income Proof of the applicant & co-applicant• Last 6 months bank A/C statement• Passport size photograph of the applicant & co-applicantIn case of Salaried• Employment certificate from the employer,• Copies of pay slips for last few months and TDS certificate• Latest Form 16 issued by employer Bank statementsIn case of Self-employed• Copy of audited financial statements for the last 2 years• Copy of partnership deed if it is a partnership firm or copy of memorandum of association and articles of association if it is a company• Profit and loss account for the last few years• Income tax assessment order<br /> Home Loans Intrest Rates<br />Interest Rates for Home Loans depend on the loan amount you are looking for, the tenure, the purpose and your individual profile. There are basically three types of home loans rates<br />
Fixed home loan rates
Resettable fixed home loan rates
Floating home loan rates
Fixed Home Loan rates : In true Fixed Rate Home Loans the rates remain fixed throughout the tenure of the loan no matter what. These kind of rates are very expensive (13.50%+ for a 20 year home loan in November 2010) and are offered by a limited number of lenders in the market.
Resettable Fixed Rates : Most of the so called Fixed Rates available in the market are of this variety. Here the interest rate is fixed for a period of 2-5 years and is then reset for a further period of 2-5 years and so on. These rates are more reasonable than the true fixed rates dealt with above. You just need to be clear about the nature of fixed rate contract you are getting into.
Floating Home Loan rates (also called variable rate loans or adjustable rate loans) For Banks : The effective rate is linked to the Bank's Base Rate. The base rate would have to be declared by the banks at least once every quarter. It is open to each bank to decide its own methodology for fixing the base rate but it is not allowed to change the methodology after selecting one methodlogy. The banks will have to document how it has arrived at the base rate and follow the same system consistently. The calculation of the base rate will be open to the RBI for review (which should at least ensure that a set system is actually followed while calculating the Base Rate). This is of course a much better stipulation than the earlier system of BPLR, where no such system was required to be documented by the bank and there was no question of any calculation that could be reviewed by RBI.
Comparison of intrest rates between various banks Top of Form<br />Bank NameFloating Interest rateProcessing FeePrepayment ChargesICICI Bank9.50%0.50% of loan amount upto 1 croreRs.10,000/- above 1 crore If Full Payment - 2% of outstanding amount If Part Payment - No PenaltyHDFC Ltd9.50%Rs. 10,000/- or 0.5% of loan amount(whichever is lesser) + Service TaxIf 25% of outstanding amount is paid every year till 3 years - No Penalty , otherwise 2% of outstanding amountLIC HousingScheme I - 9.50% (fixed for 5 yrs), then market rate.Scheme II - 8.9% (fixed upto march 2012)0.5 % -1%2% of out standing PaymentAXIS Bank9.50%1% of the loan amount + applicable taxesNILIDBI9.25%0.50% of loan amountIf Balance Transfer then 2% Otherwise NilING Vysya9.50%Up to 20 lacs - Rs.5000+10.30%(Service tax ) = Rs.5515/-Above 20 lacs : 0.5%+10.30%(Service tax)2%Standard Chartered9.25%0.5%4% for 18 months and 2% after 18 monthsState Bank Of India8.5% (1st yr), 9.25%(2nd and 3rd yr),10%(after 3 years)0.50% of loan amount with a cap of Rs.10,000 + service taxN.ADHFL9.75% -10.25%0.5% - 1%(basis on profile)If 20% of outstanding amount is paid every year -No Penalty , otherwise 2% of outstanding amountCitibank9.25% (CAT A), 9.00% (CITI GROUP EMPLOYEES), 9.50%(OTHERS), 10%(SELF EMPLOYED)0.5%+Service tax2%Deutsche Bank8.75%5000+ service tax for salaried and 2.5%( for self employed)up to 90% no charges after that 2.5%India Bulls9.5%(Floating) | 10.50% (Fixed) (Upto March 2012), Then market rate0.5%2%-3%Allahabad Bank10.00%0.50% of loan amount, Maximum Rs. 10,000/-N.ABank of Maharastra9.50%N.AN.ACentral Bank of India9.00%1% of Loan Amount, minimum Rs.1000/-N.ACorporation Bank9.50%Upto Rs.5 lakhs0.50% of loan subject to min. Rs.1,000/- & max. Rs.2,500/-Above Rs.5 lakhs & upto Rs.15 lakhs0.50% of loan subject to min. Rs.2,500/- & max. Rs.7,500/-Above Rs.15 lakhs & upto Rs.20 lakhs0.50% of loan subject to min. Rs.7,500/- & max. Rs.10,000/- Above Rs.20 lakhs0.50% of loan subject to min. Rs.10,000/- & max. Rs.50,000/-N.ABank of India8.75% (fixed Upto 31 Dec 2011), then 10% (Floating)For loans upto Rs.30 lacs One time @ 0.55% of loan amount min. Rs. 3000/- and max. Rs.10000/-For Loan over Rs.30 Lacs upto Rs.50 lacs – One time flat Rs.15,000/-For Loan over Rs.50 Lacs upto Rs.1.00 crore – One time flat Rs.20,000/-N.AUnion Bank of India9.50%N.AN.AUnited Bank of India9.90%N.AN.AUCO Bank9.75% - 10.25%-N.ABank of Baroda9.50%N.AN.ACanara Bank9.50%Oriental Bank of Commerce10%N.AN.AKotak Bank9.25% - 9.50%0.25% - 0.5%2% of Principal Outstanding + 2% on amount prepaid in last 12 monthsDena Bank9.95%N.AN.APunjab National Bank8.50%(fixed for 3 yrs) (till 31 Dec 2010), Then9.75%0.5%2%Deutsche Post Housing Finance9.25% ( for Salaried / SEP), 9.50% (For Self Employed)0.5%NilAndhra Bank10.50%N.AN.AVijaya Bank10.25%N.AN.ASyndicate Bank10.25%N.AN.AIndian Overseas Bank9.25%N.AN.ABarclays Bank9.75%0.5%Nil, if balance transfer than 3.65%Federal Bank8.75% - 9%0.50%HSBC Bank8.75%( for Normal Plan), 9%( for Smart Home)0.5% or 10,000+10.30%(service tax)25%of the original loan amount free for every financial yearPNB Housing Finance9.50% (upto 20 yrs),Then market rate0.5%2%Development Credit Bank8.75% (Salaried), 9.25% (Self Employed)0.5%NilState Bank of Travancore8% (fixed for 1 yr), 9% (2nd & 3rd yr), then Market RateNil2% of the outstanding loan amount<br />Bottom of Form<br />
In the conclusion I would like to say that It was a very informative project. If you are wanting buying a home or refinancing your mortgage loan, you should be further attentive not to make large purchases on credit cards before your application until closing the mortgage refinancing or new home loan. Credit score companies might be slow in entering new activities into your history. So you may just scrape pass the credit score search first time round. Nevertheless, as the new spending begins appearing in your credit report, your rating may go down to a level that is not agreeable any longer. <br /> This project would rather help you a lot if you are planning to buy a home loan. It has all the details needed to know when you are going for a home loan. It is very important for us to decide whether we are taking the loan on fixed or floating intrest. Information regarding the various types of intrest is given in this project. ‘HOME SWEET HOME’ it is very important to have a home to live in. thus I conclude be wise before taking an home loan. This project would make you wiser after you hve read it. And the intrest rates given in the project are of 2010 and are subject to change.<br /> Biblography<br />