Principles & Practices of Banking
and Insurance Project
Name :- Zishan Siddiqui
Roll No:- 28
1. ACKNOWLEDGEMENT 1
2. INTRODUCTION 2
3. HOME LOANS 3
4. TYPES OF HOME LOANS 4
5. HOME LOAN PROCESS AND VARIOUS STEPS INVOLVED 6
6. DOCUMENTS NECESSARY FOR A HOME LOAN 8
7. HOME LOAN INTREST RATES 9
8. COMPARISON 10
9. CONCLUSION 14
10. BIBLOGRAPHY 15
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.
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.
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.
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
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.
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.
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.
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.
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.
Typically, the interest rate is based on the Prime rate plus a margin.
Your 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
Unique Features of house loan:
• Purpose: For purchase of house from builder / resale and construction / extension of existing
• 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.
Types of Home Loan
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.
• 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.
• Home Construction Loan :
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.
• Land Purchase Loan :
It is that loan which is taken to purchase a land for construction & investment purposes.
• Stamp Duty Loans:
This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of
• 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
• 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.
• 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
Home Loan Process & various steps involved
There 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
• 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
• 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.
• 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.
Documents required in Home Loan
Generally 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-applicant
In 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 statements
In 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
Home Loans Intrest Rates
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
1) Fixed home loan rates
2) Resettable fixed home loan rates
3) Floating home loan rates
1) 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.
2) 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.
3) 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
Name Floating Interest rate
ICICI Bank 9.50%
0.50% of loan amount upto 1
1 crore If Full
Payment - 2% of
amount If Part
Payment - No
HDFC Ltd 9.50%
Rs. 10,000/- or 0.5% of loan
amount(whichever is lesser) +
If 25% of
amount is paid
every year till 3
years - No Penalty
, otherwise 2% of
Scheme I - 9.50%
(fixed for 5 yrs), then
Scheme II - 8.9%
(fixed upto march
0.5 % -1%
2% of out standing
9.50% 1% of the loan amount +
IDBI 9.25% 0.50% of loan amount
If Balance Transfer
ING Vysya 9.50%
Up to 20 lacs -
Rs.5000+10.30%(Service tax )
Above 20 lacs :
Standard Chartered 9.25% 0.5%
4% for 18 months
and 2% after 18
State Bank Of India
8.5% (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 tax
DHFL 9.75% -10.25% 0.5% - 1%(basis on profile)
If 20% of
amount is paid
every year -No
Penalty , otherwise
2% of outstanding
9.25% (CAT A), 9.00%
0.5%+Service tax 2%
Deutsche Bank 8.75% 5000+ service tax for salaried
and 2.5%( for self employed)
up to 90% no
charges after that
10.50% (Fixed) (Upto
March 2012), Then
Allahabad Bank 10.00%
0.50% of loan amount,
Maximum Rs. 10,000/-
Bank of Maharastra 9.50% N.A N.A
Central Bank of India 9.00% 1% of Loan Amount, minimum
Corporation Bank 9.50%
Upto Rs.5 lakhs
0.50% of loan subject to min.
Rs.1,000/- & max. Rs.2,500/-
Above Rs.5 lakhs & upto Rs.15
0.50% of loan subject to min.
Rs.2,500/- & max. Rs.7,500/-
Above Rs.15 lakhs & upto Rs.20
0.50% of loan subject to min.
Rs.7,500/- & max. Rs.10,000/-
Above Rs.20 lakhs
0.50% of loan subject to min.
Rs.10,000/- & max.
Bank of India 8.75% (fixed Upto 31
Dec 2011), then 10%
For loans upto Rs.30 lacs One
time @ 0.55% of loan amount
min. Rs. 3000/- and max.
For Loan over Rs.30 Lacs upto
Rs.50 lacs – One time flat
For Loan over Rs.50 Lacs upto
Rs.1.00 crore – One time flat
Union Bank of India 9.50% N.A N.A
United Bank of India 9.90% N.A N.A
UCO Bank 9.75% - 10.25% - N.A
Bank of Baroda 9.50% N.A N.A
Canara Bank 9.50%
Oriental Bank of
10% N.A N.A
Kotak Bank 9.25% - 9.50% 0.25% - 0.5%
2% of Principal
Outstanding + 2%
on amount prepaid
in last 12 months
Dena Bank 9.95% N.A N.A
Punjab National Bank
8.50%(fixed for 3 yrs)
(till 31 Dec 2010),
Deutsche Post Housing
9.25% ( for Salaried /
SEP), 9.50% (For Self
Andhra Bank 10.50% N.A N.A
Vijaya Bank 10.25% N.A N.A
Syndicate Bank 10.25% N.A N.A
Indian Overseas Bank 9.25% N.A N.A
Nil, if balance
Federal Bank 8.75% - 9% 0.50%
8.75%( for Normal
Plan), 9%( for Smart
25%of the original
loan amount free
for every financial
PNB Housing Finance 9.50% (upto 20
yrs),Then market rate
9.25% (Self Employed)
State Bank of
8% (fixed for 1 yr),
9% (2nd & 3rd yr),
then Market Rate
2% of the
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.
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.