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Housing Finance

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Housing finance refers to finance provided to individuals or group of individuals for purchasing/building a house. RBI has given a free rein to banks to decide on the age of dwelling, repayment schedule, margin and security with the approval of their board. There are three types of housing finance namely direct finance, indirect finance and supplementary finance. Housing loan is normally 80 to 85% of the cost of flat. However, some banks provide 100% amount. Banks charge fixed interest rate or a floating rate on housing loans.

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Housing Finance

  1. 1. Housing Finance Introduction Types of Housing Finance Purpose, Quantum Eligibility and Terms of loan Margin, Interest, SecurityHousing Finance Retail Banking Chapter 15
  2. 2. Introduction A housing finance is refers to finance provided to individuals or group of individuals including co-operative societies for purchase/build house or houses. The R.B.I. has states that banks are free to decide the guidelines on accepts such as age of dwelling units, repayment schedules, margin and security with the approved of their board.Housing Finance Retail Banking Chapter 15
  3. 3. Types of Housing Finance The different types of Housing Finance are shown in thechart. Types of Housing Finance Direct Finance Supplementary Finance Indirect FinanceFinance provided Finance provided Finance provided Finance provided to purchase For letting it out for To other housing another house for Rent alteration/repairs financial institution Purchase of plot Financed provided provided after obtainingBuy an old house borrower Declares that “Pain Passu” or he intends to construct “Second Mortgage” a house on the plotHousing Finance Retail Banking Chapter 15
  4. 4. Purpose, Quantum The housing loan provided for; 1. Purchase of flat/house or purchase of plot of land. 2. For renovation/repairs of an existing house/flat. 3. For extending an existing house. 4. Short term bridge finance while purchasing another house/flat. The quantum of loan is vary from bank to bank normallybank stipulate minimum of Rs. 1,00,000/-. The maximum woulddepend on the bank and it could vary from Rs. 10 lakhs to Rs. 2crores or more. For repairs the amount is less, around Rs. 10lakhs.Housing Finance Retail Banking Chapter 15
  5. 5. Eligibility and Terms of loan All individuals are eligible who are above the age of 18years having sufficient income to repay the loan. The loans arenot normally extended to the individuals who are above 58 yearsof age. The amount of advance will be based on individualsgross pay or net take home pay. The criteria may be differs frombank to bank as per the suggestion of R.B.I. The terms or the period of repayment is also depend onage of buyer. Normally it is from 15 years to 25 years. The mainaspect behind this is the amount of loan along with interestshould be repaid before the person retires. Loans provided forself employed personals are some time a shorter duration.Housing Finance Retail Banking Chapter 15
  6. 6. Margin, Interest, Security The housing loan is normally between 80% to 85% ofcost of the house/flat. The entire amount is rarely advanced bynationalized bank. Some private banks are now financing 100%amount. For housing loan there are two types of interest rate.One is fixed for entire tenure of the loan and the other one isfloating. Which is charging through out the duration of loan. The security in respect of housing finance is the propertypurchase with a mortgage is taken on the same. For additionalsecurity guarantee may be taken.Housing Finance Retail Banking Chapter 15
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