HOUSING FINANCE

(HOME LOAN SCHEMES)

Ibrahim Lanewala
Seemab kazi
Sameena sheikh
 CONTENTS
• Indian banking

• Classification of banks

• Housing loans

• Types of home loan

• Annual, monthly & daily reducing loans

• Repayment options

• Documents needed

• Home loans strategies for different banks:

1. IDBI bank
2. ICICI bank
3. PNB (Punjab National Bank)

• Comparative analysis
 HIGHLIGHTS OF INDIAN BANKING
• Banking in India originated in the first decade of 18th century with The General Bank
of India coming into existence in 1786.

• The oldest bank in existence in India is the State Bank of India being established as
"The Bank of Bengal" in Calcutta in June 1806.

• The Reserve Bank of India formally took on the responsibility of regulating the Indian
banking sector from 1935. After India's independence in 1947, the Reserve Bank was
nationalized and given broader powers.

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 CLASSIFICATION OF
BANKS
India has

• 27 public sector banks (that is

with the government of India
holding a stake),

• 30 private banks (these do not

have government stake; they
may be publicly listed and
traded on stock exchanges) and

• 40 foreign banks. They have a

combined network of over
53,000 branches and 17,000
ATMs.

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 A BRIEF INTRODUCTION ABOUT HOME LOAN

1. Home Loan is also called house loan or mortgage loan. The loan is given for new home
(house/ flat/ kothi / apartment) purchase, to renovate/ furnish the house, to purchase
the plot/ land to build the house etc.

2. The person applying for a loan can purchase the property anywhere in India, provided
the lender bank has a facility to verify that property at that place.

3. Every Lender/ Bank now keeps a list of pre approved properties of certain builders and
developers. One can go and see the list for faster loan approval and disbursal.

4. Now few of the banker's finance Freehold/ Leasehold properties and the properties on
power of attorney. The applicant can confirm from the marketing executives the exact
option and choose the property accordingly.

5. One indirect but a big benefit of taking loan on home is that your property get verified by
the a qualified valuer and the bankers.

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 housing loan
 Taking a home loan now a days has become very simpler.

 The RBI has been regularly slashing interest rates, with the result that housing finance
loans that came at an interest rate of 16.5% to 18% four years ago are now available at
11.5% to 13% or lower.

 Each year the Finance Minister's generosity during the Budget seems to be solely
concentrated for the housing sector and construction sector.

 The Budget 2000's allowed interest payment up to Rs 1 lakh and principal payment of
Rs 20,000 to be exempted from income tax.

 To top it all, the Housing Finance Companies (HFCs) are aggressively wooing customers.

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 HOME LOAN TYPES
• Home Purchase Loans • Bridge Loans

• Home Improvement Loans • Balance Transfer Loans

• Refinance Loans
• Home Construction Loans
• Stamp Duty Loans
• Home Extension Loans
• Loans to NRIs
• Home Conversion Loans

• Land Purchase Loans

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 INTEREST CALCULATED ON LOAN

• Most banks follow the yearly reducing-balance method, which accounts for your
principal repayments only at the end of their financial year.

• As a result, you pay interest on the principal that you have already returned to the
bank.

• The effective interest rate is therefore higher than the quoted interest rate by
around 0.7%.

• Some banks may also follow the daily or monthly reducing-balance method, which
results in a lower interest burden.

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 BASIS OF INTEREST RATES CALCULATION:

• The interest on Home Loans is usually calculated on Monthly Reducing or Yearly

Reducing balance.

• In Monthly Reducing Balance, the principal on which you pay interest reduces
every month as you pay your EMI.

• In Yearly Reducing Balance, the principal is reduced at the end of the year,
therefore you continue to pay interest on a certain part of the principal which you
have actually paid back to the bank, which basically means the EMI for the
Monthly Reducing system is effectively lesser than the Yearly Reducing system of
calculating the interest.
  EMI (Equated Monthly Installment)

• WHAT IS AN EMI?

It is the amount payable to the lending institution every month, till the loan is
paid back in full. It consists of a portion of the interest as well as the principal.

• HOW IS AN EMI CALCULATED?

EMI Formula:

l x r [(1+r)n /(1+r)n-1 ] x 1/12

o l = loan amount
o r = rate of interest
o n = term of the loan
 Suppose you are taking loan on rs. 1,00,000

Then EMI is calculated as:- (Principal amount + Interest on your principal amount)
period

Assume rate of interest to be 10%, then interest for your principal amount which is
1,00,000 comes to 10,000.

Hence now you are taking a loan of 1, 10,000rs. ( principal amount + interest)

EMI : loan amount/ no. of months i.e 1,10,000/ 12 = 9167rs.

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 Range of interest rates offered:
The interest rate varies from banks to banks and normally ranges from 12.5% to 16%.

 Property insurance:
person has to insure that the property for fire and other appropriate hazards, as required
by the banks during the loan tenure. The banks will be the beneficiary of the insurance
policy.

 home loan for construction in one city while

working in other city:
The banks usually service this loan after getting details of the plot legally verified.
INCENTIVES OFFERED BY LENDING INSTITUTIONS

a) Some of the lending institutions sanction the loan without requiring

you to identify property as a prerequisite for eligibility.

b) Free accident insurance.

c) Discounts.

d) Waiving of pre payment penalty.

e) Waiving of processing fee.

f) Free property insurance.

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 ELIGIBILITY CONDITIONS FOR A HOME LOAN

To qualify for a home loan, most of the lending institutions in India require
you to be:

a) An Indian resident or NRI.

b) Above 21 years of age at the commencement of the loan.

c) Below 65 when the loan matures.

d) Either salaried or self employed.

 FIXED RATE OF INTEREST:
Some institutions have a fixed rate of interest, which means the rate of interest
remains unchanged for the entire duration of the loan. This means you do not
benefit, even if rates of interest drop in the market.

 FLOATING RATE:

This is the rate of interest that fluctuates according to the market lending rate. This
means you stand the risk of paying more than you budgeted for in case the lending
rate goes up.
 OTHER COSTS THAT USUALLY ACCOMPANY A
HOME LOAN:
Home loans are usually accompanied by the following extra costs:

a) Processing Charge

b) Pre-payment Penalties

c) Commitment Fees

d) Miscellaneous Costs

e) Registration of mortgage deed

 REPAYMENT PERIOD OPTIONS:

Repayment period options range generally from 5 to 15 years.

 REPAYMENT CAPACITY IS CALCULATED BY TAKING INTO

ACCOUNT:

– Age
– Income/Salary
– Qualifications
– Dependant/(s)
– Assets/Liabilities
– Credit History
– Stability / continuity of your employment/business
– Income of co-applicant/(s)
 HOME LOAN TENURE:
• Home loan tenures fixed by RBI are available up to a term of 15 years. Some financial
institutions have home loan tenures in the range extending up to 20, 25 and 30 years if the
applicant fulfils certain criteria. However, you cannot opt for a term that extends beyond your
attaining retirement age or 60 years of age (whichever is earlier).

TYPE OF PROPERTY SALARIED SELF-EMPLOYED

RESIDENTIAL 15 YEARS 10 YEARS

PLOT OF LAND 10 YEARS 10 YEARS

PLOT OF LAND AGAINST THE EXISTING ONE 15 YEARS 10 YEARS

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  DOCUMENTS:

Proof of Proof of age Proof of residence

individual’s (any one) (any one)

identity (any one)

•passport •Passport
•Passport
•valid driving licence •Ration card
•Photo PAN card
•voter's identity card •Telephone (land/mobile) bill
•Defence identity card
•birth certificate •Electricity bill
•Voter's identity card
•school leaving certificate •Driving licence
•Driving licence
•letter from the employer •Society outgoing bill
•Photo ration card
stating the age of the •Voter's identity card
•Government identity
employee # •Life Insurance Policy
card
•photo ration card Only Passport can be used as both
Proof of individual's identity and
Proof of residence.

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 FINANCIAL DOCUMENTS

Salaried Self-employed Partnerships Private Limited

individuals individuals Companies
Latest salary slip showing Computation of income Computation of income Computation of income
statutory deductions for the last 2 years for the last 2 years. for the last 3
AND Form 16
Latest acknowledged IT Balance sheet for the last Board resolution
balance sheet for the last
returns AND Bank 2 years 2 years
statements for the last 3
months

- Copies of acknowledged Copies of acknowledged Bank statements for the

IT returns for the last 2 IT returns for the last 2 last 6 months
years years
- Bank statements for the Partnership deed, letter Proof of office
last 6 months of authority, bank
statements for the last 6
months, Proof of office
IDBI bank
 home loan:
• Minimum Rs. 10,000/- and a maximum upto Rs. 1 Crore (subject to a
maximum of 90 % of the cost of property, including stamp duty and
registration charges).
• In case you wish to construct a house on a plot of land, the loan amount
could go upto 100% of the cost of the construction.

Home extensionn loan:

• Minimum Rs. 10,000 /- up to a maximum of Rs. 1 Crore (subject to a maximum of
90 % of the cost of extension).

Home Improvement Loan :

• Minimum Rs. 10,000 /- upto a maximum of Rs. 20 lacs (subject to a maximum of

70 % of the cost of improvement).
Repayment period for loans

• The maximum repayment period for the loans is :

- Home Loan : 20 years

-Home extension Loan : 20 years

- Home improvement Loan : 8 years

- Loan Against Home : Up to 5 years for all applicants which can be

extended upto 10 years for professionals and salaried individuals
ADVANTAGES OF IDBI HOME LOANS
• Flexibility of choosing between Floating or Fixed interest rate
•
• EMI on monthly reducing balance

• Personalized doorstep service

• Simple documentation

• Legal and technical assistance

• Balance transfer facility

• Reassessment and adjustment of applicant's loan eligibility in case of

change of income and residence status
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 LOANS EXTENDED FOR:
• CONSTRUCTION / RENOVATION
• PURCHASE OF A HOUSE / FLAT
• PURCHASE OF A PLOT
• LOAN AGAINST PROPERTY
• PROPERTY OVERDRAFT

 BENEFITS:
• CONVENIENCE

• ATTRACTIVE INTEREST RATE AND SIMPLE DOCUMENTATION

• FREE PERSONAL ACCIDENT INSURANCE
• LOAN SHEILD AND HOME ASSURE
AMOUNT OF LOAN:

• Up to 85% of the registered value of house.

• Up to 75% of the value of land.
• Loan starting from Rs. 2 lakh ( Rs. 3 lakh for Delhi, Bangalore and Mumbai)
upto Rs. 3 crore.

Loan against property:

• Residential property – upto 60% of the value

• Commercial property – upto 45% of the value.

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 REPAYMENT TENORS AND MODE
REPAYMENT TENORS:
•HOME LOAN: Minimum tenor of 1 year and maximum tenor of 20
years.
•LOAN AGAINST PROPERTY: Minimum tenor of 1 year and maximum
tenor of 15 years.

 REPAYMENT MODES:
REPAYMENT INSTALLMENTS CAN BE DONE THROUGH:
1. Post-dated cheques
2. Auto-debit mandate ( for ICICI bank account holders )
3. Ecs ( in selected cities ).

ELIGIBILITY:
• Minimum age 21 years.
• Salaried or self-employed with regular income.
CHOOSE FROM WIDE RANGE OF OPTIONS:
• Adjustable rate home loan
• Fixed rate home loan
• Part fixed, part floating home loan
• Smart fixed home loan
• Max money home loan
• Balance transfer from your existing home loan from other banks

 FEATURES:
• Attractive interest rates
• Loans starting from Rs. 2 lakh
• Term of loan upto 20 years
• Presence in more than 1000 locations
• Free personal accident insurance with every home loan
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PUNJAB NATIONAL BANK
 NAYA GHAR YOJNA
• Provide housing finance to individuals for following:

• construction or for acquisition/ purchase of house/ flat from development

authorities such as DDA/HUDA/ PUDA/RHB etc.

• From private builders/groups housing societies.

• Consider enhancement in loan amount in the event of escalations in cost.

 ELIGIBILITY:

a) Individuals in permanent service or having their own business (Resident or non-

resident).

b) Age of the applicant should not be more than 60 years in case of service class
and 65 years in case of businessman or self employed.
 LOAN AMOUNT

a) Minimum loan amount would be Rs.50,000/- and maximum loan

amount depends entirely on the repayment capacity of the borrower(s).

b) Actual loan eligibility shall be on the basis of repayment capacity as

determined be PNBHFL taking into account income, age, qualification and
occupation.

c) Income of borrower(s) / co-borrower(s) shall be clubbed together for

calculation of loan eligibility / the level of finance in case of joint
application
 MARGIN
• The borrower's contribution shall be minimum 20% of the total cost of project,
including stamp duty and registration charges.

INTEREST RATES (Effective from 27.7.2009) (Present PNBHFR

12.75%):

• FOR LOAN UPTO Rs.20 LAKHS

Period Floating Rate of Interest(%) 3 yrs Fixed Rate of Interest(%)

1-15 years 9.25 13.00
16-20 years 9.50 13.00

• FOR LOAN ABOVE Rs.20 LAKHS

Period Floating Rate of Interest(%) 3 yrs Fixed Rate of Interest(%)

1-15 years 10.00 13.00
16-20 years 10.00 13.00
 SECURITY:

• Security for the loan is first charged by way of equitable/registered mortgage of the
property to be financed and/or such other collateral securities as may be necessary.

•Loans to allot tees of flats/houses of development authorities or members of co-op.

housing societies or reputed private builders can be considered on the basis of
tripartite agreement and/or interim security.

•With respect to property under construction, interim security may be required.

•Collateral/interim security may be assignment of Life Insurance Policies, guarantees

from sound and solvent guarantors, pledge of marketable shares and such other
investments acceptable to PNBHF.

LOAN REPAYMENT:

•Loan repayment shall normally be in Equated Monthly Installments (EMI) comprising

of principal and interest over a maximum period of 20 years.
 GHAR SUDHAR YOJNA

• Make available housing finance to individuals for up gradation, renovation or repair

of house/flat.

• It includes among others, internal & external repairs, water proofing, roofing,
flooring, electrical, woodwork etc.

ELIGIBILITY:

Individuals who are in permanent service or self employed or have their own business.
Age of the applicant should not be more than 60 years.

LOAN AMOUNT:

Minimum amount of loan is Rs. 50,000. Maximum amount of loan shall not exceed Rs.
10,00,000. Borrower’s minimum contribution will be 25% of the estimated cost of
repairs/renovations. Actual loan amount shall be calculated on the basis of repayment
capacity of the borrower as determined by PNBHFL.
 INTEREST RATES (Effective from 27.7.2009) (Present
PNBHFR 12.75%)

• For loan up to Rs.20 Lakh

Period Rate of Interest (%)

Up to 15 years 9.25

• For the loan above Rs.20Lakh

Period Rate of Interest (%)

Up to 15 years 10.00
SECurity:

• Nnormally, the security for the loan shall be first charge by way of
Equitable/Registered mortgage of the property.

• Other securities such as assignment of LIC policies (surrender value at least

equivalent to the amount of loan), pledge of marketable shares and such other
investments acceptable to PNBHF.

• Besides this, personal guarantee from sound and solvent guarantors may be
asked for.

LOAN REPAYMENT:

•Loan repayment shall normally be in Equated Monthly Installments (EMI)

comprising of principal and interest over a maximum period of 10 years.
 Comparative Chart on Home Loan Interest Rates

FinancialInstitutions Tenure(in Rate of Rate of Processing

years) InterestFixed InterestFloating Charges

State Bank of India Up to 5 12.25% 10.75% 0.50% of loan

years amount

5-20 years 12.25 % 11.25 % -

ICICI 0-20 years 10.5% 9.5% 1% of loan amount

LIC Housing Finance 0-20 years 10.5%- 11% 9.5% 0.5 per cent of the
Ltd. amount (max. Rs.
5000)

HDFC 0-20 years 13.25% 11.25% 1% of the loan

amount +applicabl
e service taxes and
cess)
FinancialInstitutions Tenure(in Rate of Rate of Processing
years) InterestFixed InterestFloating Charges
Canfin Homes Ltd 0-20 years 9.25%-12% - -

IndusInd Bank 0-20 years 10.5 % (for <20 9.25 % (for <20 1.25% of loan
lakhs) lakhs) 12% (for amount
13% (for >20 >20 lakhs)
lakhs)

Saraswat Bank 0-20 years 11 10 -

HUDCO 0-20 years 10 % (< 10 lacs) 9% (< 10 lacs) 0.5 % of loan

10.5% (>10 lacs) 9.5% (>10 lacs) amount
(Max. Rs.250)
FinancialInstitutions Tenure(in Rate of Rate of Processing
years) InterestFixed InterestFloating Charges
Citibank 0-20 years 9.75% 9.00% 1% of loan
amount

Canara Bank Up to 5 10.75%

years - -

Above 5 11.00%
yrs up to
- -
10 yrs

Standard Chartered 0-20 years 10.5% 9.25% 1.25 % of loan

Bank amount

HSBC 0-20 years 10.75% - 1% of loan

amount
 conclusion
• MONTHLY REDUCING LOANS SHOULD BE PREFERRED OVER YEARLY REDUCING LOAN
AS LESS AMOUNT OF INTEREST IS PAID BU THE APPLICANT.
• NATIONALIZED BANKS OFFER LOWER INTEREST RATES AND ARE STABLE AND
RELIABLE, BUT THEIR PROCEDURE IS LENGHTHY.
• PRIVATE BANKS CHARGE MORE AND HAVE HIGHER INTEREST RATES, BUT THEY SERVE
THE CUSTOMERS MORE EFFICIENTLY.
• FOLLOWING BANKS SHOULD BE PREFERRED FOR HOME LOANS:
 NATIONAL BANK – PUNJAB NATIONAL BANK
PRIVATE BANK – IDBI BANK
CO-OPERATIVE BANK – SARASWATIVATI BANK
• FOR PURCHASING & CONSTRUCTION NATIONAL AND PRIVATE BANKS SHOULD BE
PREFERRED.
• AND FOR SMALL LOANS LIKE RENOVATION OR EXTENSION CO-OPERATIVE BANKS
SHOULD BE PREFERRED.