Home loan gone cheaper check out

January 6, 2009

homeIt’s a good time for those planning to avail of a home loan.

Home loan rates have come down and new slabs have been introduced to make it easier for people to buy the house of their dreams.

Banks have slashed interest rates on priority sector home loans (of up to Rs 20 lakh or Rs 2 million) till June 30, 2009.

With the latest rate cuts announced by the Reserve Bank of India on January 2, the prime lending rates are expected to fall further.

All public sector banks have agreed to offer home loans up to Rs 500,000 at a interest rate of 8.5 per cent, between Rs 500,000 and Rs 20 lakh at 9.25 per cent.

These banks will not charge any processing fees and pre-payment charges for loans up to Rs 20 lakh, and would also provide free insurance cover.

Public sector banks are offering a margin money requirement of 10 per cent for a loan amount of Rs 500,000 and 15 per cent for loans between Rs 500,000 and Rs 20 lakh.

Earlier, the margin money varied from 20-25 per cent. Existing customers will also be able to enjoy the benefits of the new floating rates from the following quarter from the date of the revised rates.

Housing Development Finance Corporation (HDFC) rules the home loan market with a 40 per cent market share, followed by ICICI Bank (with 25 per cent share), and State Bank of India (SBI) with 18 per cent of the market share.

For home loans up to Rs 5 lakh (Rs 500,000), SBI’s floating rate is 8.5 per cent (10 per cent would be the margin money). Home loans between Rs 5 lakh and Rs 20 lakh is 9.25 per cent (15 per cent is margin money).

Home loans between Rs 20 lakh and Rs 30 lakh (Rs 2-3 million) will have an interest rate of 9.75 per cent for 5 years, 10 per cent for 5-15 years and 10.25 per cent for 15-25 years.

Loans above Rs 30 lakh would be charged (floating interest rate) at 10.25 per cent (5 years), 10.5 per cent (5-15 years) and 10.75 per cent for (15-25 years).

Fixed loans for Rs 30 lakh would be charged at 11.25 per cent and above Rs 30 lakh would be 12.15 per cent. The tenure would be ten years.

There would no pre-payment penalty and no processing fee for loans up to Rs 20 lakh.


HDFC

HDFC has reduced rates to 10.25 per cent for home loans up to Rs 20 lakh.

For home loans between Rs 20 lakh and Rs 75 lakh, the rate (floating interest rate) will be 11.25 per cent and rates for home loans above Rs 75 lakh (Rs 7.5 million) will be 11.25 per cent.

The fixed interest rate will be 14 per cent.

Bank of Baroda

Home loans between Rs 5 lakh and Rs 20 lakh will be charged an interest rate of 9.25 per cent. The margin amount in this slab would be 15 per cent. There is no processing fee.

For loans between Rs 20 lakh and Rs 30 lakh (Rs 2-3 million), it would be 9.25 per cent for 5 years, 9.50 per cent for 15 years and 9.75 per cent for 25 years.

A processing fee of 0.35 per cent on the loan amount would be charged.

Home loans between Rs 30-50 lakhs (Rs 3-5 million) would be charged at 10 per cent (5 years), 10.25 per cent (15 years) and 10.50 per cent (20 years).

For loans above Rs 50 lakh, an interest rate of 10.5 per cent, 11 per cent and 11.25 per cent will be charged for a tenure of for 5 years, 10-15 years and 20 years respectively.

The processing fee for loans above Rs 30 lakh would be 0.4 per cent of the loan amount.

ICICI Bank

For home loans below Rs 20 lakh (Rs 2 million), the floating rate has been cut to 11 per cent.

Home loans above Rs 20 lakh will now be offered at 12.5 per cent for tenure of 15-20 years.

The bank had reduced the floating rates for home loans below Rs 20 lakh from 13 per cent to 11.5 per cent in December.

The fixed loan rate will be 16 per cent.

An administration fee (most banks refer to it as processing fee) of 0.5 per cent would be charged on all loans.

Punjab National Bank

The floating rate is 9 per cent for home loans below Rs 20 lakh (Rs 2 million) for a tenure of 5 years.

Loans above Rs 20 lakh will be charged at 10 per cent up to 5 years.

For 5-10 years, the rate on a loan of up to Rs 20 lakh is 9.5 per cent. Above Rs 20 lakh, it will be 10 per cent.

For 10-20 years, the rate on a loan of up to Rs 20 lakh is 9.75 per cent and above Rs 20 lakh is 10.2 per cent.

A processing fee of 0.9 per cent on the loan amount will be charged.

Dewan Housing Finance Ltd

For home loans up to Rs 20 lakh (Rs 2 million), the rate is 10 per cent and the rate for loans above Rs 20 lakh is 11.25 per cent.

If you are buying a house in a rural area, the rate would be 9.75 per cent for Rs 15 lakh (Rs 1.5 million) for a period of 20 years.

LIC Housing Finance

For home loans up to Rs 20 lakh, LIC Housing charges a rate of 9.25 per cent. For loans above Rs 20 lakh, the rate would be 11.25 per cent.

The processing fee on the loan is 0.5 per cent of the loan amount.

IDBI

Home loans for up to Rs 20 lakh are charged at 9.25 per cent for a period of 10-20 years.

Loans above Rs 20 lakh are charged at Rs 10.75 per cent.

Source: Rediff

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Home loans: Why your age and tenure are important

June 23, 2008

Source: Rediff & ApnaLoan

Choosing right home loan tenure is as important an option as choosing an interest rate for the loan or focus on repayment and prepayment options.

There are several factors to be considered when one decides to take a home loan for a specific period.

Is age on your side?

The first important factor is the age. The younger the age, higher is the tenure available to a home loan borrower. This means, if one decides to take a loan in her/his 30s, s/he can get a loan for 20 years — the maximum loan tenure offered by most Indian banks currently.

Interest rates: Beware of ups and downs

When taking a loan, one must take into account the fact that interest rates fluctuate during the loan tenure. You just have to consider the interest rate movement on home loans in the last eight years to understand how fluctuating these rates have been.

The fluctuation will impact the home loan EMI (the amount of money you pay every month to your lender), whether one takes a loan at a fixed interest rate or floating interest rate.

Why age is important

If the loan borrower is younger, s/he can get an extension in her/his loan tenure. Remember that some banks offer maximum loan tenure of 25 years. If the loan borrower is in her/his 40s, the only option available in such a case would be to increase the EMI. And this can cause a lot of pain especially in times of soaring inflation.

But this is easier said than done. The reason is, by the time you are in your 40s, the rate of increase in potential income is much lesser as compared to what one can expect at a younger age, say in mid 20s or early 30s.

Another benefit of a younger age is the increased loan eligibility. Even though the current income is taken into account while giving a loan, the potential of increase in salary is also taken as a factor. So, one can easily opt for a top-up loan (a loan on top of an already existing loan) to meet personal needs or take care of an increased EMI if at all a borrower faces such a situation.

There are repayment options such as step-up repayment facility where the EMI is low in the initial period and increases at a later stage. This actually coincides with an increase in salary of a salaried borrower. This could be ideal for young borrowers who are climbing rungs professionally. But this is an option available for the younger lot.

How it makes a difference!

Let’s take an example. A 30-year old individual, say Amit, takes a home loan of Rs 30 lakh at an interest rate of 9 per cent for 20 years say in 2006. Amit earns about Rs 50, 000 per month then. Now let’s assume that the interest rate on Amit’s home loan increases to 11 per cent in 2008. Since Amit is 30 years old, he has an option of increasing the loan tenure to 25 years (even after increasing the loan tenure to 25 years Amit is still below his retirement age of 60 years as mentioned above).

Impact of changed rates with the tenure increase option

As the table below shows in the five years since 2003 Amit’s EMI has increased by Rs 4,605 in 2008. This is an annual increase of Rs 921 every year. This may not pinch much when prices are down but when inflation is around 11 per cent (as the figures for the week ending June 7 showed) then it sure pains a lot.

EMI increase if Amit increases his tenure Situation in 2003 Situation in 2008 if the tenure is increased to 25 years
Interest rate 9 per cent 12 per cent
EMI on a Rs 30 lakh loan Rs 26, 992 Rs 31, 597

Now let’s see the calculations if Amit were in his 40s. In this case the option of increasing the loan tenure would not be available as adding 25 years would take Amit beyond the eligible age of 60 years. The only option then would be to increase his home loan EMI.

Impact of changed rates if the EMI is increased

EMI increase if Amit were in his 40s Situation in 2003 Situation in 2008 if the EMI is increased
Interest rate 9 per cent 12 per cent
EMI Rs 26, 992 Rs 33, 033