HOUSING LOANS

PRESENTATION
BY
S.K.VAZE
 HOUSING LOANS
• I WANTED TO BUY A HOUSE BUT DID
NOT HAVE SUFFICIENT MONEY.
• NATURALLY I HAD TO BORROW FROM
A BANK.
• BEFORE SELECTING THE BEST BANK I
DECIDED TO MAKE SOME
PRELIMINARY ENQUIRIES
• HERE IS WHAT I GOT:
 HOUSING LOANS
• THERE ARE A VARIETY OF HOME
LOANS AVAILABLE:
• 1. HOME PURCHASE LOAN
• 2. HOME IMPROVEMENT LOAN.
• 3. HOME CONSTRUCTION LOAN
• 4. HOME EXTENSION LOAN
• 5. HOME CONVERSION LOAN
• 6. LAND PURCHASE LOAN
 HOUSING LOANS
• 7. BRIDGE LOAN
• 8. BALANCE TRANSFER LOAN
• 9. REFINANCE LOAN
• 10. STAMP DUTY LOAN
 HOUSING LOANS
• TO QUALIFY FOR A HOME LOAN, YOU
SHOULD 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
 HOUSING LOANS
• ANNUAL REDUCING: IN THIS SYSTEM, THE
PRINCIPAL, FOR WHICH YOU PAY
INTEREST, REDUCES AT THE END OF THE
YEAR.
• THUS YOU CONTINUE TO PAY INTEREST ON
A CERTAIN PORTION OF THE PRINCIPAL
WHICH YOU HAVE ACTUALLY PAID BACK TO
THE LENDER.
• THIS MEANS THE EMI FOR THE MONTHLY
REDUCING SYSTEM IS EFFECTIVELY LESS
THAN THE ANNUAL REDUCING SYSTEM.
 HOUSING LOANS
• MONTHLY REDUCING :IN THIS SYSTEM, THE
PRINCIPAL, FOR WHICH YOU PAY
INTEREST, REDUCES EVERY MONTH AS
YOU PAY YOUR EMI.
• DAILY REDUCING :IN THIS SYSTEM, THE
PRINCIPAL, FOR WHICH YOU PAY
INTEREST, REDUCES FROM THE DAY YOU
PAY YOUR EMI. EMI IN THE DAILY
REDUCING SYSTEM IS LESS THAN THE
MONTHLY REDUCING SYSTEM.
 HOUSING LOANS
• HOME LOANS ARE USUALLY ACCOMPANIED BY
THE FOLLOWING EXTRA COSTS:
• A) PROCESSING CHARGE: IT’S A FEE PAYABLE TO
THE LENDER ON APPLYING FOR A LOAN. IT IS
EITHER A FIXED AMOUNT NOT LINKED TO THE
LOAN OR MAY ALSO BE A PERCENTAGE OF THE
LOAN AMOUNT. THE LOAN AMOUNT REQUIRED BY
YOU CANNOT BE LESS THAN THE PROCESSING
FEE.
• B) PRE-PAYMENT PENALTIES: WHEN A LOAN IS
PAID BACK BEFORE THE END OF THE AGREED
DURATION, A PENALTY IS CHARGED BY SOME
BANKS/COMPANIES, WHICH IS USUALLY BETWEEN
1% AND 2% OF THE AMOUNT BEING PRE-PAID.
 HOUSING LOANS
• C) COMMITMENT FEES: SOME
INSTITUTIONS LEVY A COMMITMENT FEE IN
CASE THE LOAN IS NOT AVAILED OF WITHIN
A STIPULATED PERIOD OF TIME AFTER IT IS
PROCESSED AND SANCTIONED.
• D) MISCELLANEOUS COSTS: IT IS QUITE
POSSIBLE THAT SOME LENDERS MAY LEVY
A DOCUMENTATION OR CONSULTANT
CHARGES.
• E) REGISTRATION OF MORTGAGE DEED.
 HOUSING LOANS
How HFCs decide loan amount
• USUALLY, MOST COMPANIES GIVE UP TO A
MAXIMUM OF 85% OF THE COST OF THE
HOUSE.
• THE AMOUNT, FOR WHICH THE APPLICANT
IS ELIGIBLE, IS DETERMINED BY
– THE AGE,
– INCOME,
– NO. OF DEPENDENTS,
– MONTHLY OUTGOING
– REPAYMENT CAPACITY.
• THIS VARIES FROM CASE TO CASE.
 HOUSING LOANS
EMI
• FOUR FACTORS GO INTO THE
DETERMINATION OF AN EMI
– THE PRINCIPAL
– THE REPAYMENT PERIOD (THE NUMBER OF
YEARS YOU WILL TAKE TO REPAY THE LOAN).
– THE RATE OF INTEREST.
– HOW THE RATE OF INTEREST IS COMPUTED
(MONTHLY REDUCING, QUARTERLY REDUCING
OR ANNUAL REDUCING BASIS).
 HOUSING LOANS

• EMI Formula
• EMI = (p*r) (1+r)^n / (1+r)^n - 1
• p = principal (amount of loan),
• r = rate of interest per instalment
period, i.e., if interest is 12% p.a. r = 1,
• n = no. of instalments in the tenure,
• ^ denotes whole to the power.
 HOUSING LOANS
• EMI = Pi/[q(1-[1+(i/q)]^-nq)].
P = Loan Amount, or, Principal Amount
i = Interest Rate per Year
q = no of payment periods per year
n = no of loan years
 HOUSING LOANS
• SO, IF YOU WANTED TO CALCULATE THE
EMI FOR A LOAN AMOUNT OF RS.100000,
WITH AN INTEREST RATE OF 7.25% PER
YEAR, PAYABLE IN MONTHLY
INSTALLMENTS OVER 5 YEARS:

EMI = (100000*0.0725)/(12*(1-
((1+(0.0725/12))^(-5*12))))

EMI = Rs.1992
 HOUSING LOANS
• IN MOST CASES, THE PROPERTY TO BE
PURCHASED ITSELF BECOMES THE
SECURITY AND IS MORTGAGED TO THE
LENDING INSTITUTION TILL THE ENTIRE
LOAN IS REPAID.
• SOME INSTITUTIONS MAY ASK FOR
ADDITIONAL SECURITY SUCH AS LIFE
INSURANCE POLICIES, FD RECEIPTS AND
SHARE OR SAVINGS CERTIFICATES.
 INCENTIVES OFFERED BY
LENDING INSTITUTIONS
• A) FREE ACCIDENT INSURANCE
• B) DISCOUNTS
• C) WAIVING OF PRE PAYMENT
PENALTY
• D) WAIVING OF PROCESSING FEE
• E) FREE PROPERTY INSURANCE
 HOUSING LOANS
• Loan Eligibility The Loan Eligibility
Calculator below helps you assess the
Loan Amount you are eligible for:
• Rest Frequency
• Interest Rate option
• Loan Products
• Loan Term
 HOUSING LOANS
• Applicant's Details
• Nature of Employment Employed
• Gross Monthly Income
• Allowances
• Incentives#
• Monthly Obligation(s)
• Eligibility Loan Amount
• ROI % p.a.
• EMI
 Amount of Home Loan
21 to 45 years salaried person : 48
times net monthly
income.
professional/self
employed :4 times net
annual income
Above 45 years salaried person: 36
times net monthly
income .
professional / self
employed: 3 times net
 HOUSING LOANS
• FOR INSTANCE, IF YOU HAVE TAKEN A
LOAN OF RS ONE LAKH AT THE RATE
OF 10.5 PER CENT, FOR A PERIOD OF
TEN YEARS, CALCULATED ON A
MONTHLY REDUCING BALANCE, THE
EMI WOULD WORK OUT TO AROUND
RS 1349.
 HOUSING LOANS
• OF THIS, RS 875 WOULD BE PAYMENT
FOR THE INTEREST PART AND RS 474
WOULD GO TOWARDS REPAYMENT
OF THE PRINCIPAL.
 HOUSING LOANS
• WHEN YOU PAY THE SECOND EMI,
YOUR PRINCIPAL IS REDUCED TO RS
99,526 FROM THE ORIGINAL ONE
LAKH. THE INTEREST CHARGES TOO
DECLINE TO RS 871, SINCE THE
PRINCIPAL AMOUNT ON WHICH
INTEREST IS CALCULATED HAS COME
DOWN TO RS 99,526.
 HOUSING LOANS
• AT THE END OF THE YEAR, YOU
WOULD HAVE PAID RS 5,974
TOWARDS PRINCIPAL AND RS 10,218
TOWARDS INTEREST PAYMENT. OVER
TIME AS PAYMENTS ARE MADE
CAPITAL REPAYMENTS RISES AND
THE INTEREST ELEMENT FALLS.
 HOUSING LOANS
• MANY INTERNET SITES PROVIDE A
CALCULATOR THAT CAN HELP YOU TO
CHECK OUT THE EMI PAYABLE. ALL YOU
NEED TO DO IS TYPE IN THE LOAN YOU ARE
PLANNING TO TAKE, THE PERIOD AND THE
INTEREST RATE.
• YOU CAN ALSO COMPARE THE EMIS OF
VARIOUS LOAN PROVIDERS BEFORE YOU
DECIDE ON THE RIGHT ONE FOR YOU
 HOUSING LOANS
• AT www.economictimes.com, THE
SECTION ON HOME LOANS PROVIDES
SEVERAL CALCULATORS THAT WILL
PROVIDE THE ANSWERS YOU ARE
LOOKING FOR. FOR INSTANCE, YOU
CAN CALCULATE THE EMIS ON A
MONTHLY, QUARTERLY OR ANNUAL
BASIS AND EITHER FOR A CALENDAR
YEAR OR FINANCIAL YEAR.
 HOUSING LOANS
• YOU CAN ALSO COMPUTE THE TAX
BREAKS AVAILABLE TO YOU AND
OTHER DETAILS.
• SO CHECK ON THE RATES GOING IN
THE MARKET, SEEK THE BEST AND
BUY THAT DREAM HOUSE YOU ARE
LOOKING FOR.