Home Loans in India from Banks

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Also Watch our Videos explaining various aspects on Home Loans at http://iedubook.com/tutorial/cl/23/Finance-and-Life/Borrowings.html

Home Loans

Housing Loan  is a secured loan given to a Borrower who wants to purchase a House or property. The loan is given by the bank/ housing finance company, which also keeps the property purchased through the money borrowed as collateral.

Purpose of Home Loan

• Purchase a residential apartment which could be ready to move in or under construction.
• Transfer outstanding balance from one housing company to another, which may offer a better rate
• Repair and renovation of existing house, which may already have a loan
• Plot for construction of house, along with the cost for construction

Maximum Amount of Loan

The amount of home loan which a bank gives to a customer depends on his/her repayment capabilities, like your income, age, job etc, and is generally restricted to a maximum of 70-85% of the cost of the property. Normally this percentage is more in case of Flats and little lower in case where a user purchases a plot of land and carries out construction thereon.

Tenor

Maximum tenure of home loan from various banks is 20 years. In case of salaried individuals who are approaching retirement within a period of less than 20 years, the tenure is capped at retirement age.  

Maximum Eligibility

Each bank has its own criterion to determine the individuals eligibility for loan. However, if the spouse of the borrower also earn, they can be made co-applicant and their income would then be considered to arrive at total eligibility.

Rates and Fees

Rates and Fees on Home Loan depend on the period and amount of Loan. Normally these have ranged between 7-12% in the past, and vary depending on the economic conditions and rates fixed by RBI, which are taken as benchmark by the Banks or Housing Finance Companies to grant Loans.

Insurance

When you take a Home loan, these days certain companies also insure your Home loans. Many banks are willing to provide additional loan to cover up the insurance amount, which is normally one time. The impact is that they increase your EMI on account of insurance premium so paid.

Tax Break

Interest paid by a person on Home loan is also allowed as a deduction for income tax purpose. In case of self occupied property, this is restricted to INR 150,000 (subject to change from time to time under tax laws) per borrower. In case of property which is rented out, the actual interest paid can be claimed as a deduction, subject to certain conditions.

Increase in rate of interest on Home Loans

Whenever there is an increase in the rate of interest in case of floating loans, the bank has two options : -

• Increase the Equated Monthly installment payable by borrower
• Increase tenure of Loan

Prepayment

The Borrower has the option to prepay the loans whenever they have surplus money. Some banks have restrictions on minimum period before which the repayment can be made. However, continuous and regular payments can significantly reduce your tenure of loan. Refer our Video on how the prepayment of 10,000, 20,000  a month can reduce the tenure of Loan from 20 years for a loan of Rs. 20,00,000, other things remaining the same at the following link : -

The Author can be reached at arinjayjain@iedubook.com

Types of Loans Available in India

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Types of Loans Available in India

Normally, an individual can opt for the following types of Loans in India : -

·         Home Loans

·         Car Loans

·         Loans against Property

·         Personal Loans

·         Education Loan

Depending on the eligibility criterion, the quantum, and type of loan may vary from individual to individual. We have broadly explained each one of these loans in our Video at www.iedubook.com at the following link :

You can also visit independent Article on each of these Loans in our Blog, and in separate Videos.

Foreign Currency Convertible Bond Woes of India Inc. - What are FCCB's and the Problem therein

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Generic Information about FCCB to understand concept of FCCB - Please refer the relevant prevalent guidelines of RBI from time to time for acting on professional matters.

Foreign Currency Convertible Bonds are issued in India in accordance with the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, as amended and supplemented from time to time.  FCCB are bonds issued by an Indian company, which are subscribed by non-residents in foreign currency and have the following features : -

• They are convertible into equity shares, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments, at the option of the Non resident investor;
• Are entitled to a low interest rate on the Bonds;

These Bonds were generally issued by the issuing companies at very high price vis a vis the existing market price of shares in 2005-2006. Now when the redemption time has arisen, the prices of the shares are well below  redemption price, because of which conversion option is  not exercised by the non resident Investors for such shares. Hence the issuing companies are suppose to redeem them at issue price and accrued interest, as applicable. However, since raising of funds has its own challenges, and one needs to keep the regulatory guidelines in mind, options are limited, but the relevant authorities are working on the matter to come up with possible solutions.

The attached Video explains the basic concept of what FCCB are and what is the problem associated with these FCCB as they come up for redemption.