This year, Union Budget and the subsequent reforms brought good news for homebuyers in the form of lower interest rates on home loans. Banks rushed to reduce their home loan interest rates to offer buyers with better deals to buy the home of their dreams. The reduction in rates is good for new homebuyers who will get home loans at the lower rates. But how will the existing borrowers get benefits of these revised rates?
Existing borrowers have the option of home loan balance transfer which means that they can transfer the remaining amount of their home loan to another bank that is offering a lower interest rate. Since it a competitive market, some banks also give the option of resetting the interest rate so that the customers do not go to another bank.
To understand these two options better, we first need to know how home loan interest rates are charged by the banks.
What are the two types of home loan interest rate models?
Of late, banks have started following the MCLR models. On the other hand, independent housing finance companies are still using the prime-lending model. MCLR stands for Marginal Cost of fund-based Lending Rate. It is a benchmark rate below which the bank cannot lend. Parameters like marginal cost of funds, operational cost, negative CRR cost and the tenure premium are taken into consideration to calculate the MCLR. Prime lending rate model is treated as reference rate for lending. Banks offer rates lower than prime rate to applicants with good credit score, whereas those who have poor credit score will be charged a higher home loan interest rate.
Benefits of MCLR over PLR
MCLR has been recently rolled out by the RBI to offer more transparency in the Indian lending market. Some of the advantages of MCLR model are-
- These home loan interest rates are more dynamic and determined by the money market conditions and prevailing reforms. This dynamic environment is beneficial for the borrowers.
- MCLR reflects the incremental cost of the sum and changes every month, thus offering the benefits of a lower rate to the homebuyers.
- As opposed to PLR, MCLR actively reacts to the changes in the market.
One should remember that the home loan interest rates under MCLR model change only at a date predetermined at the time of taking the loan. Between two rate-reset dates, an MCLR works similar to the fixed lending rate.
Why should you transfer your home loan when interest rates drop?
Policy reforms and rate reductions make the environment better to take new home loans. However, existing borrowers can also make the most of this situation by transferring the balance of their home loan to another bank that offers better rates. This is a wise step to take in the early periods of your loan. Under this, the entire unpaid principal amount is transferred to another bank at a lower home loan interest rate. The new bank pays the entire outstanding amount to your previous bank and now you have to pay the EMIs for the same amount to the new bank at lower interest rates.
For example, if 50 Lakhs of your principal amount stands unpaid at 12% interest and you transfer it for a reduction of 50 basis points bringing the interest rate to 11.5%; you will save around 2.87 Lakhs in interest which is a considerable amount.
Here you should also know that home loan balance transfer is a lengthy process and involves documentation and formalities just like taking a new home loan. The bank will check your credit score and will take on the transfer only when fully satisfied. You will also have to pay certain amount as processing fee.
How to negotiate with your bank to reset your home loan interest rate?
Resetting your interest rate at the same bank is a much simpler process. Given the competitive sentiments in the market, banks do not want their customers to go to a different bank. You can simply do this by writing to your bank. There are two scenarios- the bank can either reduce your tenure or the interest rate. When tenure is reduced, though the EMI remains same, interest component reduces and principal repayment is increased. When the bank reduces your interest rate, it requires you to submit a new ECS and cancelled cheques.
A home is more than just a roof over your head; it is a feeling, a dream that you have nurtured for a long time. And in making this dream a reality, home loans play a very important role. Over the last two decades, home loan has come out as the best and most preferred way of buying a house. Not only the middle-class buyers, but the rich are also taking the home loan route to finance their home purchase. Sensing the high demand, several banks and financial institutions offer a variety of home loan products at attractive interest rates. One such lender is DHFL.
DHFL stands for Dewan Housing Finance Corporation Ltd., established in the year 1984. It is essentially a home financing company and offers home loans at competitive rates of interest. The company envisions transforming the standard of living in Indian households by giving them greater access to home ownership.
DHFL Home Loan
The interest rate on a loan is the most important factor to be considered by a borrower as it determines the amount that he/she has to shell out in the form of EMIs. DHFL offers home loans at attractive rates of interest to make home buying easier for the people. However, the interest rate differs for salaried and self-employed applicants. The lender also ensures that the home loan process is easy and hassle-free for its customers by keeping the documentation formalities minimal.
The table below gives a glimpse of DHFL Home Loan Interest Rates for salaried and self-employed applicants:
|Loan Amount||Interest Rates for Salaried||Interest Rates for Self-Employed|
|Up to Rs.25 Lacs||9.00%||9.10%|
|Above Rs.25 Lacs to Rs.75 Lacs||9.00%||9.10%|
|Above Rs.75 Lacs to Rs.100 Lacs||9.15%||9.25%|
|Loans above Rs.100 Lacs to Rs.150 Lacs||9.15%||9.25%|
|Loans above Rs.150 Lacs to Rs.300 Lacs||9.35%||9.45%|
|Loans above Rs. 300 Lacs||9.75%||10.00%|
Eligibility Criteria for DHFL Home Loan
DHFL offers its home loan services to salaried and self-employed candidates. Though the maximum loan amount is Rs 5,00,00,000 (minimum amount Rs 1 Lakh), it should not exceed 85% of the property cost. However, the exact loan amount that will be sanctioned to an applicant depends on several other factors like-
- Job stability and continuity of income
- Co-applicant’s income
- Educational qualification
- Assets, liabilities and saving habits
- Repayment capacity
- Credit score
Processing Fees on DHFL Home Loan
Much like other home loan providers, DHFL also charges a nominal processing fee for its home loan product. For the salaried individuals and self-employed professionals, the processing fee ranges between Rs 5,000 and Rs 20,000 whereas for the self-employed non-professionals, it is charged at the rate of 1.5%. One should also note that additional service tax and cess are applicable on the mentioned processing fee. Also, this amount is non-refundable.
Other Features and Benefits of DHFL Home Loan
Following are the features of DHFL Home Loan-
- The tenure of this loan ranges from 1 to 30 years but it does not extend beyond the retirement age or 60 years, whichever is earlier. This limit is 65 years for the self-employed individuals.
- This loan can be taken for financing the purchase of a ready-to-move house or an under-construction house/flat.
- The interest rate applicable on the loan is based on the Retail Prime Lending Rate (RPLR) of DHFL, which is subject to change as per the money market conditions.
- There are two options to pay your home loan EMIs- Electronic Clearance Services (ECS) or post-dated cheques drawn on your salary/savings account.
- DHFL also allows you to avail loans along with other co-applicants provided that they meet the eligibility criteria set by the lender.
Documentation for DHFL Home Loan
For salaried individuals, the lender will ask for the last two months’ salary slip or Form 16, copy of bank passbook and company profile (if it is not a well-known organization) along with the general KYC documents like ID Proof and Residence Proof.
On the other hand, self-employed applicants will have to submit the copy of ITR for the last two years, profit and loss statement and balance sheet, last 6 months’ bank statement, copy of shop/business establishment license and a brief profile of the business along with KYC documents.
A home loan is one of the most popular types of retail loans availed by people across the country. Individuals can apply for a home loan to purchase a property or a plot. They can also apply for a housing loan to renovate, repair or extend their existing home.
Applying for a home loan can be emotionally quite taxing. When people apply for a home loan, they eagerly wait for approval and expect to get the go-ahead from the lender. As such, it can be quite a crushing blow if the loan application is rejected by the bank or the non-banking financial organisation.
However, instead of getting disheartened, these applicants can take concrete steps to ensure their application loan will get approved if they reapply for a home loan.
Here are a few of the common reasons why a home loan application may be rejected and the steps to make sure that you get your home loan when you reapply.
Reason 1: Bad Credit Score
Resolution: A bad credit score is one of the major reasons behind a rejected home loan application. One of the key factors that severely hits the credit score of an individual are missed loan repayments or credit card bill payments. You can start by clearing off any debt that you might have and then strive to improve your credit score.
If you do not have a credit score, which means that you have no credit history, there are fewer chances of you getting a home loan. If your application is rejected for this reason, then you should start to work on your credit score. The way to do is to take small loans or credit cards and pay back on time. This increases your score over time. If you want the home loan on an urgent basis, then you should take someone with a good credit history as a co-applicant. Their score will allow you take the loan without the risk of rejection.
Reason 2: Improper Documentation
Resolution: Another major reason behind the rejection of a home loan application is improper filing or documentation of the loan. It is important for an applicant to fill and sign the application properly and also submit the documents required by the bank to approve the loan application.
To file the application again, the applicant must check out the documentation requirements of the bank for the home loan and submit the application form along with the required documents. It may make sense to talk to the bank or a financial advisor before you apply for the loan.
Reason 3: Multiple Financial Obligations
Resolution: The repayment capacity of an applicant is important to the bank to approve a loan. If an applicant has too many financial obligations such as multiple loans, credit cards, etc., the bank may question the repayment capacity of the individual. They may reject the loan on the assumption that these financial obligations will come in the way of home loan repayment since the applicant is already committed to paying other loans and credit card bills.
In this case, the applicant must first try to clear off any debt that he can and then reapply for the loan. If he has too many loans, then he can pay off all the other debts with a single loan. This will show a sense of financial responsibility and he will be seen as a good candidate for a home loan.
Reason 4: Low Income
Resolution: Low income is another reason why banks reject home loan applications. Basically, the bank assumes that the applicant will not be able to repay the loan on time if his income is below a certain level. In such a case, the applicant can add a spouse or family member with a good income as a co-applicant to reapply for the loan.
Since different banks have different criteria, the candidate can also choose to go to another bank for a home loan. Another solution to this problem is to choose a lower loan amount or a longer loan tenure so that the monthly instalment turns out to be manageable as compared to the income of the applicant.
Reason 5: Unreliable Builder/Area
Resolution: Some banks have more stringent rules than others and check the credibility and reputation of a builder from whom a candidate is planning to buy the property. If the builder does not seem genuine or credible to them, they may reject the home loan application of the applicant. In such cases, the candidate can apply to a different bank for a home loan or choose a different builder.
Sometimes, a bank may have a few areas within a city or town blacklisted for a home loan. If you are planning to purchase a property in this area, you can apply for a home loan from another bank or start looking for a property in a different area.
The housing finance sector in India is no longer dominated by public sector commercial banks. Non-Banking Financial Corporations (NBFCs), that so far restricted operations to wealth management and advisory services, have now entered the housing finance business. According to a 2016 study by ICRA, the home loan market of India is worth 12.5 trillion dollars, 60% of which is controlled by the commercial banks and the NBFCs operate in the rest 40%.
Increased competition in the Indian mortgages market has resulted in relaxation of lending norms and reduction in rates. Post demonetisation, the government has also reduced home loan rates to foster the growth of affordable housing, which again works out in favour of the homebuyers. So, let us talk about a few NBFCs that are making it big in the Indian housing finance business and at the same bringing people closer to their dream homes.
LIC Housing Finance
Initially promoted by LIC of India, LIC Housing Finance is now a public sector NBFC dealing in the Indian home loan business. LIC Home Loans are offered to residents as well as non-resident Indians for purchase or construction of a house or for extension of an existing house. The maximum tenure of LIC Home Loan is 30 years for salaried professionals and 20 years for the self-employed applicants. LICHFL offers housing loans on easy terms and conditions and maintains transparency in its transactions. Some key features of LIC Home Loan are-
- Competitive interest rates
- Guidance by skilled professionals
- Quick loan approval based on the applicant’s income status and credit history
- LTV Ratio- 85% for up to Rs 20 Lakhs, 80% for above Rs 20 Lakhs and up to Rs 75 Lakhs, 75% for above Rs 75 Lakhs, and 75% for a plot purchase
- Payment in Equated Monthly Instalments on monthly rest basis
- Hassle-free documentation formalities
DHFL Home Loan
DHFL is one of the most popular NBFCs in India offering home loans to people at attractive interest rates. Fair terms, flexibility and transparency are the three pillars of DHFL Home Loan. This loan can be taken for purchase of a ready-to-move house or an under-construction flat. DHFL caters to both HNIs and mid-segment buyers; the maximum and minimum amount of DHFL home loan is Rs 5 Crores and Rs 1 Lac respectively. Let’s look at some important features of the housing loan by DHFL-
- Maximum loan amount is 5 Crores but in no case exceeding 85% of the property’s cost
- DHFL home loan tenure ranges from 1 to 30 years subject to the retirement age of the applicant
- The interest rate is based on DHFL’s RPLR which fluctuates from time to time
- Processing fee of 1.5% is charged, which is non-refundable
- EMI can be paid through ECS or post-dated cheques drawn on the applicant’s salary account
- Loan can also be applied for with an earning co-applicant
Indiabulls Home Loan
Indiabulls caters to the widest range of homebuyers and is counted among the preferred home loan lenders in the country. The company understands varied needs of its customers and offers customized home loan products accordingly. Indiabulls home loan can be taken for purchase of flat/bungalow/plot, construction of a house or the extension of an existing house. Unlike other lenders, Indiabulls offers maximum loan amount, that is, 90% of the property cost (for properties up to Rs 30 Lakhs). The maximum tenure is 30 years. Given below are a few salient features of Indiabulls home loan-
- Loan can be taken individually or with co-applicant/s
- Home loan is offered at adjustable rate of interest which is linked to IHFL benchmark rates and is subject to change
- Pre-approved home loan facility is also available
- Facility offered to resident Indians as well as NRIs
- Online management of loan account
- Zero prepayment or foreclosure charges
Apart from LIC, Indiabulls and DHFL, several other NBFCs like Muthoot Finance, Capital First, TATA Capital, Shriram Housing Finance are also operating in the market. These NBFCs, though quite experienced in the financial services field, need to sharpen their skills in the home loan market. Changes in guiding rates and the regulatory framework put pressure on these companies to provide better services at competitive rates. Overall, the future is definitely bright for NBFCs operating in the Indian housing finance sector.
Home loans can run for a long tenure and may extend up to 15 to 20 years. Home is regarded as one of the best investment options. However, not everyone wants to wait for the long tenure to repay loans, since they want to close the loan before the scheduled time.
Therefore, home loan pre-closure is the only option to close your long-term loan before the said duration by paying-off in part or in full. However, it is highly important that you inform the bank if you want to close the loan before its scheduled period. You will have to give it in writing to the bank.
It should be kept in mind that banks usually charge prepayment penalty for closing loan ahead of tenure. However, there are a few banks that do not levy this charge if you can furnish proof regarding the source that you have used for making the pre-payment. As proof of income source, you will have to produce ITR filing, salary slips and bank statements.
The procedure to pre-close LIC HFL home loan is:
- First, you will have to apply for a pre-closure certificate requesting LIC HFL.
- You will receive the certificate in few days, after which you will have to issue a cheque in favour of the banking institution LIC HFL. With this, you will have to give a request letter for pre-closure of the loan.
- In case of fixed rate home loan, a prepayment penalty will be charged, but in case of floating rate home loan, no prepayment penalty is charged.
- Once the payments are done towards the pre-closure of LIC HFL home loan, you will be given the original property documents. The best part of the procedure to pre-close LIC HFL home loan is that the documents can be received in just 15 days.
Usually, there are other procedures that need to be followed in case of home loan pre-closure, other than what you have seen in pre-closure of LIC HFL home loan.
First off, you should get back all original documents, scan them and keep them in a safe place. Make sure that all the pages in the original document should be as it is.
Second, you should obtain a No Objection Certificate (NOC). It is a clearance certificate, which clarifies that the bank no longer has obligations or interest with your property. It ensures that all documents are cleared by the bank after sorting out all doubts.
Just like the procedure to pre-close LIC HFL home loan, other banks have the similar rules. Third, is to remove all liens on your property and getting the same from the registration office. A lien is defined as a transaction which is registered in the Registrar Office that causes obstruction in selling the property. Walk to the registration office with a bank official and get the lien removed. You should know that without a lien removed, a home loan pre-closure is incomplete.
You should also get a legal clearance certificate from your lawyer. The legal clearance certificate that is obtained from the reputed lawyer. Though it is an optional attachment, this process will speed up your pre-closure procedure.
You should also have a detailed track of all loan repayments. Since this process is required to speed up your pre-closure procedure, you should start by tracking all bank statements that actually reflect your loan EMI. Also, keep a photocopy of a demand draft or cheque while paying lump sum prepayments.
Also, obtain an encumbrance certificate from the Registrar. It is a document maintaining all financial transactions that have been performed on the property.
Thus, the smooth procedure to pre-close LIC HFL home loan, as mentioned above, makes sure that even if you close repayment of home loan before time, there is no obligation left to it.
Home is the sweetest abode and when you build a home you want to stay in it for as long as possible. Now, if you have sought loan to make your home, then make sure that you repay it on time so that your home stays yours. However, if you fail to repay, then what happens? What happens to home loan defaulters?
Home loan defaulters- What happens to them?
RBI has stated rules and guidelines for home loan defaulters. When a person fails to repay loan, his entire amount of remaining loan becomes a non-performing asset. In that case, the bank has full right to ask repayment of the home loan in the form of outstanding amount.
The moment a person fails to pay an instalment, it becomes a default instalment. However, home loan default is not a grave issue, since repayment of one or two instalment may happen. Nevertheless, in case of serious situations, legal actions are taken against all home loan defaulters.
Home loan defaulters- What the banks do against them?
The government of India passed a law to protect the interest of lenders, called SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act) in 2002. The law allows the lenders to seize and eventually sell the mortgaged property from the borrower and sell it to acquire the outstanding loan amount.
However, it should be kept in mind that financial institutions like banks are not so severe when it comes to confiscate borrowed amount plus interest from borrowers. Banks try every other possible way to acquire the due loan amount from home loan defaulters. But when nothing works, legal action is taken.
Other obligations for home loan defaulters-
The property is seized by the lender and sold to produce the rest of the lending amount, but problems of borrower do not end there. If the amount realized from property sale is more than outstanding amount, then the excess money paid to the borrowers. Otherwise, if the property sale amount is lesser than the outstanding amount, then the borrower will have to pay the shortfall amount. Apart from this, the borrower will have to meet another obligation which includes paying to reimburse long term capital gain tax.
Another obligation rises when the property against which the borrower has taken loan is disposed within 3 years from the day of acquisition; the excess amount over cost of the property is regarded as short-term capital gain. In that case, the excess amount is taxed for home loan defaulters.
Since it is a serious situation, what can home loan defaulters do to save the property?
- Liquidating investments is a great option. Liquidate bank fixed deposits, equity and mutual funds and pay it off to bank. This way you can save your dream house.
- Have a communication with your lenders. Home loan defaulters can evade grave situation like legal action against them in case of default of loan repayment by talking to the lender regarding EMIs. Request the lender to extend the total loan tenure since this will help to bring the amount of EMI within your financial.
- If home loan defaulters come across serious situation that curb their ability to repay loan, then they have an option to save themselves. Suppose, if the borrower falls critically ill and cannot work, then he/she can furnish related documents in the bank as proof of his/her condition. Further, you will have to produce more documents to the bank proving your record of servicing and your disciplined repayment process, then the bank may be convinced to reschedule your loan.
Home loan defaulters, therefore, can follow the above three ways to curb any problems rising from non-repayment of loan.
How important is CIBIL score for a loan? No matter whom you ask in the banking arena, the answer will be ‘very’. There may be other loans where CIBIL score is given a bit less importance and the bank offers loan to people with a low score to grab business. However, this is not true for home loan as home loan is only given to people having a good score. This ensures that the borrower will be able to pay the amount in time and he can be trusted. Home loans run for a long period of time and in such a scenario, this is quite important. The same is applicable for SBI.
What is CIBIL score?
A CIBIL score is one of the most popular credit scores which summarize your credit history. It is a three digit number that represents your credit record, either good or bad. It is derived by looking at the credit history of the individual during a certain time period. The score ranges from 300 to 900, 300 being worst and 900 being best. A score above 700 is considered a good credit score by most of the banks and financial institutions.
CIBIL score for SBI Home Loan
It is very obvious that you must have a good CIBIL score in order to take a home loan from SBI. This is applicable for home loan too since that is a much bigger amount compared to other loans. SBI is quite strict when it comes to CIBIL score of the customer as they want to be sure of their repayment capacity. A good credit score according to them is 750. So, if your credit score is more than 750, you have high chance of getting a loan if other criteria are satisfied.
What to do if your credit score is low?
If your credit score is low, it is possible that most of the banks will refuse your loan even if you have high income. However, it is not absolutely impossible to increase the score but you may need to wait for six months. A bad credit score means, you have failed to pay installment of your loan. The loan may be of any kind, it can be a personal loan, education loan or credit card dues. Make sure to pay the installments regularly for the next six months without missing a single payment and your score will definitely improve over the time. It is mandatory to wait for six months because that much time is required for the score to improve.
If you have recently taken a loan or missed payment on your credit card, you shall not go for the purchase of home on loan because it is possible that your application will be rejected. You can check your CIBIL score online from the authorized website. You can check it for free once and will have to pay for yearly subscription if you want to keep on checking.
Home loan is a very important decision for anyone as the loan repayments will continue for a long period of time. Gone are those times when people used to wait till retirement in order to purchase a home. These days’ people purchase it at an early age so that they can enjoy the comfort for a longer period of time. However, it is important for the banks as well to know that you will be paying the amount in time.It is thus quite important to have your CIBIL score checked before you apply. This will prevent you against loan rejection.