Housing is a priority sector (banks are required to lend a prescribed percentage of their total advances to this sector) declared by RBI. In view of stiff competition among banks and financial institutions for personal advances and because housing loans are secure and safe advances with comparatively higher loan amount than other categories of personal advances, all banks and financial institutions show their keenness for home or housing loans. An individual looking for finance for acquiring a home / flat/ apartment should compare the offers carefully before finalizing the bank / financial institution for availing the finance. Some important aspect to be compared are:
The features, in general, of Home Loans / Housing Loans available from banks/financial institutions are as under:
|Purpose||Purchase or Construction of a House/ Flat
Purchase of a plot of land for construction of House Extension, repair or renovation or alteration of an existing House/ Flat
|Amount of Loan||The amount of loan is determined by:
|Interest Rate||Home/Housing Loans being priority sector and fully secured advances attract lower rate of interest than other personal advances.
The interest rate applicable on Housing loans is linked to the Prime Lending Rate (PLR) /Advance Rate of the financing bank.
Banks offer the option of choosing fixed and floating rates of interest on housing loans. Under fixed rate option the interest rate remains same during currency of the loan and under floating rate option the interest rate will up or down with the financing bank's Prime Lending Rate (PLR) /Advance Rate. Banks also offer the option of combining fixed and floating rate options by allowing you to opt for fixed rate for a few years and floating rate thereafter.
Some banks charge interest on daily reducing balance basis and some banks charge interest on monthly reducing balance basis. The charging of interest on daily reducing balance basis results in less interest load on the borrower.
|Processing fee and / or Application Handling Charges||The amounts of processing fee / Application handling charges differ from bank to bank. Some banks charge a flat amount and some charge a percentage of the loan amount.|
Some banks also retain a portion of the processing charges/fee in case of rejection of the loan application by the bank.
|Type of Loan and Repayment||The loan is sanction as Term Loan. The repayment is allowed by way of monthly installments for a maximum period of 20 - 25 years or upto the age of 65/70 years. Generally, banks allow repayment period of 25 years to borrowers aged below 45 years and a repayment period of upto 15 years to borrowers aged above 45 years.|
|Application||Application for the loan is required to be made on standard application form of the financing bank / financial institution.|
|Pre-sanction Documents||The application has to accompany the following documents:
A. Purchase of a ready built house or land for construction of a house
|Post Sanction/ Disbursal Documents||After sanction of the loan by the banks undernoted documents are required to be executed/ furnished by borrowers to banks:
|Disbursal of Loan||In case of purchase of housing property, borrower has to deposit the margin money with the bank and a draft/ pay order/ banker's cheque for the cost of the housing property (less advance paid, if any) is issued in the name of the seller.
In case of construction of a house, the loan amount is released in suitable installmentsinstallmentsinstallmentsh at various stages of construction based on progress report from an architect and inspection by bank official(s).
|Moratorium Period||In case of purchase of property, the repayment usually starts from next month.
In case of construction of house/ flat, the repayment starts from the month following the month of completion of construction or 18/24 months from the date of sanction of loan, whichever is earlier.
|Pre-payment / Advance Payment of Loan||All banks usually charge penalty for pre-payment of loan. However, the amount of penalty differs from bank to bank.
Banks also charge differing amounts of penalty on late payment of installments / other indiscipline in the loan account. The penalty clause should be looked into carefully to avoid any future problems.