What is your choice : Fixed, Semi-Fixed or Floating Home Loan.

The choice of a fixed, floating, or semi-fixed interest rate home loan, depends on factors such as the tenure of the loan, age of the applicant and prevailing market conditions

When opting for a home loan, buyers have a choice between three types of schemes – fixed, semi-fixed and floating interest rates. Choosing the correct scheme can be a tricky affair. Various factors can affect buyers in short and long term if a wrong home loan scheme is selected.

In a home loan with a fixed rate of interest, the equated monthly installments or EMIs will remain constant over the tenure of the loan. It is useful to opt for this if interest rates have bottomed out. However, fixed rates are usually higher than floating rates at any given point. On the other hand, for floating interest rate loans, the EMIs would fluctuate as per the market dynamics, as interest rates increase or decrease.”

A semi-fixed rate home loan is a combination of fixed and floating rates. The interest rates on such loans remain unchanged for a specified period of time, after which, the rate of interest is converted to floating.

What suits you?

Experts point out that when interest rates were rising, very few banks and financial institutions were willing to offer fixed rate loans. They were charging at around two to three percent higher than the prevailing floating interest rates. However, now that interest rates are on a downturn, banks have cut the margin spread and are trying to woo customers, with fixed and semi-fixed rate loans.

A home loan seeker must analyze all the factors before finalizing a loan and opt for a scheme that best suits his/her needs and not be lured by the bank’s lucrative offers.

Who should go for Floating Vs Fixed Vs Semi-Fixed rate loan

Floating rate is suitable for the persons who take the loan for a longer period which is more than 20 years. The Fixed rate is apt for short/medium term loan seekers while semi-fixed rates are suitable for medium term loan seekers.

When interest rates are struggling to stay afloat or when the rate is to fall it is advisable to go for floating rate. The Fixed rate is suitable when the interest rate is subject to adopt higher trajectory or go up. Semi-fixed rates will ideally be suited to the situation when in short term the rates are expected to rise and fall down in further course.

When the financial tide is in your favor or the income is enough to support rate fluctuation it is proper to go for floating rate. In contrast, if the tide is not in your favor i.e. the income flow is expected to remain stagnant, opt for fixed rate. The option of semi-fixed rate is also viable for such loan seekers too.

If the borrowers are in the age group of 30-35 years then they should go for floating rate of interest. Loan seeker above 50 years of age should opt for fixed rate due to their low ability to take risks. The same logic will apply on loan seekers who dither from taking risks.

Nowadays, banks are providing flexible tenures for repayment of loans, for a maximum period up to 30 years as per their requirement/eligibility. Some websites and newspapers also give a comparative analysis of housing loan schemes of various banks. Loan seekers can visit the websites of various banks, to get details of housing and other loan products and select a suitable bank accordingly.

The type of interest rate you choose has an impact on the monthly EMIs you pay. It is important that one should know the difference between the fixed rate home loan and floating rate home loan.

Market conditions and its bearing on interest rate schemes

Multiple rate cuts by the RBI, indicate that the market is entering a period of low-interest rates and the same is likely to fall further, in the coming years.

After a series of rate cuts, the RBI is now focusing on its transmission and has been urging banks to pass on the rate cuts to customers, through their lending rates. Consequently, banks may reduce their rates, which would benefit borrowers of floating rate home loans.

 

Demonetization : Relief to borrowers

With the government’s demonetization move affecting the availability of cash and also impacting banking transactions, the RBI has provided an additional 60 days, for the repayment of loans that are due between November 1 and December 31, 2016.

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In view of the cash crunch being faced by borrowers, the Reserve Bank of India (RBI), on November 21, 2016, provided an additional 60 days, for the repayment of housing, car, farm and other loans, worth up to Rs 1 crore.

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This is applicable to loans payable between November 1, 2016 and December 31, 2016, the RBI said in a notification. “It has been decided to provide an additional 60 days, beyond what is applicable for the concerned regulated entity for recognition of a loan account as substandard,” it said.

The above relaxation is available to entities running working capital accounts with any bank, with the sanctioned limit of Rs 1 crore or less. Term loans, whether business or personal, secured or otherwise, the original sanctioned amount of Rs 1 crore or less, on the books of any bank or any NBFC, including NBFC (MFI) would also get the benefit of this relaxation. This will also include housing loans and agriculture loans, it said.

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The apex bank further said that all regulated financial institutions, should note that this is a short-term deferment of classification as substandard due to delay in payment of dues, arising during the period specified above and does not result in restructuring of the loans. The demonetization of higher value currency notes has affected normal banking activities, including clearing of cheques. Besides, borrowers are unable to get payments from their creditors, due to various restrictions including cash withdrawal limit of Rs 24,000 per week, limiting their options to repay their dues.

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It is a welcome move by the RBI, as many people are experiencing inability to repay dues in time, because of the ongoing demonetization drive. For many of them, EMIs are due in the first half of the month. So, the relaxation will help to keep their account standard, even when the payment is not received. Neither will the borrowers’ credit score be impacted negatively due to non-payment, nor will financial institutions have to make additional provisions for sub-standard accounts.

 

 

Demonetization: Boon or Bane for foreign investors

With demonetization likely to have a major impact on cash transactions, the Indian real estate market may become more attractive to foreign investors, who are willing to bet long-term

The demonetization of Rs 500 and Rs 1,000 notes, is likely to result in an immediate reduction in cash transactions, in the real estate sector. Buyers are expected to shift towards more legitimate transactions, thus, having a structural impact over a period of time. Liquidity will contract over the short-term and prices will become more attractive. Investors will have fewer opportunities, for short-term gains.

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Initiatives to attract foreign investors to Indian reality

Demonetization is the latest in a series of moves taken by the government in the last few years. The others include the introduction of the Real Estate Regulatory Act (RERA), improving the policy framework for real estate investment trust (REIT) regulations and liberalizing the foreign direct investment (FDI) policy.

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These moves will make India more attractive for foreign investors and developers, as transparency is important. Earlier, they were competing with local developers and it was not a level playing field. This will send out a positive message about India to the world, with its move towards a transparent economy,

With increasing institutional investor participation, best practices are adopted and the sector matures. Thus, experts believe that we are at the start of a progressive growth cycle, in reality. One may also see consolidation among developers. These factors will surely attract more foreign investors into Indian real estate.

 

How demonetization affects the credibility of the property market

Demonetization could also improve the ease of doing business in the long term. Corruption in obtaining approvals is cited as the key impediment to improving ease of business in the country. By limiting the avenues to exhibit this behavior, there would be a definite positive impact on the ease of doing business. This will encourage economic growth and boost participation from local and global businesses.

However, demonetization by itself, will not bring about greater transparency or eliminate unscrupulous intermediaries.

This needs to be supplemented through appropriate regulation in real estates, such as eventual minimization of Benami property transactions, a ban on all transactions above a particular value in cash and a regime that naturally compels disclosure through the better understanding of valuations.

 

Impact of demonetization on REITs

Will demonetization force investors to consider other avenues for investing in real estates, such as REITs? Experts point out that investors typically engage with developers in the primary markets, which offer relative safety of their investments.

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Demonetization will add to the credibility of developers, to the extent that there is likely to be less unaccounted cash transactions, even during the process of development. So, if anything, investors should actually feel safer working with developers.

Also, investors, who do not wish to get directly involved in the cycle of development and disposal of a property, typically prefer REITs. Moreover, REITs in India focus only on certain forms of income generating property, such as commercial offices, retail, hospitality, and warehousing. This leaves the residential market out of the ambit of REITs. Consequently, investors looking to invest in bulk in the residential market, will not shift focus to REITs.

 

Will demonetization result in lower interest rates?

With demonetization, banks are receiving massive amounts of liquidity, in the form of cash deposits. This means that there will be a surge in the funds available to them for lending and is likely to result in lower interest rates. Demonetization may also widen the tax base and improve the fiscal deficit position. A high fiscal deficit puts upward pressure on interest rates. Any improvement in the fiscal position could result in lower interest rates over the long term. Alternatively, the government can also pass on some of the additional collections to the public, through lower income tax rates. This would result in more capital in the hands of the common man and boost residential sales.

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Bought a home with Vastu faults: Some tips for rectification.

While it is not possible for all homes to be Vastu Compliant, we list the faults that homebuyers should not ignore. Vastu Shastra has a lot of relevance in Indian households and business places. People buying a house or setting up an office or a shop try to adhere to Vastu norms for leading a stress-free homely life or running a successful business. Here under a brief on the methods useful in rectifying Vastu faults.

Is it possible for every apartment that is put up for sale, to comply with Vastu Shastra norms? The answer is no! So, how can homebuyers identify which apartments to buy and which one they should avoid vis-à-vis Vastu norms?

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Vastu experts maintain that buyers should preferably focus on the most important rules of Vastu and make alternative arrangements or corrections, for construction aspects that do not conform to Vastu.

The arrangement of different areas in our home should be as per Vastu norms. Otherwise, it may create unrest in the occupants’ minds, health problems and other problems in life. One should buy a home that at least conforms to 70%-80% of Vastu norms.

Vastu norms to be considered while buying a home:

  • Opt for a house where all the four corners are intact, i.e., without any corner being cut.
  • Avoid southwest facing homes.
  • The staircase should always be clockwise and should not be in the northeast direction.
  • The kitchen should be in southeast or northwest direction. It should not be in the northeast direction.
  • The master bedroom should be in the southwest direction. It should not be in the southeast direction.
  • Toilets should be in the northwest direction. It should not be in the northeast direction.

Solutions for homes with severe Vastu faults

In case you have bought a house with a large number of Vastu faults, they can be rectified with the help of minimal expenses and changes.

The faults that cannot be rectified fully without demolition include problems pertaining to the wrong placement of toilets, kitchens, or staircases, especially if they are constructed in the northeast and if the main entrance of the house is in the south/southwest direction.

Some critical defects can be corrected with pyramids or crystals.

Traditional methods, using mirrors, colors and special metallic wires, can also be used for corrections, depending upon the individual case.

One can also demolish the wrong area and reconstruct it properly. However, this may involve substantial cost, time and complication.

Another Vastu defect is the presence of high voltage wires passing over a house and this can be corrected by incorporating a plastic pipe filled with lime, from one corner of the affected area to the other, in such a manner that both ends remain outside by at least three feet each, will eliminate the negative effects of energy being generated by the overhead wire.

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To conclude, experts suggest that homeowners should not ignore Vastu defects that do not require structural changes, as these can be corrected by making internal arrangements.

Vastu defects that you can rectify, after buying the home.

  • Furniture that is placed in the wrong direction.
  • Inappropriate colors, including that of the flooring.
  • Cooking direction.
  • The direction of toilet basins.
  • An incorrect direction of the puja room.

 

Are Investors still relevant for Real-Estate Sector?

While the current market slowdown would suggest that investors have ‘deserted the real estate sector’, the fact remains that developers have come to rely on their funding and will continue to do so. A short analysis in this regard.

Although not many developers may be willing to publicly admit it, the fact is that developers find it advantageous to have investors as anchors for their projects. Developers need money, even before they can commence a project, to buy land and often, only the investors will give them money at that early stage, without any collateral or receivable.

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Approvals can take any amount of time but not less than one year. During that phase, nobody is going to stand by you, except the investor says an expert on the advantages of having investors to anchor a project.

Even banks will not fund you. All the organized funding starts, only when you have something ready to offer to them. However, developers cannot keep waiting till a project gets approved, to launch it; you need some quasi-investment at each stage.

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In this scenario, there are two models in real estate investment. The first involves a pre-launch with funding only from an investor and a minimum amount of understanding as to what kind of a project it would shape up to be, in the future. The second kind of pre-launch is crowd funding, where there is better clarity on the project’s details. In this case, the developer has the plans for the project (including layouts, floor plans and unit plans) ready but does not have sanctions. Consequently, this is a mass pre-launch and does not depend only on a select set of investors. Although laws do not allow such opaque transactions, it is an open secret in the Indian property market and akin to an IPO model. The advantage for developers is that the price point here is higher than the price point at which they offer it to the select set of investors.

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Unlike end-users, investors are not problematic as they do not ask too many questions. Even if there are some escalation charges, it is easy to deal with one investor than 15 or 20 other people who will keep fighting. So, an investor is an easier person to deal with, once he comes in.

Developers have to brave various odds – courts, ministries, municipalities, local factors, environment and market forces. Under these circumstances, an investor is an asset for the developer. Even when an investor exits, in many cases, he does not sell it to the end-users but sells it back to the developer, who buys it at a thousand-odd rupees cheaper than the price at which the developer will sell to the end-user.

 

 

Benami Property Act to be effective from November 1, 2016

A new law to prohibit Benami property transactions and curb the menace of black money will provide for more stringent punitive measures comes into effect from November 1, 2016

A new law to prohibit Benami transactions, which provides for up to seven years’ imprisonment and fine, for those indulging in such activities, will come into effect from November 1. With a view to curb the menace of black money, the Parliament in August 2016, had passed the Benami Transactions (Prohibition) Act, after assurance from finance minister Arun Jaitley that genuine religious trusts will be kept out of the purview of the legislation.

“The rules and all the provisions of the Benami Transactions (Prohibition) Act, shall come into force on November 1, 2016. After coming into effect, the existing Benami Transactions (Prohibition) Act, 1988, shall be renamed as the Prohibition of Benami Property Transactions Act, 1988,” a CBDT statement said.

While the existing law provides for up to three years of imprisonment or fine or both, for carrying out Benami transactions, the amended legislation would provide for seven years’ imprisonment and fine. The act defines Benami transactions, prohibits them and further provides that any violation is punishable with imprisonment and fine.

 

The PBPT Act prohibits recovery of the property held Benami from Benamidar by the real owner. “Properties held Benami, are liable for confiscation by the government, without payment of compensation,” it said.

An appellate mechanism has been provided under the act, in the form of an adjudicating authority and appellate tribunal. A joint or additional commissioner of IT, an assistant or deputy commissioner and a tax recovery officer in each principal CCIT region, have been notified to perform the functions and exercise the powers of the approving authority, initiating officer and administrator, respectively, under the act, the statement said.

While the 1988 act has nine sections, the amended law would have 71 sections. “Section 58 of the law clearly states that in case of charitable or religious organisation properties, the government has the power to grant exemption,” Jaitley said, responding to concerns of some parliament members about the applicability of the amended law, on properties in the name of deities, churches, mosques, gurudwaras or temples.

 

Make your home Diwali ready in low budget.

Sprucing up one’s home for the festival of Diwali need not be an arduous task. Here are some simple and creative ways, in which homeowners can make their homes look warm and welcoming

How to give an inexpensive makeover for the walls

Painting the house makes it clean and fresh. There are a lot of inexpensive painting options available in the market, which are of good quality. Homeowners can also opt for wall coverings such as wallpapers, to add color to one’s house. There are a variety of wallpapers with exquisite finishes and attractive prices, which can be installed in a day’s time. Alternately, one can use festive wall stickers which can be removed, without damaging the wall or the paint. They can be applied on walls, wood, glass, etc. Swarovski crystals and studded decals can also add glitter to your living rooms.

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Furnishing and accessories for the festive season

Changing the drapes and furnishings, are the easiest ways to add a festive look to your home, this Diwali. While doing so, first select a color theme that complements the furniture and then, opt for floral, geometric or plain fabrics, accordingly. If your home is done up in classy white or soothing beige, then, you can brighten it up with touches of vibrant green or feisty orange. Intricate patterns and soft fabrics like silk, which connote luxury, are ideal for festive seasons.

Metallic touches and ornamental accents also add to the festive feel of a house. Gold or sparkling silver items, handcrafted vases, lamps and ethnic artwork, can transform a festive space. For the dining area, use tableware in lovely colors and designs, made of porcelain, steel, silver, earthenware or and glass.

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Decorating the entrance of the house

Decorate the main door, with a floral toran or colorful bandhanwars designed with pearls, gotas and fancy flowers. As rangolis are considered auspicious, make one with powder or with fresh flowers like marigold, mogra and rose petals, near the entrance of your house. You can also opt for readymade acrylic or studded rangolis and arrange it with hand-painted earthen diyas.

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Diwali lighting options for your home

Lighting plays an important role, in the overall look of a house. “Indirect cove lighting gives a warm and cozy feel to the house while direct lighting or spot lighting is used to create focal areas. Other light fittings like wall bracket lights, may be used to highlight a painting on the wall or artifacts. A chandelier can brighten up the décor of a house, as well. Metal, Brass and Silver are ideal décor elements for Diwali – the festival of lights. Similarly, fairy lights and rope lights create a festive atmosphere. One can be creative, by using paper cones around the light fixtures, to change the shade of the light, from greens, to blues and oranges. You can also use discarded wine bottles and stuff it with Mirchi lights and arrange it around the house for a unique statement.

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Fresh flowers uplift one’s mood and add a feeling of positivity to the home. Mogras, roses, carnations, chrysanthemums, orchids and other exotic flowers can be used to give an eye-catching makeover to the home.  Use a lot of flowers to decorate the home for Diwali. Marigold balls, hung at the entrance and strew flowers around the temple to create a festive look that complements the overall décor of the house.

 

Quick ways to decorate your house, this Diwali

  • Give your home’s windows a quick makeover, by changing the curtains or opting for classy blinds.
  • Keep a plant in a vibrant colored pot and decorate it with fairy lights.
  • Gold-coloured décor pieces can be a lovely addition to a neutral environment.
  • For the bathroom, use matching colored napkins, towels, dispensers and door mats.
  • Use potpourri, reed diffusers and fragrant oils, to create a refreshing ambiance.
  • Add mirrors with fancy frames, to enlighten a dull space.
  • A wide range of silver and brass accessories, used along with fresh flowers, lanterns and diyas, can beautify the temple area.

 

Home in wife’s name- an analysis

Indian constitution advocates same parity for both men and women. Somehow it is not practiced in day-to-day life. It is generally observed that till it is necessary, the home or any property is purchased in the name of male members of the family. The central and many state government for women empowerment provide benefits for women property buyers. A peep in as to what is the benefit when a home is bought in wife’s name.

There are several benefits to buying a property in a woman’s name, either as the sole owner or as a joint owner, with governments and banks offering several sops. Aspiring homebuyers can seek certain benefits including tax exemptions if a home is bought in a woman’s name. Such offers can also attract more women buyers to the realty sector. Encouraging women to register assets in their name, also boosts women’s empowerment.

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Tax benefits

Experts explain that some of the obvious tax benefits of buying a home in the wife’s name include an extra deduction of interest up to Rs 1.5 lakh every financial year if the house is self-occupied. If a husband and wife are the joint owners of a property and if the wife has a separate source of income, then they can both claim tax deductions individually. The tax benefit will depend on the ownership share of each co-owner.

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Discount on stamp duty charges

Several state governments in north India are now offering a partial waiver on stamp duty, for buyers registering properties in a woman’s name – either as a sole owner or as a joint owner.

You can save 1%-2% on stamp duty if the property is in a lady’s name. In Delhi and Haryana, the stamp duty rate is 4% for women, compared to 6% for men. Moreover, if you are undergoing some financial setback and have some debts to repay, the property held in your wife’s name, does not come under the cover for your loss.

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Discount on home loan interest rates

Many banks like SBI, ICICI and HDFC Bank, offer discounted rates on home loans for women borrowers. The prevailing interest rates for women borrowers are as mentioned below:

Interest rate for woman borrower vs. men borrowers

Bank Interest for Women borrower Interest Rate for others
SBI 9.35% 9.40%
ICICI 9.40% 9.45%
HDFC Bank 9.40% 9.45%-10.45%

Note: For amount less than Rs. 1 Cr.

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Things to keep in mind when buying a home in the wife’s name

Experts maintain that it is a good idea to buy a home in the name of one’s wife or in co-ownership. However, the wife can enjoy the tax benefit, only if she has a separate and genuine source of income. Moreover, if there is any legal dispute on the property, then both, the husband and wife will be involved in the case. Therefore, homebuyers should evaluate all possibilities, before making a final decision.

 

Why children’s need find a place in home buying?

In India, the needs of children are not considered before buying a home. Their say and requirements are not on the agenda set for home buying. The maximum consideration in regards to children in a home is that there is a minor consideration for the provision of a separate room. Parents generally do not pay heed to the children’s requirements, when they buy a home. As children usually spend more time at home than their parents, property owners and buyers should ensure that the home fulfills their requirements. Moreover, the house should also be able to meet the child’s changing needs, as they grow and mature.

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We shall now examine the needs of children that buyers need to consider before finalizing a house purchase and the impact on property prices.

 

There are many good reasons why children should be an important consideration while buying a home. Everything that transpires within a family, directly or indirectly involves its children. Even young couples, who do not yet have children, will still consider this as an important factor while choosing a residential property. In a country like India, where emotional ties are strong, it is common for people to make significant investments, based on the present and future needs of our children.

Things to consider, as per children’s requirements

Experts suggest that buyers on a conservative budget should focus on connectivity, rather than location. One should invest in a location that is well connected and not in a location that is centrally located. Builders are also recognizing the importance that children’s needs play, in property transactions and are, therefore, coming up with projects that cater their requirements.

While buying a home, the factors that need to be considered, depend on the various phases of life – a toddler, a teenager and an adult.

Medical facilities should be readily available, not only for children but also for other members of the family. Everyone will agree on the importance of good educational institutions being available. Today, people also look at connectivity to nearby amusement parks, theaters, pubs, malls and food outlets.

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Children’s requirements and its impact on property costs

Nevertheless, the availability of good schools, colleges, green spaces, connectivity, hospitals, malls, etc., will add to the cost of property. As the comfort and convenience that a particular location offers increases, so does the price. It all boils down to what kind of a budget you are working with.

However, a home is essentially a family-oriented property and should not cost more because it is children-friendly. If certain developers want to charge a premium for specific children-oriented features or services, there should be a clear and visible justification and its price should be comparable to any other property, with similar lifestyle amenities.

 

 

Loan from other Banks –Benefits and hurdles

The competition among the institutions disbursing the home loans is on the rise these days. These institutions vie with each other to woo loan seekers to their organization with promises of interest rate cuts and better services. For this, they try to lure existing borrower with marginal rate cuts and easy repayment terms.

While it may be tempting for a home loan borrower to transfer his/her loan to a bank that offers lower rates, there are several charges and procedures that the applicant should consider.

The facility to transfer one’s home loan from one bank to another, allows borrowers to have a ‘plan B’ in case they are not satisfied with their existing lender. Besides deficiency in services, a borrower may also want to switch banks if their existing bank does not allow a renegotiation of the loan’s terms, such as changing the tenure or reworking the EMI.

Earlier, banks would not pass on home loan interest rate cuts to existing borrowers. Allowing the same would have benefitted customers and led to greater savings during repayment. In such a case, transferring a home loan would have been beneficial.

Take an example where a home owner’s home value increased significantly when compared to the price at which it was bought. When he wanted to renovate his home and his bank was unwilling to increase the loan amount, he switched to another bank. However, he also faced several problems while transferring the loan.

Tedious process

To transfer a home loan, the borrower first needs to submit an application to his/her, current lender. The bank will then provide a consent letter or NOC, along with a document mentioning the outstanding amount. These documents should be submitted to the new bank to which the borrower wants to shift the loan.

The new bank will treat the application as a fresh loan and the documentation process, including submission of the employer’s letter, salary slip, photo identity proof, bank statement, etc., will have to be done all over again. Transfer of a home loan requires diligent documentation, coordination, and follow-up. Problems may arise if the original loan is jointly taken and one of the borrowers has retired or income levels have reduced. The new bank may also refuse to take over the loan if the customer has not been paying the EMIs regularly.

If the new lender is satisfied with all the documents, he will sanction the loan amount to the previous lender in order to close your account.

Open-ended risk for the new bank

Once the transaction is completed, the property’s papers are handed over to the new lender and remaining post-dated cheques or ECS payments are canceled. The bank that agrees to give the loan, runs an open-ended risk because the existing bank releases the mortgaged documents of the property only after receiving the payment. However, they take this risk solely to acquire a new customer.

Pay the fee, again

As the new bank treats the application as a fresh loan, all charges associated with availing a home loan will be applicable. Consequently, the borrower will have to pay the processing fees, stamp duty, notarization charges and franking charges. This can easily be 0.5% to 1% of the loan amount.

 

Not a formal procedure

There is no formal procedure for carrying out the loan transfer process and this is deliberate. The Anand Sinha Committee that was set up by the RBI to look at issues surrounding consumer service briefly touched upon the balance transfer issue. However, no action has been taken, yet.

To avoid hassles, most customers prefer to stay with the same bank, as long as they are allowed to switch to a lower cost loan by paying a fee.

 

 

The competition among the institutions disbursing the home loans is on the rise these days. These institutions vie with each other to woo loan seekers to their organization with promises of interest rate cuts and better services. For this, they try to lure existing borrower with marginal rate cuts and easy repayment terms.

While it may be tempting for a home loan borrower to transfer his/her loan to a bank that offers lower rates, there are several charges and procedures that the applicant should consider.

The facility to transfer one’s home loan from one bank to another, allows borrowers to have a ‘plan B’ in case they are not satisfied with their existing lender. Besides deficiency in services, a borrower may also want to switch banks if their existing bank does not allow a renegotiation of the loan’s terms, such as changing the tenure or reworking the EMI.

Earlier, banks would not pass on home loan interest rate cuts to existing borrowers. Allowing the same would have benefitted customers and led to greater savings during repayment. In such a case, transferring a home loan would have been beneficial.

Take an example where a home owner’s home value increased significantly when compared to the price at which it was bought. When he wanted to renovate his home and his bank was unwilling to increase the loan amount, he switched to another bank. However, he also faced several problems while transferring the loan.

Tedious process

To transfer a home loan, the borrower first needs to submit an application to his/her, current lender. The bank will then provide a consent letter or NOC, along with a document mentioning the outstanding amount. These documents should be submitted to the new bank to which the borrower wants to shift the loan.

The new bank will treat the application as a fresh loan and the documentation process, including submission of the employer’s letter, salary slip, photo identity proof, bank statement, etc., will have to be done all over again. Transfer of a home loan requires diligent documentation, coordination, and follow-up. Problems may arise if the original loan is jointly taken and one of the borrowers has retired or income levels have reduced. The new bank may also refuse to take over the loan if the customer has not been paying the EMIs regularly.

If the new lender is satisfied with all the documents, he will sanction the loan amount to the previous lender in order to close your account.

Open-ended risk for the new bank

Once the transaction is completed, the property’s papers are handed over to the new lender and remaining post-dated cheques or ECS payments are canceled. The bank that agrees to give the loan, runs an open-ended risk because the existing bank releases the mortgaged documents of the property only after receiving the payment. However, they take this risk solely to acquire a new customer.

Pay the fee, again

As the new bank treats the application as a fresh loan, all charges associated with availing a home loan will be applicable. Consequently, the borrower will have to pay the processing fees, stamp duty, notarization charges and franking charges. This can easily be 0.5% to 1% of the loan amount.

 

Not a formal procedure

There is no formal procedure for carrying out the loan transfer process and this is deliberate. The Anand Sinha Committee that was set up by the RBI to look at issues surrounding consumer service briefly touched upon the balance transfer issue. However, no action has been taken, yet.

To avoid hassles, most customers prefer to stay with the same bank, as long as they are allowed to switch to a lower cost loan by paying a fee.