Showing posts with label Loan. Show all posts
Showing posts with label Loan. Show all posts
Friday, 28 October 2011
Housing Loan EMI Up by 24%
The latest increase of 0.25% in key policy rates by RBI will be mirrored by a
commensurate increase in lending rates.Housing loan borrowers have risen by 24% over the past one year.
The formula to calculate EMIs and then try to write a programme that calculates the EMIs for them. I find it particularly appalling that very few bother to figure it out for themselves, especially since it involves elementary algebra that most of us have surely learnt in high school. It either reflects the creeping sloth and sloppiness in our generation or the rote learning and regurgitating of formulae that our system of education seems to encourage. In any case, I attempt to show in this post how simple it really is to figure out how to calculate EMIs on your own and to hopefully encourage my fellow engineers into applying the basic mathematics they learn in school to real-life problems themselves instead of looking around to see if someone else has solved it for them.
For the sake of simplicity, assume that the loan is offered on a "monthly rest" basis. That is, the bank calculates the interest at the end of every month on the amount you still owe to the bank at the beginning of the month, adds it to the amount you already owe and then deducts your EMI from this to calculate the total amount you still owe to the bank at the beginning of the next month. Some banks offer loans on a "daily rest" basis, where the outstanding amount and the interest is recalculated every day, but you still pay back on a monthly basis. The older "annual rest" basis is no longer in use as far as I can tell. Note that it is easy to adapt the formula given here to the "daily rest" basis and that is, of course, left as an exercise for the reader.
Suppose you take on a loan for P Rupees, the tenure of the loan is n months (for example, n=240 for a 20-year loan), the monthly rate of interest is r (usually calculated by dividing the annual rate of interest quoted by the bank by 12, the number of months in a year, and dividing that by 100 as the rate is usually quoted as a percentage) and E Rupees is the EMI you have to pay every month. Let us use Pi to denote the amount you still owe to the bank at the end of the i-th month. At the very beginning of the tenure, i=0 and P0=P, the principal amount you took on as a loan.
At the end of the first month, you owe the bank the original amount P, the interest accrued at the end of the month r×P and you pay back E. In other words:
or to rewrite it slightly differently:
Similarly, at the end of the second month the amount you still owe to the bank is:
or substituting the value of P1 we calculated earlier:
and once again expanding it and rewriting it slightly differently:
where "xy" denotes "x raised to the power y" or "x multiplied by itself y times". To make this look slightly simpler, we substitute "(1 + r)" by "t" and now it looks like this:
Continuing in this fashion and calculating P3, P4, etc. we quickly see that Pi is given by:
At the end of n months (that is, at the end of the tenure of the loan), the total amount you owe to the bank should have become zero. In other words, Pn=0. This implies that:
which means that:
We can simplify this further by noticing that we have a geometric series of n terms here with a common ratio of t and a scale factor of 1. The sum of such a series is given by "(tn - 1)/(t - 1)", which we substitute in the above equation to yield:
which can be rewritten as:
which can again be rewritten by substituting the value of t back as "(1 + r)" as:
and this is the formula for calculating your EMI. This formula can also be rendered more clearly as:
Suppose you take a loan from a bank of 10,00,000 Rupees for 15 years at 8.5% annual rate of interest calculated on a monthly rest basis.
In that case, P = 10,00,000, n = 15×12 = 180 and r = (8.5/12)/100 = 0.0070833333. Putting these values into the formula given above gives us E = 9847.40 (approximately).
commensurate increase in lending rates.Housing loan borrowers have risen by 24% over the past one year.
The formula to calculate EMIs and then try to write a programme that calculates the EMIs for them. I find it particularly appalling that very few bother to figure it out for themselves, especially since it involves elementary algebra that most of us have surely learnt in high school. It either reflects the creeping sloth and sloppiness in our generation or the rote learning and regurgitating of formulae that our system of education seems to encourage. In any case, I attempt to show in this post how simple it really is to figure out how to calculate EMIs on your own and to hopefully encourage my fellow engineers into applying the basic mathematics they learn in school to real-life problems themselves instead of looking around to see if someone else has solved it for them.
For the sake of simplicity, assume that the loan is offered on a "monthly rest" basis. That is, the bank calculates the interest at the end of every month on the amount you still owe to the bank at the beginning of the month, adds it to the amount you already owe and then deducts your EMI from this to calculate the total amount you still owe to the bank at the beginning of the next month. Some banks offer loans on a "daily rest" basis, where the outstanding amount and the interest is recalculated every day, but you still pay back on a monthly basis. The older "annual rest" basis is no longer in use as far as I can tell. Note that it is easy to adapt the formula given here to the "daily rest" basis and that is, of course, left as an exercise for the reader.
Suppose you take on a loan for P Rupees, the tenure of the loan is n months (for example, n=240 for a 20-year loan), the monthly rate of interest is r (usually calculated by dividing the annual rate of interest quoted by the bank by 12, the number of months in a year, and dividing that by 100 as the rate is usually quoted as a percentage) and E Rupees is the EMI you have to pay every month. Let us use Pi to denote the amount you still owe to the bank at the end of the i-th month. At the very beginning of the tenure, i=0 and P0=P, the principal amount you took on as a loan.
At the end of the first month, you owe the bank the original amount P, the interest accrued at the end of the month r×P and you pay back E. In other words:
P1 = P + r×P - E
or to rewrite it slightly differently:
P1 = P×(1 + r) - E
Similarly, at the end of the second month the amount you still owe to the bank is:
P2 = P1×(1 + r) - E
or substituting the value of P1 we calculated earlier:
P2 = (P×(1 + r) - E)×(1 + r) - E
and once again expanding it and rewriting it slightly differently:
P2 = P×(1 + r)2 - E×((1 + r) + 1)
where "xy" denotes "x raised to the power y" or "x multiplied by itself y times". To make this look slightly simpler, we substitute "(1 + r)" by "t" and now it looks like this:
P2 = P×t2 - E×(1 + t)
Continuing in this fashion and calculating P3, P4, etc. we quickly see that Pi is given by:
Pi = P×ti - E×(1 + t + t2 + ... + ti-1)
At the end of n months (that is, at the end of the tenure of the loan), the total amount you owe to the bank should have become zero. In other words, Pn=0. This implies that:
Pn = P×tn - E×(1 + t + t2 + ... + tn-1) = 0
which means that:
P×tn = E×(1 + t + t2 + ... + tn-1)
We can simplify this further by noticing that we have a geometric series of n terms here with a common ratio of t and a scale factor of 1. The sum of such a series is given by "(tn - 1)/(t - 1)", which we substitute in the above equation to yield:
P×tn = E×(tn - 1)/(t - 1)
which can be rewritten as:
E = P×tn×(t - 1)/(tn - 1)
which can again be rewritten by substituting the value of t back as "(1 + r)" as:
E = P×r×(1 + r)n/((1 + r)n - 1)
and this is the formula for calculating your EMI. This formula can also be rendered more clearly as:
Suppose you take a loan from a bank of 10,00,000 Rupees for 15 years at 8.5% annual rate of interest calculated on a monthly rest basis.
In that case, P = 10,00,000, n = 15×12 = 180 and r = (8.5/12)/100 = 0.0070833333. Putting these values into the formula given above gives us E = 9847.40 (approximately).
Thursday, 27 October 2011
Mortgage Rates Today for the Top Lenders on 26 Oct 2011
Current mortgage rates today have mostly decreased this morning after the last 5 business days or so we have seen mainly incremental increases daily from the top lenders we study. All changes and current rates will be listed below for your mortgage shopping convenience.
Both regular and FHA 30-year fixed loans and 5-year ARMs all decreased at Wells Fargo this morning under their home purchase program. Regular 30-year fixed loans and FHA 5-year ARMs decreased under their refinance program.
30-year fixed loans and 7-year ARMs decreased at Chase under their home purchase program. 30 and 15-year fixed loans decreased along with 5 and 7-year ARMs under their refinance program.
At Bank of America, 30-year fixed rates and 7-year ARMs decreased as well under their home purchase program. It appears that refinance rates remained the same.
Regular and FHA 30, and regular 20 and 15-year fixed rates decreased along with 3 and 5-year ARMs at US Bank.
Wells Fargo Home Purchase Rates
30-year fixed rates 4.250%
FHA 30-year fixed rates 4.000%
15-year fixed rates 3.500%
5-year Arms 2.500%
FHA 5-Year ARMs 3.000%
Wells Fargo Refinance Rates
30-year fixed rates 4.250%
FHA 30-year fixed rates 4.000%
15-year fixed rates 3.500%
5-year Arms 2.625%
FHA 5-Year ARMs 2.875%
Chase Home Purchase Rates
30-year fixed rates 3.875%
15-year fixed rates 3.250%
7-year ARMs 2.875%
5-year ARMs 2.500%
Chase Refinance Rates
30-year fixed rates 4.125%
15-year fixed rates 3.500%
7-year ARMs 3.125%
5-year ARMs 2.625%
Bank of America Home Purchase Rates
30-year fixed rates 4.125%
15-year fixed rates 3.375%
7-year ARMs 2.875%
5-year ARMs 2.500%
Bank of America Refinance Rates
30-year fixed rates 4.375%
15-year fixed rates 3.625%
7-year ARMs 3.125%
5-year ARMs 2.750%
US Bank Fixed Rate Mortgages
30-year fixed rates 3.750% – 4.250%
20-year fixed rates 3.750% – 4.000%
15-year fixed rates 3.250 – 3.625%
10-year fixed rates 3.250% -3.375%
FHA 30-year fixed rates 3.750% – 4.000%
FHA 15-year fixed rates 3.375% – 3.750%
ARMs
3-year ARMs 2.375% – 2.875%
5-year ARMs 2.625%- 3.000%
Places: Continental United States Alaska, Hawaii, Guam
Units General Higher Cost General Higher Cost
1 $417,000 $729,750 $625,500 $938,250
2 $533,850 $934,200 $800,775 $1,201,150
3 $645,300 $1,129,250 $967,950 $1,451,925
4 $801,950 $1,403,400 $1,202,925 $1,804,375
The limit may be lower for a specific high-cost area; use the Loan Limit Look-Up Table above to see limits by location. These limits are the same as the 2010 high-cost area loan limits and apply to all Loans originated on or before September 30, 2011. Loans originated on or after October 1, 2011, will use the “permanent” high-cost area loan limits established by FHFA under a formula of 115% of the 2010 median home price, up to a maximum of $625,500 for a 1-unit property in the continental U.S.
Both regular and FHA 30-year fixed loans and 5-year ARMs all decreased at Wells Fargo this morning under their home purchase program. Regular 30-year fixed loans and FHA 5-year ARMs decreased under their refinance program.
At Bank of America, 30-year fixed rates and 7-year ARMs decreased as well under their home purchase program. It appears that refinance rates remained the same.
Regular and FHA 30, and regular 20 and 15-year fixed rates decreased along with 3 and 5-year ARMs at US Bank.
Wells Fargo Home Purchase Rates
30-year fixed rates 4.250%
FHA 30-year fixed rates 4.000%
15-year fixed rates 3.500%
5-year Arms 2.500%
FHA 5-Year ARMs 3.000%
Wells Fargo Refinance Rates
30-year fixed rates 4.250%
FHA 30-year fixed rates 4.000%
15-year fixed rates 3.500%
5-year Arms 2.625%
FHA 5-Year ARMs 2.875%
Chase Home Purchase Rates
30-year fixed rates 3.875%
15-year fixed rates 3.250%
7-year ARMs 2.875%
5-year ARMs 2.500%
Chase Refinance Rates
30-year fixed rates 4.125%
15-year fixed rates 3.500%
7-year ARMs 3.125%
5-year ARMs 2.625%
Bank of America Home Purchase Rates
30-year fixed rates 4.125%
15-year fixed rates 3.375%
7-year ARMs 2.875%
5-year ARMs 2.500%
Bank of America Refinance Rates
30-year fixed rates 4.375%
15-year fixed rates 3.625%
7-year ARMs 3.125%
5-year ARMs 2.750%
US Bank Fixed Rate Mortgages
30-year fixed rates 3.750% – 4.250%
20-year fixed rates 3.750% – 4.000%
15-year fixed rates 3.250 – 3.625%
10-year fixed rates 3.250% -3.375%
FHA 30-year fixed rates 3.750% – 4.000%
FHA 15-year fixed rates 3.375% – 3.750%
ARMs
3-year ARMs 2.375% – 2.875%
5-year ARMs 2.625%- 3.000%
Places: Continental United States Alaska, Hawaii, Guam
Units General Higher Cost General Higher Cost
1 $417,000 $729,750 $625,500 $938,250
2 $533,850 $934,200 $800,775 $1,201,150
3 $645,300 $1,129,250 $967,950 $1,451,925
4 $801,950 $1,403,400 $1,202,925 $1,804,375
The limit may be lower for a specific high-cost area; use the Loan Limit Look-Up Table above to see limits by location. These limits are the same as the 2010 high-cost area loan limits and apply to all Loans originated on or before September 30, 2011. Loans originated on or after October 1, 2011, will use the “permanent” high-cost area loan limits established by FHFA under a formula of 115% of the 2010 median home price, up to a maximum of $625,500 for a 1-unit property in the continental U.S.
Monday, 17 October 2011
Important Details of your Credit Policy
Have you often found yourself baffled with esoteric terms used in your credit policy? These are the words like cash reserve ratio (CRR), reverse repo rates, increased provisioning etc. Not all loan takers are able to understand the impact of such policy measures on the rate at which they get their housing loan. The articled sheds considerable light on the mechanism by which the monetary policies drafted by the central bank impact you.
Recently, the Reserve Bank of India has laid new provisions regarding home loan interest rates in its newly drafted credit policy, which talks about an increase in CRR. Encouraged by the same, most banks began increasing the prime lending rate (PLR) on loans of one type or another. A hike in PLR affects rates on loans. Let's see what the measures mean for the loan buyer.
Hike in CRR and its impact
CRR is an acronym used for cash reserve ratio, which is the percentage of bank reserves to deposits and notes with the RBI as stipulated by the section 42(1) of the RBI Act 1934. An increase in CRR limits liquidity by bringing a decrease in number of resources for banks to lend out of every rupee deposit they accept. RBI hikes the CRR with an aim to siphon out the excess liquidity in the banking system.
However, the question remains whether an increase in CRR be translated into a rate hike or not? As per the general perception, a smaller pool of money is usually chased by the same number of loan borrowers, which increases interest rates. But banking analysts opine contrary to the belief and believe that a hike in CRR may not necessarily push up interest rates immediately.
Even banks prefer to invest more with the RBI as reserves; the banking system may witness surplus liquidity for a short period. For that reason, banks don't have the choice to add to interest rates unless the demand for credit shoots up to an extent that all the money is lent out.
Repo & Reverse Repo Rates
The reverse repo rate is the return banks earn on excess funds invested with the central bank against Government securities. These rates set the floor and ceiling for risk-free overnight borrowing and lending.
Indian Home Loans given have to be done by increasing the risk premium which largely depends on the borrower's credit rating. Such rates hold importance as they set the direction for other lending rates. A hike in the reverse repo rate translates into a high cost of borrowing for common loan buyers. If banks are earning good percentage by lending risk free to RBI, they can certainly increase their profit percent by lending to others.
Recently, the Reserve Bank of India has laid new provisions regarding home loan interest rates in its newly drafted credit policy, which talks about an increase in CRR. Encouraged by the same, most banks began increasing the prime lending rate (PLR) on loans of one type or another. A hike in PLR affects rates on loans. Let's see what the measures mean for the loan buyer.
Hike in CRR and its impact
CRR is an acronym used for cash reserve ratio, which is the percentage of bank reserves to deposits and notes with the RBI as stipulated by the section 42(1) of the RBI Act 1934. An increase in CRR limits liquidity by bringing a decrease in number of resources for banks to lend out of every rupee deposit they accept. RBI hikes the CRR with an aim to siphon out the excess liquidity in the banking system.
However, the question remains whether an increase in CRR be translated into a rate hike or not? As per the general perception, a smaller pool of money is usually chased by the same number of loan borrowers, which increases interest rates. But banking analysts opine contrary to the belief and believe that a hike in CRR may not necessarily push up interest rates immediately.
Even banks prefer to invest more with the RBI as reserves; the banking system may witness surplus liquidity for a short period. For that reason, banks don't have the choice to add to interest rates unless the demand for credit shoots up to an extent that all the money is lent out.
Repo & Reverse Repo Rates
The reverse repo rate is the return banks earn on excess funds invested with the central bank against Government securities. These rates set the floor and ceiling for risk-free overnight borrowing and lending.
Indian Home Loans given have to be done by increasing the risk premium which largely depends on the borrower's credit rating. Such rates hold importance as they set the direction for other lending rates. A hike in the reverse repo rate translates into a high cost of borrowing for common loan buyers. If banks are earning good percentage by lending risk free to RBI, they can certainly increase their profit percent by lending to others. What bankers do not discuss in your Home Loan ?
we discuss on the softer side of the matter that is usually ignored amidst the fancies of buying home loan, but turn critical in nature.
How much?
As a thumb rule, your Equated Monthly Installment (EMI) on home loan should not exceed by 40 per cent of your net monthly income. Net income is meant by the disposable income left after all statutory deductions like insurance premium, income tax, PF contributions, and other obligations towards mutual fund SIP (Systematic Investment Plans) etc.
Thus if your monthly income is Rs 20,000 and net income comes to Rs 15,000, your monthly home loan installment should not exceed Rs 6,000 (40% of Rs 15,000). The rest is assumed towards your routine expenditure.
Our suggestion
Though 40% is a standard, we advise you to keep it below 25% of your present net income. Reason- you should have reserves to meet some unforeseen situations. It may be healthcare or financial affairs or any unexpected expenses under the sun.
Future Planning
A large number of people project hike in their incomes for future and make decisions based upon estimations. It’s good to be positive.
But you may enter into troubled waters in case things move in opposite direction.
Also, the home loan is a long term liability, usually between 10-20 years. In this period, your income may keep on rising but so do your liabilities and expenses. What should you do then?
Our suggestion
Suppose you expect your present monthly income of Rs 20,000 to Rs 30,000 a year after, you plan your EMI as per present income only.
Later when your projections turn into reality, you can either re-work your EMI with your bank or invest the additions into other prolific investment options.
This way you can balance your liabilities and at the same time remain stress-free on spiraling burden of EMI, which could form in case of failing estimations.
Final words
We hope that the above discussions will prove beneficial to you and help you work out a well planned home loan transaction, safe and happy.
We’ll continue bringing such information and insights on home loans for you, on regular basis. So be in touch.
As a thumb rule, your Equated Monthly Installment (EMI) on home loan should not exceed by 40 per cent of your net monthly income. Net income is meant by the disposable income left after all statutory deductions like insurance premium, income tax, PF contributions, and other obligations towards mutual fund SIP (Systematic Investment Plans) etc.
Thus if your monthly income is Rs 20,000 and net income comes to Rs 15,000, your monthly home loan installment should not exceed Rs 6,000 (40% of Rs 15,000). The rest is assumed towards your routine expenditure.
Our suggestion
Though 40% is a standard, we advise you to keep it below 25% of your present net income. Reason- you should have reserves to meet some unforeseen situations. It may be healthcare or financial affairs or any unexpected expenses under the sun.
Future Planning
A large number of people project hike in their incomes for future and make decisions based upon estimations. It’s good to be positive.
But you may enter into troubled waters in case things move in opposite direction.
Also, the home loan is a long term liability, usually between 10-20 years. In this period, your income may keep on rising but so do your liabilities and expenses. What should you do then?
Our suggestion
Suppose you expect your present monthly income of Rs 20,000 to Rs 30,000 a year after, you plan your EMI as per present income only.
Later when your projections turn into reality, you can either re-work your EMI with your bank or invest the additions into other prolific investment options.
This way you can balance your liabilities and at the same time remain stress-free on spiraling burden of EMI, which could form in case of failing estimations.
Final words
We hope that the above discussions will prove beneficial to you and help you work out a well planned home loan transaction, safe and happy.
We’ll continue bringing such information and insights on home loans for you, on regular basis. So be in touch.
Home Loan Tips to Buying a Home
Ten steps to buying a home
Step 1: Figure out how much you can afford. What you can afford depends on your income, credit rating, current monthly expenses, down payment and the interest rate. The calculators can help, but it is best to visit a lender to find out for sure. A housing counselor can help you figure out how to manage and pay off your debt, and start saving for that down payment!
Step 2: Know your rights
Step 3: Shop for a loan. Save money by doing your homework. Talk to several lenders, compare costs and interest rates, and negotiate to get a better deal. Consider getting pre-approved for a loan.
Step 4: Learn about home buying programs
Step 5: Shop for a home. Choose a real estate agent, Wish list - what features do you want, Home-shopping checklist - take this list with you when comparing homes.
Step 6: Make an offer. Discuss the process with your real estate agent. If the seller counters your offer, you may need to negotiate until you both agree to the terms of the sale.
Step 7: Get a home inspection. Make your offer contingent on a home inspection. An inspection will tell you about the condition of the home, and can help you avoid buying a home that needs major repairs.
Step 8: Shop for homeowners insurance Lenders require that you have homeowners insurance. Be sure to shop around.
Step 9: Sign papers. You're finally ready to go to "settlement" or "closing." Be sure to read everything before you sign!
Step 10: The House is yours now. Have Puja or hawan.
Terms used in Housing Finance
EMI: Equated Monthly Installment till the loan is paid back. It consists of a portion of interest and the principal
Floating Rate of interest: Rate of interest which varies with the market lending rate. This means that there is an element of risk of paying more than budgeted amount in case the lending rates goes up
Monthly Reducing balance: In this system interest reduces monthly with repayment of Principal amount
Annual Reducing Balance: In this system principal is reduced annually at the end of the year so you end up paying interest even for the portion of principal you have actually paid back
Fixed rate of interest: Rate of interest remains unchanged throughout the period of the loan
Processing charge: It's a fee payable to the lender on applying for the loan
Prepayment Penalties: When loan is paid back before the agreed term of the loan, then banks/ institutions charge penalty for the prepayment
Commitment Fee: Some institution charge commitment fee in case the loan is not availed within a stipulated period, after it is processed and sanctioned
Miscellaneous Cost: It is quite possible that some lenders may charge documentation or consultant charges .
Friday, 26 August 2011
Home Loan: Interest Rates
Home Loan: Interest Rates
Interest rates on home loans depends the amount of loan you want to take. It also depends on the tenure of the loan and whether you are planning to buy a home or you want to buy a plot to construct a home. It may also depend up on the profile of an individual which includes the credit history of the individual.
Interest rates differ across various lenders. You will find most of the lender offering you either fixed rate or floating rate home loans.
Fixed rate home loans with a reset clause - These fixed rates are fixed for certain number of years. After that the rates are revised.
Fixed rate home loans without reset clause - The interest rates in these home loans are fixed for the entire tenure of loan.
Floating rate home loans - Floating rate home loans may change at any given point. In case, the rates revise, the borrower of the loan has an option to either increase/decrease the EMI or to increase/decrease the loan.
Many kinds of Home Loan rates.
Fixed Home Loan rates : In true Fixed Rate Home Loans the rates remain fixed throughout the tenure of the loan no matter what. These kind of rates are very expensive (13.50%+ for a 20 year home loan in November 2010) and are offered by a limited number of lenders in the market.
Resettable Fixed Rates : Most of the so called Fixed Rates available in the market are of this variety. Here the interest rate is fixed for a period of 2-5 years and is then reset for a further period of 2-5 years and so on. These rates are more reasonable than the true fixed rates dealt with above. You just need to be clear about the nature of fixed rate contract you are getting into.
Floating Home Loan rates (also called variable rate loans or adjustable rate loans)
For Banks : The effective rate is linked to the Bank's Base Rate. The base rate would have to be declared by the banks at least once every quarter. It is open to each bank to decide its own methodology for fixing the base rate but it is not allowed to change the methodology after selecting one methodlogy. The banks will have to document how it has arrived at the base rate and follow the same system consistently. The calculation of the base rate will be open to the RBI for review (which should at least ensure that a set system is actually followed while calculating the Base Rate). This is of course a much better stipulation than the earlier system of BPLR, where no such system was required to be documented by the bank and there was no question of any calculation that could be reviewed by RBI.
So even though composition of the base rate from the customer's perspective might continue to remain opaque still it is a better situation than the erstwhile BPLR since the regulator will ensure calculation of Base rate is done in a consistent and fair manner.
RBI has banned lending below Base rates except limited categories of loans such as employee loans, loan against its own fixed deposits, Differential Interest rate loans to SC/ST, etc..
The advantage therefore from the consumer's perspective is that when markets rate soften, obviously new borrowers will not borrow at the same rate as earlier. So if the base rate is fixed at 8%, and bank lends to corporates at Base Rate (8%) and possibly even to existing home loans seekers at Base Rates (8%). When interest rates in the market soften, the banks will be forced to reduce their Base rates as now new customers will not borrow at 8% and banks cannot lend below that rate without reducing their Base Rates. Thus banks will be forced to lower its base rate in response to market forces.
Any reduction in base rates, will automatically apply to the old customer as well as new customers without any discrimination.
Interest rates differ across various lenders. You will find most of the lender offering you either fixed rate or floating rate home loans.
Fixed rate home loans with a reset clause - These fixed rates are fixed for certain number of years. After that the rates are revised.
Fixed rate home loans without reset clause - The interest rates in these home loans are fixed for the entire tenure of loan.
Floating rate home loans - Floating rate home loans may change at any given point. In case, the rates revise, the borrower of the loan has an option to either increase/decrease the EMI or to increase/decrease the loan.
Many kinds of Home Loan rates.
Fixed Home Loan rates : In true Fixed Rate Home Loans the rates remain fixed throughout the tenure of the loan no matter what. These kind of rates are very expensive (13.50%+ for a 20 year home loan in November 2010) and are offered by a limited number of lenders in the market.
Resettable Fixed Rates : Most of the so called Fixed Rates available in the market are of this variety. Here the interest rate is fixed for a period of 2-5 years and is then reset for a further period of 2-5 years and so on. These rates are more reasonable than the true fixed rates dealt with above. You just need to be clear about the nature of fixed rate contract you are getting into.
Floating Home Loan rates (also called variable rate loans or adjustable rate loans)
For Banks : The effective rate is linked to the Bank's Base Rate. The base rate would have to be declared by the banks at least once every quarter. It is open to each bank to decide its own methodology for fixing the base rate but it is not allowed to change the methodology after selecting one methodlogy. The banks will have to document how it has arrived at the base rate and follow the same system consistently. The calculation of the base rate will be open to the RBI for review (which should at least ensure that a set system is actually followed while calculating the Base Rate). This is of course a much better stipulation than the earlier system of BPLR, where no such system was required to be documented by the bank and there was no question of any calculation that could be reviewed by RBI.
So even though composition of the base rate from the customer's perspective might continue to remain opaque still it is a better situation than the erstwhile BPLR since the regulator will ensure calculation of Base rate is done in a consistent and fair manner.
RBI has banned lending below Base rates except limited categories of loans such as employee loans, loan against its own fixed deposits, Differential Interest rate loans to SC/ST, etc..
The advantage therefore from the consumer's perspective is that when markets rate soften, obviously new borrowers will not borrow at the same rate as earlier. So if the base rate is fixed at 8%, and bank lends to corporates at Base Rate (8%) and possibly even to existing home loans seekers at Base Rates (8%). When interest rates in the market soften, the banks will be forced to reduce their Base rates as now new customers will not borrow at 8% and banks cannot lend below that rate without reducing their Base Rates. Thus banks will be forced to lower its base rate in response to market forces.
Any reduction in base rates, will automatically apply to the old customer as well as new customers without any discrimination.
Home Loan Interest Rates
Interest rates on home loans depends the amount of loan you want to take. It also depends on the tenure of the loan and whether you are planning to buy a home or you want to buy a plot to construct a home. It may also depend up on the profile of an individual which includes the credit history of the individual.
| Finance Bank | Loan Period (in years) | Fixed | EMI / Lakh (INR) | Floating | EMI / Lakh (INR) |
| Bank of Baroda | Up to 5 | 9.00 | 2076 | 8.00 | 2028 |
6 to 10 | 9.25 | 1230 | 8.25 | 1227 | |
11 to 15 | 9.50 | 1044 | 8.25 | 970 | |
16 to 20 | 9.50 | 932 | 8.50 | 868 | |
| State Bank Of India | Up to 5 | 9.50 | 2100 | 8.75 | 2064 |
6 to 10 | 9.75 | 1300 | 9.25 | 1280 | |
11 to 15 | - | - | 9.25 | 1029 | |
16 to 20 | - | - | 9.75 | 949 | |
| Dena Bank | Up to 5 | - | - | - | - |
6 to 10 | - | - | - | - | |
| 11 to 15 | - | - | - | - | |
| 16 to 20 | - | - | - | - | |
HDFC | Up to 5 | 11 | 2175 | 9.50 | 2101 |
6 to 10 | 11 | 1375 | 9.50 | 1294 | |
11 to 15 | 11 | 1137 | 9.50 | 1045 | |
16 to 20 | 11 | 1033 | 9.50 | 933 | |
| Citibank | Up to 5 | - | - | - | - |
6 to 10 | - | - | - | - | |
| 11 to 15 | - | - | - | - | |
| 16 to 20 | - | - | - | - | |
ICICI Bank | Up to 5 | 10.75 | 2162 | 9.50 | 2101 |
6 to 10 | 10.75 | 1364 | 9.50 | 1294 | |
11 to 15 | 10.75 | 721 | 9.50 | 1045 | |
16 to 20 | 10.75 | 1016 | 9.50 | 933 | |
| HSBC | Up to 5 | - | - | - | - |
6 to 10 | - | - | - | - | |
| 11 to 15 | - | - | - | - | |
| 16 to 20 | - | - | - | - | |
LIC Housing Finance | Up to 5 | 10.50 | 2149 | 9.50 | 2100 |
6 to 10 | 11 | 1373 | 9.50 | 1294 | |
11 to 15 | 11 | 1137 | 9.50 | 1044 | |
16 to 20 | 11 | 1032 | 9.50 | 932 | |
PNB Housing Finance | Up to 5 | 9.00 | 2076 | 10.50 | 2150 |
6 to 10 | 9.00 | 1267 | 10.50 | 1350 | |
11 to 15 | 9.25 | 1030 | 10.50 | 1106 | |
16 to 20 | 9.50 | 933 | 10.50 | 999 | |
Standard Chartered Bank | Up to 5 | - | - | - | - |
6 to 10 | - | - | - | - | |
11 to 15 | - | - | - | - | |
16 to 20 | - | - | - | - | |
Bank of India | Up to 5 | - | - | - | - |
6 to 10 | - | - | - | - | |
| 11 to 15 | - | - | - | - | |
16 to 20 | - | - | - | - | |
Types of Loan & Home Loans Type
An arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at some future point(s) in time. Usually, there is a predetermined time for repaying a loan, and generally the lender has to bear the risk that the borrower may not repay a loan (though modern capital markets have developed many ways of managing this risk).
Types of Loan:
Banks Laon
Financial Institutions Loan
NRI Loans
Vehicle Loans
Educational Loans
Home Loans
Personal Loans
Home Loans Type:
Owning a piece of land or property is a lifetime dream for every individual. There are many home loans provider in the market to make your dream come true. But before you opt for any home loan provider, you need to consider certain factors related to property that you are interested in buying and also about the salient features offered by a home loan provider and also study some Home Loans and Home Insurance FAQs which helps in applying a Home Loan in India.
And the most important thing is you should know about each and every term related with Home Loans before applying for a Loan. It is always advisable to consult a home loan expert or consultant before applying for a home loan or purchasing a property.
You can take different types of home loans like Bridge Loans, Home construction Loans, Home Equity Loans, Home Extension Loans, Home Improvement Loans, Land Purchase Loans etc for different schemes available in the market. There are different types of home loans tailored to meet your needs.
Home Purchase Loans: These are the basic forms of home loans used for purchasing of a new home.
Home Improvement Loans: These loans are given for implementing repair works, healing and renovations in a home that has already been purchased.
Home Construction Loans: These loans are available for the construction of a new home.
Home Extension Loans: These loans are given for expanding or extending an existing home. For eg: addition of an extra room etc.
Home Conversion Loans: These loans are available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required. Through home conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need of pre-payment of the previous loan.
Land Purchase Loans: These loans are available for purchasing land for both construction and investment purposes.
Bridge Loans: Bridge loans are designed for people who wish to sell the existing home and purchase another one. The bridge loans help finance the new home, until a buyer is found for the home.
Why take a Home Loan?
What's an average middle class Indian's most cherished dream? A date in world trips in islands with Aishwarya Rai in complete solitude. This would seem to be the answer from the maximum number of episodes of Kaun Banega Crorepati (KBC), despite recently of course, when she has decided to change her fortunes first with Abhishek!
Jokes apart, purchasing and moving into a dream house would generally rank among the top three things on the wish list of most people. After all it’s what been proved by Maslow’s Law of Hierarchy as well. That entire house hunting every few years, grumpy landlords, killing rents would be a thing of the past. Hey, you even get to use nails to hang your favorite paintings and pictures. Don’t you???
Taking a home loan nowadays has become very simpler. The RBI has been regularly slashing interest rates, with the result that housing finance loans that came at an interest rate of 16.5% to 18% four years ago are now available at 11.5% to 13% or lower. Each year the Finance Minister's generosity during the Budget seems to be solely concentrated for the housing sector and construction sector. The Budget 2000's allowed interest payment up to Rs 1 lakh and principal payment of Rs 20,000 to be exempted from income tax.
Types of Loan:
Banks Laon
Financial Institutions Loan
NRI Loans
Vehicle Loans
Educational Loans
Home Loans
Personal Loans
Home Loans Type:
Owning a piece of land or property is a lifetime dream for every individual. There are many home loans provider in the market to make your dream come true. But before you opt for any home loan provider, you need to consider certain factors related to property that you are interested in buying and also about the salient features offered by a home loan provider and also study some Home Loans and Home Insurance FAQs which helps in applying a Home Loan in India.
And the most important thing is you should know about each and every term related with Home Loans before applying for a Loan. It is always advisable to consult a home loan expert or consultant before applying for a home loan or purchasing a property.
You can take different types of home loans like Bridge Loans, Home construction Loans, Home Equity Loans, Home Extension Loans, Home Improvement Loans, Land Purchase Loans etc for different schemes available in the market. There are different types of home loans tailored to meet your needs.
Home Purchase Loans: These are the basic forms of home loans used for purchasing of a new home.
Home Improvement Loans: These loans are given for implementing repair works, healing and renovations in a home that has already been purchased.
Home Construction Loans: These loans are available for the construction of a new home.
Home Extension Loans: These loans are given for expanding or extending an existing home. For eg: addition of an extra room etc.
Home Conversion Loans: These loans are available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required. Through home conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need of pre-payment of the previous loan.
Land Purchase Loans: These loans are available for purchasing land for both construction and investment purposes.
Bridge Loans: Bridge loans are designed for people who wish to sell the existing home and purchase another one. The bridge loans help finance the new home, until a buyer is found for the home.
Why take a Home Loan?
What's an average middle class Indian's most cherished dream? A date in world trips in islands with Aishwarya Rai in complete solitude. This would seem to be the answer from the maximum number of episodes of Kaun Banega Crorepati (KBC), despite recently of course, when she has decided to change her fortunes first with Abhishek!
Jokes apart, purchasing and moving into a dream house would generally rank among the top three things on the wish list of most people. After all it’s what been proved by Maslow’s Law of Hierarchy as well. That entire house hunting every few years, grumpy landlords, killing rents would be a thing of the past. Hey, you even get to use nails to hang your favorite paintings and pictures. Don’t you???
Taking a home loan nowadays has become very simpler. The RBI has been regularly slashing interest rates, with the result that housing finance loans that came at an interest rate of 16.5% to 18% four years ago are now available at 11.5% to 13% or lower. Each year the Finance Minister's generosity during the Budget seems to be solely concentrated for the housing sector and construction sector. The Budget 2000's allowed interest payment up to Rs 1 lakh and principal payment of Rs 20,000 to be exempted from income tax.
HOME INSURANCE COMPANIES
HOME INSURANCE COMPANIES:
United India Insurance Company
ICICI Lombard General Insurance Company Limited
New India Assurance Company Ltd
The Oriental Insurance Company Ltd
National Insurance Company Ltd
Tata AIG General Insurance Company
Bajaj Allianz General Insurance Company Ltd
IFFCO-TOKIO General Insurance
Royal Sundaram Alliance
Bajaj Allianz
Your home is our most valued possession, a haven of safety. But is it really as safe as we would like to believe? We at Bajaj Allianz realize your need to make your home as secure in reality as it is in your mind. This is why we bring to you the House- Holders' Insurance policy designed to cover various risks and contingencies faced by householders under a single policy. Learn More
ICICI Home Insurance
It is imperative that you secure your home from natural and man-made catastrophes. Our Home Insurance Plan ensures you peace of mind by protecting the structure and the contents of your home. Learn More
IFFCO-TOKIO General Insurance
Home Suvidha
Your home means everything to you. It is one of your biggest assets that reflects not only your dream but also a substantial investment of time and money. Although you cannot guard it from all possible risks, but nevertheless, you can always take steps to help you tide over unexpected ev
ents. Learn More
National Insurance Company Limited
Personal effects and household goods belonging to individual householders can be covered under this Insurance. It covers under single policy a number of risks. Learn More
The New India Assurance Co. Ltd.
Householders Policy. This is a package policy specially designed to meet the insurance requirements of a householder by combining under a single policy, a number of our standard policies usually taken by householders. Learn More
Quality Buildings Insurance from Royal Sundaram
Homeshield Classic is a comprehensive package of insurance benefits designed to cover the buildings and contents of your home against all possible kinds of perils such as fire, earthquake, terrorism, storm, flood, cyclone, burglary and breakdown of appliances. Your building cover can be arranged in conjunction with your contents cover or on its own.
Learn More
Tata AIG General Insurance Company Limited
"Home sweet Home" - a destination, any individual or a family feels very close to the heart. It is an investment of one's lifetime savings, emotional dreams and aspirations to realize their ideal home. Home signifies a set of emotions for any individual, be it pride, ownership, stability or be it a sense of belonging. It echoes the owners' sentiments "It's my house". Learn More
The Oriental Insurance Co. Ltd.
The House holder's Insurance Policy is a comprehensive shelter that protects your house and the various contents in it against a variety of risks. It is a single policy that takes care of a number of contingencies. Learn More
United Indian Insurance
House Holders Policy. We Cover
Any loss/damage to Building and its contents
Jewellery and valuables Domestic appliances, TV, VCR, Audio Systems, PC etc.
Baggage while on travel
Accidental injury causing death/disability.
United India Insurance Company
ICICI Lombard General Insurance Company Limited
New India Assurance Company Ltd
The Oriental Insurance Company Ltd
National Insurance Company Ltd
Tata AIG General Insurance Company
Bajaj Allianz General Insurance Company Ltd
IFFCO-TOKIO General Insurance
Royal Sundaram Alliance
Bajaj Allianz
Your home is our most valued possession, a haven of safety. But is it really as safe as we would like to believe? We at Bajaj Allianz realize your need to make your home as secure in reality as it is in your mind. This is why we bring to you the House- Holders' Insurance policy designed to cover various risks and contingencies faced by householders under a single policy. Learn More
ICICI Home Insurance
It is imperative that you secure your home from natural and man-made catastrophes. Our Home Insurance Plan ensures you peace of mind by protecting the structure and the contents of your home. Learn More
IFFCO-TOKIO General Insurance
Home Suvidha
Your home means everything to you. It is one of your biggest assets that reflects not only your dream but also a substantial investment of time and money. Although you cannot guard it from all possible risks, but nevertheless, you can always take steps to help you tide over unexpected ev
ents. Learn More
National Insurance Company Limited
Personal effects and household goods belonging to individual householders can be covered under this Insurance. It covers under single policy a number of risks. Learn More
The New India Assurance Co. Ltd.
Householders Policy. This is a package policy specially designed to meet the insurance requirements of a householder by combining under a single policy, a number of our standard policies usually taken by householders. Learn More
Quality Buildings Insurance from Royal Sundaram
Homeshield Classic is a comprehensive package of insurance benefits designed to cover the buildings and contents of your home against all possible kinds of perils such as fire, earthquake, terrorism, storm, flood, cyclone, burglary and breakdown of appliances. Your building cover can be arranged in conjunction with your contents cover or on its own.
Learn More
Tata AIG General Insurance Company Limited
"Home sweet Home" - a destination, any individual or a family feels very close to the heart. It is an investment of one's lifetime savings, emotional dreams and aspirations to realize their ideal home. Home signifies a set of emotions for any individual, be it pride, ownership, stability or be it a sense of belonging. It echoes the owners' sentiments "It's my house". Learn More
The Oriental Insurance Co. Ltd.
The House holder's Insurance Policy is a comprehensive shelter that protects your house and the various contents in it against a variety of risks. It is a single policy that takes care of a number of contingencies. Learn More
United Indian Insurance
House Holders Policy. We Cover
Any loss/damage to Building and its contents
Jewellery and valuables Domestic appliances, TV, VCR, Audio Systems, PC etc.
Baggage while on travel
Accidental injury causing death/disability.
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