• How is my loan eligibility determined?

The primary concern of the HFC's in determining the loan eligibility is that you would be comfortably able to repay the amount you borrow. Your repayment capacity is determined by taking into consideration factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities, stability and continuity of occupation and savings history.

• What is an EMI? How is it calculated?

You repay the loan in Equated Monthly Installments (EMI's) comprising principal and interest. Repayment by way of EMI commences from the month following the month in which you take full disbursement.

EMI or Equated Monthly Installments refers to the fixed sum of money that you will be paying to the housing finance company every month. The EMI comprises both interest and principal repayment. The size of the EMI depends on the quantum of loan, interest rate applicable and the term of the loan.

EMI Formula: l x r [(1+r) n / (1+r) n-1] x 1/12 l = loan amount r = rate of interest n = term of the loan

As you would have noticed, EMI tends to be higher when the tenure is short as the borrower has lesser time for the loan repayment. While EMI remains fixed, the outstanding amount keeps coming down as every EMI reduces the principal component of the loan amount. However when the interest rate goes up or comes down, banks have the choice of altering the EMI amount if the borrower does not wish to increase the tenure for loan repayment

• What is the range of interest rates offered? What are the two types?

The interest rates may vary from institutions to institutions and generally range from about 11% to around 14%. Essentially there are two types, the first one being the fixed rate of interest, which means that the interest rates remain unchanged for the entire duration the loan. This basically means that you do not benefit, even if the rates of interest drop in the market.

The second one is the Floating rate of interest is the one that fluctuates according to the market lending rate.

• What Documents do you need for a loan approval?

Salaried Customers Self-Employed Professional Self-Employed Businessman Application form with photograph Application form with photograph Application form with photograph Identity and Residence Proof Identity + Residence Proof Identity and Residence Proof Latest Salary-slip Educational Qualifications Certificate and Proof of business existence Educational Qualifications Certificate and Proof of business existence. Form 16 Last 3 years Income Tax returns (self and business) Business profile. Last 6 months bank statements Last 3 years Profit /Loss and Balance Sheet Last 3 years Income Tax returns (self and business). Last 3 years Profit /Loss and Balance Sheet. Processing fee cheque Last 6 months bank statements Last 6 months bank statements(self and business). Processing fee cheque Processing fee cheque

• Do I get a tax benefit on the loan?

Yes. Resident Indians are eligible for certain tax benefits on principal and interest components of a loan under the Income Tax Act, 1961. Interest repayment of Rs. 1, 50,000 p.a. can get you a tax saving upto about Rs. 50,490 p.a. Moreover, you can get added tax benefits under Sec 80 C on repayment of principal amount upto Rs. 1, 00,000 p.a. that can further reduce your tax liability by about Rs. 33,660 p.a.

• What security needs to be provided for a house loan?

Security for the loan is a first mortgage of the property to be financed, normally by way of deposit of title deeds (a clear and marketable title). Some lenders may also require collateral security like the assignment of life insurance policies, pledge of shares, national savings certificates, and units of mutual funds, bank deposits or other investments.

• How much time does it take to get an application processed and the loan getting sanctioned?

It takes around fifteen days for processing of one's application if the documented are in order. It takes another week for the company to check out the property papers and make the disbursement.

• What is the maximum amount, which I can borrow? How is the maximum amount derived?

Home loans are generally provided for in the range of 75%-85% of the asset value. The amount of loan varies from institution to institution and it may vary from Rs.1 Lakh to Rs.1 Crore. The maximum amount, which one can borrow, is a function of many factors, which includes primarily the purpose of the loan. In addition, ones residential status whether resident in India or non-resident will also have a bearing on the maximum amount of loan that one can borrow. Generally, if one is a resident Indian, then he can borrow upto 85% of the cost of the property.

• What are the repayment period options?

Repayment period options range generally from 1 to 20 years. A few lenders also offer a 30-year repayment period, usually at a higher interest rate. As a non-resident, you can avail of a loan for a maximum period of 15 years.

• How is the interest calculated on my loan?

Interest rates are different from institution to institution and generally range from about 10.50% to around 15 %. The interest on home loans in India is usually calculated either on monthly reducing or yearly reducing balance.

Yearly reducing:

In this system, the principal, for which you pay interest, reduces at the end of the year. Thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender. This means the EMI for the monthly reducing system is effectively less than the annual reducing system.

Monthly reducing:

The principal, for which you pay interest, reduces every month with every EMI. Generally HFC's follow the yearly reducing balance method, which accounts for your principal repayments, only at the end of their financial year. Thus, one pays interest on the principal that you have already returned to the HFC. The effective interest rate is thus higher than the quoted interest rate by around 0.7%. Banks and some HFC's, in contrast, follow monthly reducing-balance method, which results in a lower interest burden.

• What are the fees and charges payable and when are they payable?

Home loans are usually accompanied by the following extra costs although these may vary from institution to institution:
a) Interest Tax: is the tax payable on the interest paid on a home loan and not the principal. This tax is some times included in the interest rate of the loan, or may be charged separately as interest tax.
b) Processing Charge: It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. The loan amount received by you can be less than the processing fee.
c) Prepayment Penalties: when a loan is paid back before the end of the agreed duration a penalty is charged by some banks/companies, which is usually between 1% and 2% of the amount being pre paid.
d) Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.
e) Miscellaneous costs: It is quite possible that some lenders may levy a documentation or consultant charges.
f) Registration of mortgage deed.


• Can I repay my loan ahead of schedule?

Yes, you can pay your loan ahead of schedule. However, it must be noted that housing finance companies charge a fee for early redemption of loan. This fee can vary between 1-2% of the loan amount being prepaid and may differ from HFC to HFC.

• If floating interest rates go up, will EMI amount increase?

Banks fix the EMI based on the prevailing interest rate and hence EMI too is fixed accordingly. However, if the floating goes up, the interest rate gets altered and banks have the option of increasing the EMI amount. However, to avoid paper work, EMI amount is not altered if the interest rate hike is nominal. Instead, the higher amount towards repayment is recovered by increasing the tenure of the loan repayment.

• Who is a guarantor and what is his liability?

A guarantor is expected to fulfill the commitments of the borrower if he fails to discharge his duties. As a result, if a borrower fails to clear his loans beyond a stipulated period, the bank has the right to direct the guarantor to honor the commitment subject to conditions.

• What is the maximum period over which I can pay the loan?

The maximum duration of period of the loan is a function of your residential status and varies for every housing company, and is also different for every scheme.

As a resident Indian, you could avail of a loan for duration of 5 years to 20 years. As a non-resident, you can avail of a loan only for a maximum period of 7 years.

• When can I take disbursement of the loan?

The loan will be disbursed in full or in suitable installments taking into account the requirement of funds and progress of construction, as assessed by the housing finance company.

• Does the Agreement for Sale have to be registered?

In many states in India like Karnataka, the Agreement for Sale between the builder and purchaser is required by law to be registered.

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