Home Loan FAQ

How is the rate of interest calculated in India? Safalya

The rate of interest is different for different institutes and varies according to the present day market condition and the policies of the reserve bank of India. If the lending rates of the central bank are high then the loan rates will also be high and vice versa.

What is a fixed-rate housing loan? Safalya

The interest rate of a fixed rate housing loan remains the same irrespective of the revision made by a particular institution and the borrower is insulated from fluctuations in interest rates.

What is a floating-interest-rate housing loan? Safalya

In a floating interest rate housing loan the interest rate paid fluctuates according to the external market condition and the present time lending rates of the bank. Hence the borrower is subject to high interest rate fluctuation. Floating interest rates offered at a particular time is lower than fixed interest rates.

What is the difference between monthly reducing interest rate and yearly reducing interest rate? Safalya

In yearly reducing EMI, the principle on which the interest is calculated is reduced only at the end of each year, hence the borrower pays interest on certain amount of principle that he has already paid back to the lender. Whereas in a monthly reducing EMI the principle is reduced at the end of each month, and hence in effect the EMI for monthly reducing system is less when compared to yearly reducing system of interest calculation.

What are the repayment period options? Safalya

The repayment period varies for different schemes and based on the residential status of an individual. If a person is a resident Indian then he can avail a loan duration of 5-20 years. While that for a non-resident the maximum allowed period is 7 years.

What are the charges for availing a housing loan? Safalya

• Processing fees – is the fee that is to be paid to the lender on applying for a loan and is either a fixed amount not    linked to the loan or can also be a percentage of the loan amount.

• Commitment fees – if borrower does not avail the loan within a stipulated period of time after it is processed and    sanctioned, they may have to pay a commitment fee to the lender.

• Pre-payment penalty - between 1% and 2% of the amount being pre-paid, is charged by some institutions when a    loan is paid back before the end of the agreed duration.

• The borrower also needs to pay the stamp duty and registration fee on a deed of mortgage.

• Miscellaneous costs include the administrative costs, legal documentation charges, technical consultant     charges.

What security is required for a housing loan? Safalya

The residential building for which the loan is availed is the primary security against housing loans which is mortgaged with the institution for the entire loaning period. Other options that are also considered for securities include life insurance policies, shares, bonds, fixed deposit receipts, national savings certificates. Some institutions also accept salary certificates in the case of government employees.

Do lending companies require guarantors? Safalya

Yes. Most of the lending firms require 1 or 2. The guarantor usually has to enter into a deed of guarantee with lending institution.

What is the time required for approval of a loan application? Safalya

In normal conditions it takes about 15 days for verification of documents and getting sanction for the loan and an additional week for checking property papers and disbursement of loan. The entire process should be complete in 15-20 days time.

What is the time required for disbursement of loans? Safalya

The disbursement usually happens within 5-7 days upon completion of all formalities and verification by the institution that involved submission of all the required documents including the original agreement for sale/lodging receipt, completion of all the formalities and getting a proof that the borrower has paid in full his own contribution to the builder or vendor or the developer from whom they purchasing the building.

Do institutions accept joint loan applications? Safalya

Institutions do accept joint loan applications.

Do lending institutions offer incentives for housing finance? Safalya

Incentives for housing loans are discretion of the institutions. Some institution introduces special schemes during festivities, or as part of a special scheme. Incentives can be in the form of any of the following:

• Free accident insurance

• Waiving of pre-payment penalty

• Waiving of processing fee

• Property insurance

Which sources, other than banks, can give loans for purchasing a flat? Safalya

One can avail loans for the purchase flat from the following lending institutions also:

• Housing finance company

• Employer: Depending upon the companies policy

• Insurance companies

• Against provident fund account, fixed deposits, post office savings

• Against shares and debentures of listed companies, government bonds and securities

• From relatives, friends and others