COMPARISON OF HOME LOANS IN INDIA

Home Loan is the sum of money borrowed from a bank or any financial institution to buy a house or property. It is also termed as mortgage loan. This amount plus the interest rate is repaid to the owner on a monthly basis in the form of EMI . The lenders of home loan in India provide a maximum of upto 80% of the agreement value of the house. While considering eligibility for Home Loan the banks do not include charges like stamp duty, registration charges etc. The valuation of loan done by the banker’s valuer is lower than the actual cost.

The maximum time period for the repayment of loan depends on the age of borrower. In India the Home Loans are classified as Fixed Rate and Floating Rate. As the name specifies the fixed rate is the  interest rate which does not change and hence not famous among the lenders. The Floating Rate changes according to the change in REPO rates or in bank’s base rate (now MCLR rate). The borrowers use fixed interest rate when they have a surity that this is the lowest interest rate.

In India there are many banks and housing companies like ICICI, SBI, HDFC etc which provide home loans. These institutions work according to RBI guidelines and national housing bank. When planning to buy a property if you have any queries regarding the amount of home loan to be paid every month or the number of EMI you will have to pay then you can take the help of EMI calculator. It helps you to calculate the amount of EMI to pay the loan to the lender every month. The home loan EMI to be paid will depend on various factors like loan amount, tenure for which loan is taken and interest rate charged by the bank. Thus, it is a useful calculator for calculating EMI payments. Before purchasing a house you should look for an appropriate lender because the cheapest interest rate cannot be the deciding factor. You have to choose from a plethora of offers on Home Loan.

Checking your home loan eligibility with other banks is essential because every bank uses its own ways and means of calculating eligibility. Adding your spouse’s income increases your home loan eligibility. Below mentioned factors should be taken care of-

1.      Banks keep EMI to income ratio to 0.45 to 0.50 as income plays a crucial role.

2.      The longer the tenure of loan the better it is.

3.      Higher the interest rate, lower will be the home loan eligibility and vice-versa.

4.      In case of existing loans, the home loan eligibility comes down to around 0.05.

Analysis of the above factors will determine the home loan eligibility.

Loan from banks like ICICI, SBI, HDFC etc is the safest option for fulling your housing needs. The positive point is that the women are given more privileges than others. There are different forms of home loan available to purchase new home or plot, for construction purpose or renovation etc. but the borrower of loan decides the purpose for which he needs it. It is always better to first compare the home loan and then go for the final decision. As mentioned earlier that home loans are compared on the basis of various factors like EMI eligibility , interest rate and EMI calculator but various other factors cannot be ignored–

1.Mortgage Deed charge an important fee to be paid while taking home loan is 0.5% of the loan amount in some locations.

2.Legal fee which is charged to verify the legal status of property.

3. In addition to these charges there are others as well such as stamp duty, documentation charges and registration fee.

In nutshell, we can say that having a dream house is the most valuable possession of your life so it must be selected with full caution and after careful analysis . Thus, comparing the home loans of various banks is a great way to make a wise choice.

How to invest your money effectively, within a time frame of 1 year to 5 years?

When you are investing the biggest question that comes to your mind is the time horizon for which you are planning to invest. Even your financial advisor can guide you about the investment products only after knowing the time frame for which you are looking to invest your money. Higher the period of your investment, higher the return you can expect from the investment and vice versa. Investment done for a higher period of time is exposed to different market situations which generally lead into a higher return in the last.

For ex- if you invested in a mutual fund at a NAV value of Rs 12 per unit and you invested Rs 50000 in the mutual fund. Now the number of units you get is 4166 units. At the end of 12 months after investing the NAV value is Rs 13 per unit, so the value of your investment will be Rs 54158, but if this investment was made for three years and the NAV after three years will be Rs 20 per unit, than the value of your investment will become Rs 833320.

Let us discuss some of the best Investment options available in the market

Liquid Funds

These are funds which are readily liquid able i.e. you can take out the money from these funds as and when required. Liquid Funds are funds which invest primarily in call money markets, treasury bills, certificate of deposits and commercial paper. Since they invest in instruments with high credit ratings, there is very low risk. However the return you get in the liquid funds is still higher as compared to saving bank interest rate.

Ultra Short Term Funds

When the time horizon for which you want to invest is a bit longer than you can go for ultra short term funds. Investing in ultra short term funds gives you a good return when the investment is made for a period between 3 months to 12 months. These funds are more volatile than liquid funds but can generate better returns. But these attract exit loads and are slightly volatile though not as much as Income Funds.

Income Funds

When your time horizon for your investment is more than 12 months and up to 3 years, you can consider investing in income funds. Income funds are not meant for low risk people but if you hold onto your investments in the income fund than chances are high that you will earn a better return as compared to liquid funds or ultra short term funds.

Fixed Maturity Plans (FMPs)

By investing in fixed maturity plans, you are kind of investing your money in a fixed deposit. FMP’s investment is further invested in fixed income instruments with good rating and are more tax efficient than FD due to indexation benefit.

Monthly Income Plans

Monthly income plan do not mean monthly income. But they have a potential to deliver higher returns as compared to any other investment option provided the investment made in these funds is kept for a period of at least three years. Monthly income plans are generally a safe bet for the investors, as the investment made in these funds are exposed to only 10% to 25% in equity.

Arbitrage Funds

Arbitrage funds are like equity funds but gives a return on par with liquid funds as a result there is minimum risk involved in arbitrage funds and the return you get is also higher as compared to other investment options. Arbitrage funds have given post tax returns in the range of 8% – 9%.

You can consider investing in arbitrage fund with dividend option and then switch the dividend into a balanced or large cap fund. This should give you tax free return within a  time frame of 5 years.

Home Loan Eligibility for Salaried Person

If you don’t have a ready-to-use calculator for Home Loan eligibility , the thumb rule you can use for calculating your eligibility is multiplying the net salary by 60. Is it really that simple? Yes…it is. Here net salary is the crucial factor. For Instance –

(a)   Your net salary is INR 50,000 per month and you need a home loan of around 30 lakhs.

(b)   If your gross salary is more than your net salary even then that would not be considered.

(c)   You do not have any other loan in your name.

(d)   Broadly, you are eligible to get 60 times your monthly net pay as loan i.e 30 lakhs.

When you come to know by a bank executive that you are eligible for a home loan your desires increase and you feel glad. All this looks wonderful till the time you don’t actually apply for it. But things take a sharp turn when you actually apply for loan. You have to submit salary slip and pay the loan processing fees. The banks re-evaluate your loan eligibility after this and you come to know that it is much lower than what was calculated earlier. The Question that spins in your mind is – what caused this change? Your salary slip reflects the same amount (50k) and you don’t have any other loan in your name. Then what and where is the loophole? It could be in the bank’s marketing strategy to attract the attention of customers or you have low credit score. Although you get a net pay of rupees 50k per month but it includes certain components which are excluded while calculating your loan eligibility. These components are LTA and medical allowances. You may have many such queries on Home Loans & related things. You would need an expert to answer this before you take the big leap.

Hence banks will deduct these components from your salary and your home loan eligibility is reduced by about 10%.

For Example –

                          Net salary – 50,000

                   Less

                          LTA Amount -3,500

                   Less

                          Medical Allowances – 1,250

                          New Net Pay – 45,250

New Eligibility = (45,250 into 60) = 27,15,000 This is less than 30 lakhs by 10%. As i.e.

                               30,00,000

                             -27,15,000

                            =2,85,000

If you thought you were eligible for 30 lakh then now you need to manage 2,85,000 on your own.

The above mentioned case was based on net salary calculation.

The other issue to consider is loan availability on gross salary?

The rule that banks follow in this regard is that your monthly EMI should not be more than 50% of your monthly income because lenders approve your loan after evaluating your loan repayment capacity. This may differ – they can have some deviations as well. There are some determinants which need to be focused while considering your home loan eligibility like tenure of loan, your age , CIBIL score , current interest rate and so on. In addition to all this good credit record is one such factor which improves your chances of getting loan approved. Thus, it is always appreciable to calculate your loan affordability by using eligibility calculator. 

A well structured financial plan involves appropriate allocation of salary between investment, expenses and loans. Home loan affordability needs to be meticulously focused as it emphasizes on the amount of down payment you can make, size of home loan you require, your current liabilities and monthly income. The total cost of your house and amount of down payment you can make will enable you to decide on how much loan amount you can get.

To summarize, we can say that to satisfy your home loan eligibility the amount of loan  as well as the amount of EMI you need to pay should be of prime concern . This  calculation can be best done with the help of EMI calculator.  A robust and successful financial plan should be structured before getting a loan. Thus, applying for a loan and getting it approved are two different issues and entirely different from what we assume. A salaried person should thoroughly analyse various factors before applying for loan for a beneficial outcome.