How to manage home loans in difficult times

In the recent times inflation has reached two digits, the Reserve Bank of India (RBI) increased repo rates and CRR. As a result banks have hiked the interest rates. Till now assumptions are being made in the market whether the interest rates will climb further, remain stagnant or decrease over a period of time. But in reality hike in home loan rates have driven the budget of households out of gear. Previously income was more, but now the positioned has changed EMI’s have risen considerably and monthly salary is unable to keep pace with the growing expenditure. People are trying hard and searching ways to make the ends meet.

Don’t get tensed here few tips to help you in tackling high home loan rates.

1. Generally banks lock the fixed rates for a fixed period of around 3 years. In the current circumstances if you are worried whether the prevailing floating rates on home loans can exceed the fixed rate, can try to convert their floating rate home loan into a fixed rate. But one thing is to taken care of that banks charge fees to convert from floating to fixed and vice versa. Therefore check each and every aspect before switching to other.


2. There are some banks and housing finance companies (HFC’s) which are trying certain measures to keep the interest rate burden to themselves. In prevailing conditions it would be sensible to compare the currently prevailing interest rates so that you can find the best and cheapest offer. In case you find such entity which is giving cheaper interest rate and offers balance transfers then stop there and think over for it. The main thing to watch here is the balance transfer fees, the EMI's and loan tenure. At times banks play smart by charging high fees for balance transfer and keep harsher terms.


3. Some banks offer facility of increasing your loan tenure. But certainly this will be decreasing your monthly home loan EMI burden. Banks take in consideration the age of the applicant while deciding an increase in loan tenure. Most of the banks have fixed the upper age limit up to 60 years for salaried and 65 years for self-employed. So if you are not nearing retirement and have a good employment track record then you are lucky.


4. To ease the tension and decrease the EMI burden the best option is to prepay a part of your home loan. Banks have prepayment option which is subject to their terms. If you have a fixed deposit, or any other asset which you think can be used to bring down your total home loan amount, then use it rather taking another loan. Some people make mistake by taking another loan or overdraft on their existing deposits and use that money to pre-pay a part of home loan, but it is only another loan.


5. To manage your expenses budget is the most important tool. Though, most of us rarely use it. If you have to pay back your loan then keep track of your everyday spending so that you can spare some valuable cash. This small-small saving will be useful and a handy resource to fund those hike in EMI’s or at least a part of it.

Home loan rates will continue to rise or fall but your intelligent thinking to tackle the situation will save your from all that harassment and tension.

Allahabad bank to offer insurance facility on housing loans

Kolkata-based Allahabad Bank is providing mortgage term loan facilities to his housing loan customers by signing an agreement with Tata AIG Life. Bank has also tied up with Life Insurance Corporation of India (LIC) for providing similar insurance on housing loans.

J P Dua, executive director of Allahabad Bank informed in the future bank has plans to get into similar tie-up arrangements with insurance companies for providing insurance on education and automobile loans.

He stated bank is planning to tie-up with Kotak Mahindra Insurance for education loan. He said around 31 per cent of home loan borrowers have already chosen for insurance cover.

Joydeep Roy, chief distribution officer, Tata AIG, said, "Customers would be offered reducing term life insurance designed to cover mortgage loan obligation of the insured member against death during the term of the coverage."

According to the agreement, the bank would be extending Tata AIG's housing loan cover through its network of 2,154 branches across the country.

According to bank sources bank will be opening 115 more branches by December 2008. Bank has submitted its application for the approval with the Reserve Bank of India (RBI).

Dua informed Allahabad Bank has the capacity to raise up to Rs 2,000 crore this fiscal. The bank would be concentrating on retail banking for which it would be opening six retail malls for marketing retail products.

Last year, the bank had raised Rs 10 crore from non-interest income of Rs 10 crore and aims to double it this year. Bank sources said insurance cover will be optional for borrowers, and this facility will be extended to new as well as existing customers of the bank.

Dua said the mortgage insurance would help customers in the time of need. In case of an unfortunate event like death of the mortgage loan borrower Tata AIG will provide for repayment of the housing loan and the family would get back the property.

The family would get back the property.