Some significant home loan clauses

Increase in income of the people has boosted the loan segment of the banks especially the home loan segment as owning a house is becoming the first priority of the people. But most of us don’t have the knowledge of significant clauses of the home loan. Here we have tried to take few clauses about which we must have knowledge.

Interest rate movement:

Banks have included a clause of revising interest rates in the home loan agreements this has enable banks to even revise the fixed interest rate on loans. In floating interest rate bank already have power to change the interest rates. This can be done unilaterally, at the discretion of the bank.

Prepayment charge:

When bank sanction loan it also specify the repayment tenure of the loan. If a customer plans to repay loan before the due date some of the banks have incorporated foreclosure charges. In this the condition may range from taking prior permission of the bank, to a lock-in period during which the loan cannot be prepaid. Some banks levy prepayment penalty in case of the loan is repaid before the completion of tenure. But some banks don’t charge prepayment penalty if the loan is repaid out of one’s own funds.

Switchover charge:

As per RBI norms the home loan borrower can switchover to another bank if he finds that other bank is offering low interest rate in comparison to its existing lender. But in this case the banks have switchover charges. The existing bank will take fee from the borrower for switching over to other bank.

Disbursement date:

All the banks differ on the timing of disbursement of the loan. Some banks consider the date of the cheque as the disbursement date. Some of them consider the date of payment advice as the date of disbursement. According to some of the banks the date on which actually the funds were transferred is the date of disbursement. The difference in these dates has a significant affect on the interest element.

Job status of borrower:

Some banks have added a clause that when the job status of the borrower changes, the borrower must inform the lender about this.

Default penalty:

In case the borrower default in payment or delays EMI payment or the loan EMI cheque gets dishonor for this banks have default penalty clause.

Lakshmi Vilas Bank venturing into housing finance biz

Lakshmi Vilas Bank, a private sector lender is planning to venture into housing finance business by floating a subsidiary housing finance company.

To float equity shares of up to 40 per cent of the present issued capital, bank will be taking approval from the shareholders’. The bank is also looking for a qualified institutional placement, a global depository receipts or an American depository receipt issue, or a follow-on public offer.

Lakshmi Vilas Bank Managing Director & CEO K S R Anjaneyulu said, “The housing finance space offers immense scope. We need focused and concerted efforts in this business so as to reap the benefits from this huge potential market. That is why the bank’s board has decided to float a new subsidiary to undertake the housing finance business.”

Besides this, bank is also planning to issue equity stock options of up to 5 million to its eligible employees and directors under the stock option scheme.

As on March 31, as per Basal-II norms bank capital adequacy ratio stood at 14.82 per cent.

Anjaneyulu said the bank need more capital to meet its expansion plans. He added, “That is why after raising funds through a rights issue in December 2009, the bank plans to raise further share capital in the current financial year.”

According to records, as on March 31, banks’ share capital amounted to Rs 97.51 crore. During 2009-10 there was a growth of 23.28 per cent from Rs 7,631 crore to Rs 9,075 crore in its total deposits however its net advances accounted to Rs 6,277 crore, registering a growth of 19.88 per cent from the previous year advances of Rs 5,236 crore.