Thinking of refinancing your home loan: handle with care

If a person is not very satisfied with his present lender or has misjudged the home loan scheme, then refinancing is a very good option for him. Through refinancing, a borrower can replace his existing lender with some other lender which can provide him loan at lower interest rates.

Before a borrower opts for refinancing, he must very carefully analyze his loan and the loan scheme that he intends to go with. The most crucial thing here is the interest rate; if the difference between the interest rate of the two loan schemes is not very significant then the scheme then it might not prove to be very useful.

When a person refinances his loan he is actually pre-paying his loan and that is why pre-payment penalty is applicable along with several other charges that the present lender will levy from the borrower. So while calculating the prospects of the loan a borrower should consider all the charges that he will have to pay.

Choosing a correct lender and loan scheme is of prime importance here. A sit is the central point for all the proceedings. So, before a borrower approaches his present lender for the foreclosure of his loan by then he must have gone through all the details and the terms and conditions of the new loan scheme.

Repayment is a very beneficial option but only when implemented judiciously otherwise the borrower might find himself in deep trouble stuck with another loan scheme.

All about home loans

After a person is done with the identification of the property the next big challenge for the customer is to go for home loan. There are a lot of home loan schemes available on the market and that is why sometimes a customer can be confused about what find of loan scheme to go for or which one will be more suitable for him. The lenders not only provide loans for purchase of property but there are also several other kind of loan schemes.

Lenders provides various kind of home loans like for construction or buying a new home, home repairs and renovations, purchase of plots, against mortgage of property. There are bridge loans that are like a make shift arrangement between selling the old place and buying the new one.

There are home conversion loans for people who are moving homes, in this case the existing loan is transferred to the new home after calculating the extra cost of the new house and no repayment of the previous loan is required.

The other thing that a borrower needs to take care of before he applies for a home loan like cost of processing fees, pre-closure penalty etc. the tenure of home loan can vary from 5 to 15 years depending on the lender and primarily on the age of the borrower.

Then there are the interest rates types. Basically the lenders offers two types of interest schemes first is fixed and other is floating interest rate scheme but recently the lenders have started offering another kind of interest scheme known as teaser loan scheme where the interest rate is fixed for first few years and then it goes floating.

After that it comes to EMI, different banks have different loan calculators to decide the EMIs. Some lenders calculate interest on the yearly reducing principle where the principle amount reduces year wise but in some cases the lenders calculate interest on monthly reducing principle. It can vary from bank to bank but a borrower must go through all the conditions to analyze which one to opt for.

Outline of home loan for NRIs

Home loans have made the dream of a lot of people come true. Home loans are not only for the residents Indian citizens but NRIs can also avail this service. But there are a few things that need to be taken care of.

Non Resident Indians are those who are Indian citizens and also hold a valid Indian Passport. Such Indian citizens can avail loan for construction of new houses or flats, purchase of old houses or flats, flat addition, alteration of existing houses, renovation, repairs etc.

The documents required can vary from one lender to the other but to avail loan the minimum age required is 21 and their minimum monthly income should be $2000 and he must be a graduate. The lenders also consider the loan number of people dependent on the applicant.

A NRI can avail loan top a maximum of 85%of the total cost of the property. Such a borrower is required to pay the EMIs through post-dated checks from his/ her Non Resident External (NRE) or Non Resident Ordinary (NRO) or Non Resident (Special) Rupee Accounts (NRSR) in India.

A NRI borrower can avail loan from a minimum of 5 lac to a maximum of 1 crore which depends on the repayment capacity of the applicant and the value of property and also a NRI borrower can not avail tax benefits on the home loan.

Depression in home loan demand likely to stay for a while

Due to the soaring prices of property, home loans growth witnessed a downslide in February. To rein inflation prevailing in the Indian market, RBI had to hike its lending rates several times during the last year. The impact was directly seen on the home loan interest rates as banks have been hiking the interest rates at regular intervals.

Apart from the soaring interest rates, the other main factor that hampered the home loan growth is the high real estate prices. During the last few years the property rates have increased many folds.

A State Bank of India official said “Growth has been impacted due to high real estate prices and high interest rates.”

Many of the customers are happy to wait for now as they are hoping that the rates will stabilize. The Vice President of Angel Broking Mr. Vaibhav Agarwal said “Housing Loan demand will return. There could be some stagnation for a few months, but in the long-term it shall grow.”

Teaser loan gets extended with another one month

The much talked about teaser home loan scheme got away with yet another extension of 1 month. The fate of the scheme will be decided in the monetary policy review of RBI scheduled for 3^rd May.

The scheme was much appreciated by the borrowers and also the lender enough profit from this scheme. In this scheme during first few years the borrowers are charged with a fixed interest rate that is lower than the card rates and from fourth year the interest rates goes floating.

Reserve Bank of India was never in favor of such a scheme and so has to face its constant opposition.

A bank official said “The scheme will be offered till the monetary policy review of RBI or till the bank reviews its annual accounts, whichever is earlier.”