You enter into a long-term relationship with the lender when you take a home loan. Choose a flexible home loan product that gives you the leeway to switch between fixed and floating rates at no additional cost.
For short-term loans (less than 5 years) and for small loan amounts (less than Rs. 5 lakhs): the total effective interest rates vary widely between finance companies. However, for the more common, long tenure loans the interest rate differences between compaines are small. In that case, companies that have lower documentation requirements and who are able to better customize the loan must be approached. Responsiveness to queries and the average speed in processing loan applications are the criteria used to judge service standards.
To make you feel at ease with home loan nitty-gritty, here is the simplified loan jargon.
Equated Monthly Instalment (EMI): Loan repayments are usually
in Equated Monthly Instalments over the tenure of the loan. Some banks also offer
a variable instalment scheme wherein repayments are higher in the beginning of
the loan period. This is beneficial to those individuals who are trying to maximize
their tax breaks in the initial years and expect future tax breaks to fall.
Fixed !Floating Rate: The floating interest rate on home loan
varies from time to time.
In a floating rate loan. the customer gains if interest rates fall, but will take a severe beating if interest rates rise. Normally, floating interest rates are quoted in the form of "PLR plus premium". The PLR (Prime Lending Rate), fixed by the Reserve Bank, varies from company to company and changes as frequently as once in three months. If the PLR falls due to the fall in interest rates in the economy, your monthly loan instalment falls (HSBC home loan product). Some banks like HDFC keep the monthly instalment amount fixed but reduce the loan tenure if interest rates in the economy falls.
A floating rate quote of PLR+0.5% means that interest rate on the loan will change from 14.5% to 15.5% if PLR goes up from 14% to 15%. Also a PLR +0.5% quote from one bank is very different from a PLR +0.5% quote from another as the PLR levels for each may differ.
To reduce the disadvantage of a floating rate loan, some banks like HSBC have introduced a Hybrid Loan. In this case, a person can decide to fix the interest rate on his loan for periods of 1. 2 or 3 years on a long-tenure loan and subsequently decide to float his loan.
For example, you can take a 15-year loan specifying that you will have a fixed interest rate for the first three years, after which you have the option to convert to a floating rate. If you think that interest rates are about to fall. you can opt for a floating rate loan after three years. You will want to stay on a floating rate as long as you feel that interest rates are expected to fall further. The moment you expect interest rates to start rising, switch immediately to a fixed rate loan.
This floating-fixed flexibility can be capitalized to substantially lower the cost of your loan. often saving as much as 50% of the total interest you may have paid on a simple fixed rate loan.
REST: Interest rates are quotes on a daily rest, monthly rest
or annual rest basis. The annual rest quote implies that the company gives you
the credit for the monthly principal repayments only at the end of each year.
Such loans are therefore more expensive than a monthly/daily rest loan. Shorter
the tenure of the loan, greater the effective interest rate difference will be.
Abodesindia.com has standardized all interest rate quotes from companies on a
monthly rates basis. These rates will look different from the company brochure
quotes which maybe on an annual rest basis.
PROCESSING/ADMINISTRATIVE FEES: Processing fee is a onetime fee that
is normally non-refundable and payable along with your initial loan application.
Rates can vary from 1-2% of the loan amount. Administrative fee is also a one-time
fee that is normally non-refundable and payable before your loan is disbursed.
Rates can vary from 1-2% of the loan amount.
COMMITMENT FEE : This fee is charged if you do not draw the sanctioned
loan within a period of 6-9 months. The rate of interest is usually about 1-2%
INTEREST TAX: Housing finance companies have to pay a tax on
the interest income they receive from you. They sometimes pass this on to the
customer. Always check with the company whether the interest rate they are quoting
includes interest tax. This tax is normally about 2% of the interest rate charged.
For example, if the interest rate quoted is 14% then the actual interest rate
including interest tax is about 14.28%. This rate is called the Effective Rate.
Abodesindia.com has calculated effective rate on a monthly rest basis for most
finance companies to facilitate easy comparison.
PREPAYMENT CHARGE: Most housing finance companies charge a fee
for prepaying your loan before its full tenure is over. The fee is normally in
the range of 1-2% of the prepaid amount. This fee limits your ability to refinance
the loan if interest rates fall after a few years.
REFINANCE CHARGE: Some housing finance companies do not charge you for
prepayments from your own savings. However, if you retire a loan using money borrowed
from another finance company, you will have to pay a refinance charge of 1-2%
of the loan outstanding.
DOWN PAYMENT: Housing finance companies would normally give a
loan up to 80-85% of the value of the property. The remaining amount would have
to be paid by the buyer (to the seller) as a down payment before the he draws
on the loan.
LOAN TENURE: Normally. loans are given for a period of 1-15 years.
Some companies also give loans up to 20 years at an additional interest cost of
0.25%-0.5%. Most companies do not allow loans for a fraction of a year.
REAL ESTATE TYCOONS
Driven by positive growth in the economy and friendly interest rates, real estate in India is booming. There is rush for making the best of the boom by every other real estate developer and in turn to provide dream homes to the millions.
DLF BUILDING INDIA
We have never done things in a small way. We will continue to be the influencing player & disrupt existing cozy arrangements.
Promoters: K. P. Singh, Chairman, Rs.79,000 crore DLF group believes
in sustained efforts to enhance customer value and quality and to give ethical
and professional service to their customers.
Investment/Assets: The company plans to invest Rs 8,000 crore in Madhya
Pradesh. The investments are to cover Housing, Industrial SEZs, IT parks and the
state's first international class Convention Centre with a Hotel in Bhopal and
similar projects in other cities like Gwalior, Indore and Jabalpur. At present,
sources value the DLF Group's assets at between Rs. 15,000 and Rs. 20,000 crore.
Area: Already developed over 35 million sq ft of projects across its three key businesses of residential, commercial and retail. DLF has also secured/identified close to 250 million sq ft of projects for development with on-going projects of over 100 million sq. ft. Future projects include development of 100,000 acres over the next few years.
Projects: Residential and Commercial complexes, Shopping Malls,
Hotels, IT Parks, SEZs, Infrastructure, etc. DLF and Laing O'Rourke, UK are strategic
partners in several infrastructure projects. Through this joint venture (JV) the
Group plans construction of projects in the sectors of expressways and airports.
The DLF IT Park, Noida is spread over an area of 1,200,000 sq ft offering Ready
Built Space. Located in Sector 62, Noida, it is divided into 5 blocks and has
a quick access to NH 24. The IT Park has been landscaped as an international work
Location(s): Gurgaon, NOIDA, Chandigarh, Kolkata, Hyderabad,
Bangalore, Pune and Chennai
Achievements: Earned Superbrand ranking. DLF is the only company
in India in the Consumer validated category from the real estate sector to have
been awarded this distinction. K.P.Singh, Chairman, DLF Group received 'Delhi
Ratna' award by the Chief Minister, Shiela Dixit for his