Home loans: Making most of headwinds

Updated: Aug 22 2014, 15:59pm hrs
Home Loan>home loan scheme, under which borrowers need not pay instalments for the first three months. (file Photo)
Banks and non-banking financial companies (NBFCs) are getting active to make sure they get the maximum number of home loan borrowers when growth in real estate picks up. HDFC has announced a discounted interest rate of 10.15% for all new borrowers irrespective of the loan amount. The new scheme has been in force since the month of August 2014. Bajaj Finance, an NBFC, followed suit with a new

home loan scheme, under which borrowers need not pay instalments for the first three months.

State Bank of India is offering women borrowers an interest rate of 10.10% for home loans above R75 lakh while ICICI Bank is giving a further 0.05% discount with loans available at 10.10%.

Since the tenure of home loans

is usually quite long, there are bound to be cyclical highs and lows for interest rates, but such discounted schemes help borrowers make quick decisions, especially if they have been waiting for the right opportunity to take a home loan.

Rising loan-to-value ratio

If tax benefits and discounted interest rates are not enough, here is more good news for new home loan seekers. National Housing Bank, or NHB, is considering a proposal to increase the loan-to-value ratio (LTV) for home loans to 90% of the property value from the current 80%. Once implemented, this would mean home loan borrowers can take loans up to 90% of their propertys value.

This new rule can be effective for people with small savings, who have so far been unable to save the minimum 20% margin money that institutions expect the borrower to invest.

The new changes in the LTV rule, once effective, would only be made available for home loans above the minimum threshold limit of R20 lakh.

Note that a higher LTV only reduces the margin money to be raised by the borrower while increasing the quantum of the home loan and, hence, the total interest cost of the loan. Do bear in mind though that home loan funds are not provided for stamp duty and registration costs and borrowers must keep some part of their funds for registration fee and stamp duty charges.

The recent announcement by finance minister Arun Jaitley in his annual budget speech has given a positive impetus to the infrastructure and real estate sector. The finance minister allocated

R4,000 crore for low-cost housing, encouraging more real estate developers to

bring in low-cost projects. Since the rising cost of real estate has been a dampener for most buyers in recent times,

the availability of low-cost housing projects means easier home loans and

shorter tenures.

This is encouraging for everyone concerned, including real estate developers, home buyers and banks.

budget tax bounty

Encouraging more people to opt for home loans, the finance minster has increased home loan rebate on self-occupied property from R1.5 lakh to R2 lakh. In addition, the finance minister has also announced additional tax deduction of R50,000 for both home loan principal amounts under Section 80 C from R1 lakh to R1.5 lakh.

Note that the RBI has not announced any rate cuts after the third bi-monthly monetary policy review. A revision in interest rate is not expected till the end of this year as the RBI continues to monitor inflation closely. However, seasonal discounts offered by banks can be expected from time to time.

Adhil Shetty

The writer is CEO, BankBazaar.com