Housing Loans: Loan - to - Value Ratio..

by  Mr. Adhil Shetty, BankBazaar.com

Banks & non-banking financial companies (NBFCs) are getting active to make sure they get the maximum number of housing 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

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

State Bank of India (SBI) is offering women borrowers an interest rate of 10.10 % for home loans above Rs. 75 lakh while ICICI Bank is giving a further 0.05 % discount with loans available at 10.10 %.

 

Mr. Adhil Shetty, Founder & CEO, 
BankBazaar.com

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 housing loan.

Rising Loan - to - Value Ratio..

If income tax benefits & discounted interest rates are not enough, here is more good news for new housing loan seekers.

National Housing Bank (NHB), is considering a proposal to increase the loan - to - value ratio (LTV) for housing 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 property’s 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 Rs. 20 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 Mr. Arun Jaitley in his annual budget speech has given a positive impetus to the infrastructure & real estate industry. The finance minister allocated Rs. 4,000 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 housing 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 housing loans, the finance minster has increased home loan rebate on self-occupied property from Rs. 1.5 lakh to Rs. 2 lakh.

In addition, the finance minister has also announced additional tax deduction of Rs. 50,000 for both housing loan principal amounts under Section 80 C from Rs. 1 lakh to Rs. 1.5 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.

About the author

Mr. Adhil Shetty, Founder & CEO,  BankBazaar.com

Prior to BankBazaar.com, Adhil lived in New York City and managed Deloitte Touche Tomahatsu's US East alliances with the world's leading Information Management Company. Earlier in his career, Adhil worked with Cisco Systems as an engineer in Bangalore and San Jose.

Mr. Adhil has a Masters degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelors degree in Engineering from the College of Engineering Guindy, Anna University.

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