Repo Rate is the rate at which a country’s central bank (RBI in the case of India) lends money to commercial banks in case of any shortfall of funds. A Repo Rate is a Repurchasing Option or Repurchase Agreement for funds given to commercial Banks by the Central Bank as loans against government bonds or securities deposits. The funds are repaid with interest according to the Repo Rate issued by the Reserve Bank of India.

Repo Rate is used by monetary authorities to control inflation. An increase in the Repo Rate will restrict liquidity and control prices, whereas a lower Repo Rate facilitates borrowing. A higher repo rate increases the interest rate of the loans forwarded by commercial banks, whereas a lower repo rate will help reduce the cost of funds. The Reserve Bank of India declares a current Repo Rate, taking into account the state of the economy.

How Does a Repo Rate Work?

Commercial Banks request funds from the Central Bank in exchange for their government bonds and securities when in need of funds, which are repurchased at a marginally higher price. Banks further utilise funds for running their business and issuing funds as loans. Therefore, the current Repo Rate is the basis for all types of loans, including secure loans such as home loans and Loans Against Property, unsecured loans, Personal Loans, and Credit Cards. As the Repo Rate increases, your Home Loan will cost you more, and vice versa.

How Does the Repo Rate affect the Interest Rates issued by Banks?

The RBI has implemented a system of Repo Rate-Linked mortgages to enhance transparency in lending to customers, especially for loans with longer tenures, such as home loans and mortgages, which are provided at a floating interest rate. The current lending frameworks available for mortgage loans include the EBLR and MCLR methodologies.

How Does the EBLR Function?

The EBLR, or External Benchmark Lending Rate, is directly linked to the external benchmark of the Repo Rate. It was incorporated in October 2019 to give customers the direct effect of changes in the Repo Rate. If the Repo Rate is cut, the impact will be passed on to customers with a home loan or mortgage. Similarly, the customer will be charged a higher interest if the Repo Rate Increases.

Banks add a spread over the external benchmark or Repo Rate to determine the EBLR offered to customers; the spread added comprises of:

• The bank’s cost of funds.
• Operating costs.
• Profit margin.
• Risk assessment.

Therefore, the EBLR Rate issued to the customer includes Repo Rate + Spread = Interest rate. Banks must reassess the EBLR Rate issued to customers every three months, per the Repo Rate or the 91-day treasury yield. This methodology, though transparent, is volatile and has been adopted by leading PSU Banks such as the SBI (State Bank of India) and Union Bank.

Details of the MCLR Lending Regime

Most Banks adopt the MCLR, or Marginal Cost of Funds Lending System, based on the Repo Rate and other factors. The minimum benchmark set by the RBI (Reserve Bank of India) is also considered. As per the MCLR system, banks have more flexibility in calculating the costs and can factor in their current deposits and profits.

However, it is slower in responding to changes in the Repo Rate and reviewing the rates offered to customers yearly. On the other hand, customers are also comfortable paying a steady EMI for a while. The interest rate offered to an applicant as per the MCLR regime depends on:

• The cost of funds borrowed as per the Repo Rate.
• Operating costs that include administrative expenses and utilities.
• Other individual factors, such as the Loan tenure and CIBIL Score.

The RBI (Reserve Bank of India) closely monitors the MCLR rate forwarded by most private Banks, such as the HDFC Bank and Axis Bank.

Home Loans and Mortgages are issued at a floating interest rate for a longer tenure, so applicants must be vigilant about the current Repo Rate and any fluctuations afterwards. Fresh Applicants are offered a lower interest as a sales call for their Home Loan. The interest rates are later increased if the cost of the bank’s funds increases. If the benefits of a lower Repo Rate are not offered to a Home Loan Applicant, the customer can choose a Balance Transfer to an external bank that provides greater transparency.

Short-term loans, auto loans, Business Loans, and Personal Loans come with a fixed interest rate and monthly EMI at the time of disbursement. According to its policies, the bank determines the interest rate based on its fund cost, including the Repo Rate and added margins. If the interest rate changes, the applicant has the option to transfer the loan amount through a Personal Loan Balance Transfer to an external bank offering better terms.

Ultimately, the cost of funds borrowed from the governing Bank, the RBI, sets the basis for further lending, such as a Home Loan, Loan against Property, Auto Loan, Business Loan, or Personal Loan. Keeping a tab on this is essential for customers using credit.

The post Understanding a Repo Rate and its Impact on Customers first appeared on Yourloanadvisors.

New Delhi: Home Loans not only help you realize your dreams of buying that house you have always wanted but also help save tax. But sometimes, the procedure of applying and getting a Home Loan can be complicated and frustrating. To avoid hassles and save cost, you must choose the right Home Loan.

Here are 7 Tips To Choose The Right Home Loan:

1. Research Well: These days loans are made attractive for the buyers with lower interest rates and additional schemes. Therefore it is better to educate yourself about the terms and conditions of each loan agreement so that you are prepared beforehand. Clarify all your doubts regarding the loan scheme before you finalize anything and don’t hesitate to ask questions to the sales person even if you have the smallest difficulty understanding a particular clause.
2. Take a Look at the EMI: Calculate the EMI (Equated Monthly Instalments) that you will be able to afford beforehand. Remember that you know your money more than anyone else, so keeping in mind your current job and income you can make an approximate calculation about the amount of EMI you can pay. Don’t make hasty decisions on this one, because paying penalties due to non-payment of EMI on time can prove to be more troublesome. If you have a temporary job, there are other things to take into consideration so make a wise decision taking care of all the parameters.
3. Negotiate on the Interest Rate: Even though banks and financial institutions swear that interest rates are non-negotiable, they could still make a few adjustments, if you list a few honest issues with the high rates. This can be done only if you have finalized the property you want to buy and you need it as soon as possible. Also, if it is the end of the month, it could prove to be beneficial for you. Sales persons have an aggregate number of sales that they need to complete every month; so in order to complete their target they are bound to give you certain benefits.
4. Loan Eligibility: Carry documents which include information like your credit history when you apply for a Home Loan. You should have paid all your credit card bills and car loans on time in order to move a step higher on the eligibility list while applying for a loan. If you have a clean record in your credit history for payments done on time, then you can use it as an advantage when applying for your Home Loan. Also, try to focus on the tenure of your loan. If you opt for a long tenure loan then you will be paying more overall as the interest paid would be very high.
5. Additional Charges To Be Kept in Mind: When you are Applying for a Home Loan, you need to be educated about the various other charges that the lenders add to the current schemes. They will add administrative and service charges or processing fees. These additional fees fall under the amount that is sanctioned in your name and not under the amount that you take home. So before you finalize any deal, you should make note of such additional charges that the lenders put in the scheme.
6. Read The Fine Print of the Agreement Carefully: Even if the Home Loan Agreement with your bank is a bulky document, make sure you read it thoroughly. Sometimes, lenders may verbally agree to certain points but in the end whatever is present on the paper will only be taken into consideration. So it is best if you could just spend some extra time reading the document carefully rather than getting stuck in complications later on. Never sign on a blank loan paper even if the sales person asks you to do so. Ask questions if you have any doubts, because it is very important to be aware of every term and condition mentioned in the loan.
7. Never Leave a Doubt: Applying for a Home Loan seems really easy but it comes with its own set of complications. Keeping these few key points in mind would be a good way to start with it. Apart from that, never leave a doubt in your head because it may cause problems later. For your satisfaction clear out everything beforehand and your dream home will be yours in a hassle free manner.

The post Taking a Home Loan? Here’s a Checklist first appeared on Yourloanadvisors.

New Delhi: A house is the biggest investment most individuals make in their life. Therefore, it is only logical that a lot of research goes into searching for the right property, the right location, the right facilities, and ultimately—and most importantly—the right price.

And only after all these things are taken care of that we look the source of funds. Of course, having adequate savings to completely cover the cost of purchase is an ideal situation, as it gives immediate ownership of the property and saves the several lakhs one pays as Home Loan interest, and also keeps one away from the mental tension of what happens in case one is not able to play the EMIs on time.

However, most property buyers in the country opt for a Home Loan, and this is one segment which is soaring despite the overall gloom in the economy, as can be corroborated by the quarterly results of India’s largest mortgage lender Housing Development Finance Corporation. The firm saw quarterly profit soar 18.5 per cent at Rs 1,002 crore in the April-June quarter.

NDTV Profit spoke to officials at HDFC and Corporation Bank on the homework you should do:

1. In case you intend to take a home loan, calculate your Home Loan Eligibility first. A borrower is eligible for a loan five times his annual income. So be prepared to fund the balance from your own pocket in case the value of the property exceeds this limit. The amount of loan sanctioned also depends on the borrower’s age and whether he has an existing financial liability, such as another home loan or a car loan. In case the applicant is nearing retirement, then the loan amount gets reduced in such a way that the last EMI coincides with the retirement of the borrower. So if two borrowers, one 40-years-old and the other 50, apply for the same amount of loan for the same property, the younger borrower will be disbursed the full loan amount he is eligible for, while the older borrower will get only half the amount. Whether the property meets all legal and regulatory requirements also makes a difference.

2. Banks never finance 100 per cent of the value of the property. Most banks offer loan of up to 80 per cent of the value, while some can even stretch to 85 per cent in case you earn well, have a clean financial record and have no other financial liabilities. In this case too, the balance has to be funded by you. So, in case the property you are interested in costs Rs 40 lakh, the bank will only provide Rs 32 lakh, while you will have to shell out the balance Rs 8 lakh. Of course, whether you get the Rs 32 lakh loan depends on your eligibility. For someone earning Rs 6 lakh per annum, the eligibility comes out to be Rs 30 lakh. Therefore, the remaining Rs 10 lakh has to be funded from other sources.

3. Managing to secure the sources of funds is not the end of your problems. You will have to pay processing fee for the loan, registration charges, stamp duty and brokerage. Banks charge a fixed amount as processing fee, which could be staggered depending on the amount of loan taken. This is usually Rs 8,000 – Rs 10,000 for loans up to Rs 20 lakh, and could go up to Rs 15,000 for loans of larger amount. So be sure to check these details with your bank. Stamp duty is usually between 3 per cent and 7 per cent, and varies from state to state. Registration charges, usually 1 per cent, also vary from state to state. Brokerage costs are again 1-2 per cent of the value of the house.

4. Never go by the cost of the house mentioned on paper. What you see on the brochure is the basic cost of the house, and the actual cost could go up depending on the following—preference of the floor, preference of whether the flat will be garden-facing or swimming pool-facing, whether the flat will be a corner flat with two sides open, whether you want an open parking or a basement parking, whether you want roof rights or not. The list is huge, and securing funds depending on the base price may give you last minute surprises. Gym or club membership and generator for power back-up could also raise the cost of the house. Usually, electricity meters and water connections also attract a one-time cost.

5. Choose your bank carefully after doing ample research on the home loan rates being offered. Most banks offer lower interest rates in the initial years to attract buyers. These rates are then corrected to the existing market levels after 2-3 years. Some banks also offer the option of charging only the interest component of the EMI till the time of possession, while there are some which begin the installments only after the borrower takes possession of the flats. It is also important to clarify what will happen in case the builder delays the delivery of the flat. In most cases, the banks will insist on charging the EMI from the scheduled date, and this will mean that the borrower will end up paying a full EMI as well as the rent of the flat where he is currently residing.

The post Taking a Home Loan? Here’s The Homework first appeared on Yourloanadvisors.

We at Oasis aspire to make your experience easy & comfortable. Having a tie up with all leading Banks & NBFC companies we do doorstep delivery of your home loan.

Choose a Home Loan which is Flexible & easy on your finances.

The post Home Loan: Apply Housing Loan Online first appeared on Yourloanadvisors.

Owning of a House is a Dream come true for most people. A home of ones own gives as sense of security and stability to a family. And it takes away the stress of finding rented houses and increasing monthly rents. But the downside is the un affordable real estate prices. They always seem exorbitant and manage to be way above your budget each time you think of investing in your dream.

The answer to these woes is a HOME LOAN. It is actually an easy and fairly simple method  Especially since  help you achieve you dream most Banks & NBFC’s (Non Banking financial concerns) are aggressively marketing Home Loans as a major part of their portfolio.

A Home Loan Can Be Granted For The Following Entities:

• • • A previously Constructed House or a dwelling Unit
    • A Fresh Construction
    • A project under construction
    • Purchase of a Plot of Land
    • A construction Loan for constructing a House thereafter

Furthermore there are various schemes that have been launched to suit variable needs of diverse Income groups and their unique loan requirements. For your understanding of plans that are popularly available, we have described them henceforth.

The Down Payment Plan

This plan is most suitable when the Property to be purchased is “Ready to move” into or is nearing completion. In such cases, up to 80%-90% of the property value is funded by the bank. Before the bank releases funds, the buyer of the housing unit is required to pay an advance of 5% to the seller along with signing an agreement to sell between the buyer & seller. This consists of details of the transaction. The balance amount (the remaining 5% – 10%) of the cost is paid at the time of possession. This remaining amount, together with registration cost, can be additionally funded as a top up after the registration process.

The Down Payment Plan Under 80:20 /70:30 / 90:10

With the upswing of construction in most metro cities, Lenders & Builders have come up with various innovative schemes under the Down Payment Plan. These schemes seem attractive to customers as they can book a dwelling unit under the current market prices, they can pay in Installments after possession of the property via a Home Loan.
For example in the 80:20 schemes the buyer of the pays 20% to the seller/builder & the balance 80% is funded by the Bank as a Home Loan. The Bank gives an ADF (Advance Disbursal Facility) to the Builder where in total funds are released in advance without any linkage to the construction process.

This transaction involves the signing of a tri party agreement between the builder buyer & seller. This gives an advantage to the builder as through such proxy lending, banks fund builders at much lower rates of interest. The builder also gains from the fact that paying back the Loan is entirely the responsibility of the borrower.

The RBI has frowned upon such schemes, especially taking into account that 70% of the construction projects are delayed.  Furthermore the Penalty clauses or Cancel options in the Buyer–Seller agreement between the customer & builder may not be sufficient to protect the customer, as he will be burdened with the regular EMI which he has to pay to the Bank.

THE PRE EMI SCHEME

To combat problems arising due to delays in construction, the ‘pre Emi scheme’ has been introduced. Under this scheme only the ‘interest ‘portion of the EMI is paid to the Bank till construction of the Unit is complete and possession is handed over to the buyer. Widely advertised as no EMI till possession, it works differently for Loan borrowers. As per this scheme the builder for a designated period of time will pay the complete or part of the interest portion of the EMI thereafter it will be paid by the buyer. To further attract customers, builders have come up with EMI sharing options. Downside of this plan being that the EMI will only factor the interest portion. Once the Loan amount has been disbursed, the interest portion paid already will not give any discount in the Emi schedule calculated.

CONSTRUCTION LINKED PLAN

Home Loan under this plan is directly linked to the construction process This Plan is ideal for Housing projects to be constructed by Builders or for construction of a private property, an individual house.

The Building Could Be

• Under construction /plans have been finalized for construction.

Planning is complete but construction has yet to start. Builders after the acquisition of Land give a projected shape to the buildings & start advertising salient features. Customers can book their flats by giving a token amount of 5%.

80% to 90% of the cost of the flat is processed as a Home Loan Payments to the builder under this plan are directly linked to construction example 20% of the loan amount being disbursed on completion of each Floor.

The Final payment is made to the builder at the time of possession. This plan suits both the buyer & the builder as the builder is able to collect finance for his project & the buyer is able to get a good price. As disbursals to the builder are as per the progress of construction the builder will be keen to complete the construction on time. For construction of an individual house, An Estimate of the cost of construction needs to be submitted to get a Loan. Funds are released by the Bank as per the progress of construction.

FLEXI PAYMENT PLAN

This plan is a combination of the above plans for projects under construction. Under this plan 1/3rd of the Loan amount is disbursed to the builder at the time of booking. 1/3 rd is linked to construction milestones and the balance is paid at the time of possession.

Construction linked plans are less risky as they are connected to the progress of construction. The builder is also bound to complete construction on time, to keep the cash flow running.

TIME LINKED REPAYMENT PLANS

These plans work according to a pre decided schedule. Funds are released by the Bank as per a pre decided time & date. 10% of the value of the housing unit is paid by the buyer to the seller at the time of the agreement. Loan amount which is sanctioned by the Bank is released as per schedule. Construction delays are not accounted for, whereas in case there is a delay in payments the builder can levy heavy penalties.

PRE EMI V/S FULL EMI

If Buying a Home under construction choose a builder with a good track record of timely deliveries. Monthly Installments or EMI paid to the Bank normally factor a quotient of the Loan Principal & Interest factor. For a Home Loan projects which are under construction the customer is required to pay the only the Interest part of the Loan till the total Loan amount is disbursed possession of the property. Under this scheme the Principal part of the loan remains the same till possession. It is only after getting possession of the Unit, which the Payment of the full EMI starts as per the schedule of the Bank.

Some Banks also allow the Payment of the full EMI from the time the disbursal starts in such cases interest will be charged only on the amount disbursed the rest of the EMI will comprise of the Principal. This is advantageous as the loan gets paid off faster.

A Home Loan is a convenient way of buying a house for your loved ones but it is important that you understand all the terms & conditions prior to signing up for the Loan. Understand all the complexities of your Payment Plan, so that you can get maximum advantage.

At the time of borrowing a home loan you should remember that you can avail tax benefits until the tenure of repayment.

The post Understanding The HOME LOAN first appeared on Yourloanadvisors.

The foremost thing to be kept in mind is that one should never finalize a lender on the basis of interest rates. Most of us choose Home Loan Lender on the basis of interest rates, cheapest the best. But actually, there are various other things that should be kept in mind while finalizing Home Loans.

Check Your Home Loan Eligibility With Various Banks:-

Various banks have their own methods ad standards for calculating eligibility. You should do some shopping to check which bank is offering you higher loan eligibility. Adding up your spouse income may also be a good option to increase your Home Loan eligibility.

Fixed or Floating Interest Rate:-

A fixed interest rate means that you will have to pay same EMI over a period of time (it may be fixed for entire tenure or it may be reset at fixed interval). Floating interest rates may change at any given point of time, which may result increase or decrease in either your Home Loan EMI or your tenure.

Processing Fees:-

This fee is charged by the bank for processing the Home Loan and is not refundable. In case you decide not to take the loan from the bank, then the entire amount you have paid towards processing fees is lost. This generally varies in the range of 0.5 to 1% of the total Home Loan amount. Also payment of processing fees doesn’t means that your loan is passed. It may happen that you pay the processing fees but still your loan is not sanctioned due to various other reasons. Thus before paying the processing fees, you should bargain on the same and get it confirmed from the bank in writing.

Prepayment Fees:-

Prepayment fees come in to picture in case one wants to prepay his Home Loan from various sources. It may be from his personal savings or if he is planning to switch the loan to a different lender. Few of the banks offer no prepayment charges in case the prepayment is done from own sources. But in case the person is shifting the loan to a different lender then most of the banks ask to pay a fee in the range of 1% to 2% of the outstanding loan amount.

All the charges should be always be taken down in written from the bank and the written document should be preserved in case the bank asks the person to pay up some different amount after sometime.

Once you are satisfied with the above clauses and the interest rate offered by the particular lender, you should go ahead and buy your dream home.

Along with that it is always said that you can get the best Home Loan deal only after your property is finalized. So before you start with your loan hunting, we would suggest you to finalize the property.

The foremost thing to be kept in mind is that one should never finalize a lender on the basis of interest rates. Most of us choose Home Loan Lender on the basis of interest rates, cheapest the best. But actually, there are various other things that should be kept in mind while finalizing home loans.

The post How To Choose A Home Loan Lender? first appeared on Yourloanadvisors.