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CHAPTER 1 AN INTRODUCTION

Housing is a primary human need next in importance only to food and


clothing. A first priority for a youngster who begins life is therefore to plan for
a house. This takes precedence over other household expenditure and
creature needs. Housing, however, is a major expenditure and cannot be
funded out of a family's normal monthly income or savings. The prospective
homeowner must look for a loan substantial in size and so structured that he
can repay it over a longer period of time, in many cases almost one's entire
working life. Loan is offered to a borrower to purchase or build a new house
on the basis of his/her eligibility and the bank's lending rules. One of the
important basic human needs is shelter. House is the ultimate dream of
every middle class family. Government gave encouragement for house
finance subsidiaries by offering number of tax concessions to individuals.
With the overall encouragement given to this sector, a number of players
entered in housing finance. One of the most important benefits of taking a
home loan is the interest rate that is allowed on the home loan. Fixed and
variable interest rate options are also available for home loans. Many
financiers also offer home improvement loans at the same interest rate as
they offer the home loans.

ABOUT THE REPORT


TITLE OF THE STUDY:
The present study is titled as A PROJECT REPORT ON ICICIHOME LOANS.
The study is made with special reference tobankbranch
OBJECTIVE OF THE STUDY:
The following are the objective of the present study:1. The main objective of
doing this project is to study the corporate culture
2. To analyze Indian home loan market and its growing trends
3. To analyze various methods of operating a home loan
4.To gain knowledge about various home loan products5.To know various
rates available while providing home loan.

Data and Methodology:

For the purpose of the present study both primary and Secondary data were
used.

Primary data collected from bank visits, interviewing with staff etc.
secondary data collected from books, websites and newspaper.

LIMITATION OF THE STUDY:


The present study has got all the limitations of case studymethod of data
collection.

Chapter Layout :Chapter Particulars


1Introduction to the title and theproject2Profile of the bank3Theoretical view
of home loans4Analysis of the study5Conclusion to the project

A THEORETICAL VIEW-HOME LOAN


The section 5 (b) of the Banking Regulation Act 1949 definesBanking as,"
Accepting for the purpose of lending or investmentof deposits of money from
the public, repayable on demand or otherwise and withdrawable by cheque,
draft or otherwise."A "home loan" is a credit to a consumer for the purchase
or transformation of the private immovable property he owns or aims to
acquire secured either by a mortgage on immovableproperty or by a surety
commonly used in a Member State for that purpose."A home loan requires
you to pledge your home as the lender'ssecurity for repayment of your loan.
The lender agrees to holdthe title or deed to your property until you have
paid back your loan plus interest. In simple words a home loan is a fund or
theloan which the buyer has taken from any financial institution or bank to
purchase a new home at an agreed rate of interestspecified during the
contract.Home loan is the finance borrowed from a bank or
financialinstitution to buy or modify a residential real estate property.Any
Resident or Non-resident individual who is planning to buy a house in India
can apply for a Home loan. If you have decidedto buy a property in the near
future you can even apply for aloan before you select your property.
SCHEMES OF HOME LOANS:

1) Home loans for construction of new house / flat,purchase of old house/


flat, etc:
Initially, lenders approved a home loan for family/own residenceonly. After
gaining experience and more importantly to becompetitive, lenders now
approve loans even when theapplicant has more than one house or
flat/apartment. Todaythere is no general restriction on the number of houses
owned by an individual. The only stipulation is that the home loan funds
should not be used for commercial purposes.
2) Home extension loan:
These loans are given for expanding or extending an existing home. These
are some of the instances for which you could take an Extension Loan.

To construct an additional room or floor by getting additionalFSI granted.

Using grills or sliding windows to enclose the balcony.

Construction of a garden or garage in the building vicinity.

Similar to A Project Report on Home Loan

Home improvement loan:


H o m e i m p r o v e m e n t l o a n s f o r r e p a i r s / r e n o v a t i o n i n c l u d i n g waterproof,
plumbing, compound wall, digging of well/tube-well,flooring/tiling, additions like built-in
cupboards /shelves, internalr e p a i r s i n c l u d i n g r e p l a c i n g d o o r s / w i n d o w s , e t c .
A loan for p u r c h a s e o f h o u s e h o l d f u r n i t u r e i n c l u d i n g s p a c e s a v i n g furniture (kitchen racks, cupboards, etc) may also be sanctionedas a home
improvement loan.
4)Home loan for purchase of housing site:
H e r e a g a i n , i n i t i a l l y m a n y b a n k s d i d n o t a p p r o v e s u c h l o a n s . However, market
forces have now made this a universal featureo f t h e h o m e l o a n m a r k e t . H o w e v e r ,
c a r e h a s b e e n t a k e n i n structuring the schemes for avoiding financing for
purchase of land for speculative lation purposes.
5)Home equity loans:

A home equity loan (sometimes abbreviated HEL) is a type of l o a n i n w h i c h t h e


borrower uses the equity in their home ascollateral. These loans are
s o m e t i m e s u s e f u l t o h e l p f i n a n c e major home repairs, medical bills or college
education. A homee q u i t y l o a n c r e a t e s a l i e n a g a i n s t t h e b o r r o w e r ' s h o u s e ,
a n d reduces actual home equity.

Home
equityloansHome
loanfor
purchaseof
housingsiteHomeimprovementloanHomeextensionloanHome loansfor constructionof newhouse /
flat
SCHEMESOF HOMELOAN

Rate of Interest
:The lender decides the rate of interest chargeable on the homeloan, taking the following into
consideration:
1.Cost of funds:
The cost of funds is different for each lender, depending upon the mix of liabilities,
liability-raising costs (based on the image of t h e b a n k i n t h e m a r k e t ) a n d w i t h
d i f f e r e n t c o s t s i n d i f f e r e n t maturity buckets.
2.Tenor of the loan:
Generally, banks have borrowed funds with maturities up to 5 years, and some capital
fund surpluses, which may be availablefor allocation to home loan assets.
3.Capital allocation costs:
Banks are required to allocate capital based on the risk weight of each class of asset
taken on to the balance sheet.
4.Costs of administering the specific scheme.
5.
Swap costs, other funding costs
8

flow. There is an element of interest and of principal in themonthly payments. The interest
payable over the period of theloan is calculated and added to the loan amount to arrive at thetotal
payable amount .this amount, divide by the total number of monthly installments is called
equated monthly installment(EMI).
CHARGES IN HOME LOAN:
Acquiring a Home Loan doesnt only involve the cost of homeloan interest rates but it also
includes other charges & feeaccompanying at various stages of taking the Home loan. Youmust
consider all these charges while comparing the coststructure across banks. Following is the
detailed fee structureincurred by banks at different loan stages:
Processing Charge:
It is a fee payable at the time of submitting the loan applicationto the bank which is normally
non-refundable. The fee rangesbetween 0.5 per cent and 1 per cent of the loan amount.
Administrative Fee:
It is a fee incurred by banks at the time of loan sanction; thereare few banks who have removed
this fee so you must check itwith all the banks.
Prepayment Penalties:
When the borrower pre-pays the loan before the loan tenure,banks charge a penalty which
usually varies between 1 per centand 2 per cent of the pre-paid amount.
Legal Charges:
Banks also incur some charges from the customer for legal andtechnical verification of the
property.
Delayed payment Charges:

When there is a delay in the payment of your EMI, bankscharge a late payment fee from the
borrower which normallyranges from 2% to 3% of the EMI.
Cheque bounce charges:
Banks charge between Rs. 250 and Rs. 500 for every bouncedcheque towards the loan payment
because of lack of funds inyour account.
POINTS CONSIDERED BY BANK WHILE GRANTING HOMELOAN:
The borrowers eligibility of getting a home loan depend uponhis/her repayment capacity & the
banks establish this repayment capacity by considering various factors such income,spouse's
income, age, number of dependants qualifications ,assets, liabilities, stability and continuity of
occupation andsavings history.

IMPORTANT POINTERS IN HOME LOAN:


Increase your Loan eligibility Credit History:
Your chances of getting a home loan are increased if you havea good credit history which is
known by banks by checking theborrowers Cibil score. Now it is very hard to get a loan
fromanother bank when you already have a bad debt with one bank.
Clubbing of income:
Your eligibility to take a home loan will augment when you clubyour income with your spouses
income, bank in this case willcalculate your eligibility on the basis of the clubbed income of both
the applicants. You can club incomes of spouse, children& parents staying with you and having
regular income.
Enhance your loan tenure:
Longer is the loan tenure, lower will be the EMIs which further increases the repayment capacity
of the borrower & in turn enhances the loan eligibility.
Step-up Loan:
In this type of loan EMI's remain low in the beginning
& increase gradually as and when the borrowers spending power increases. Therefore lower
EMI's in the initial years enhances t h e b o r r o w e r s a b i l i t y t o p a y &
f u r t h e r i n c r e a s e s t h e l o a n eligibility
Increase the down payment:
You m u s t k n o w t h a t i n a h o m e l o a n b a n k f i n a n c e s o n l y 8 5 t o 90% for the
property & the rest amount has to be funded by theborrower. You should increase the down
payment if you havem o r e t h a n r e q u i r e d a m o u n t w h i c h w i l l
m i t i g a t e y o u r d e b t considerably.
TAX BENEFITS IN HOME LOAN:
Past record:
The home loan borrower enjoys Tax Benefits on both Interest p a i d & t h e P r i n c i p a l
r e - p a i d . U n d e r S e c t i o n 2 4 ( d ) o f I n c o m e Tax, the deduction of interest payable on the

home loan is up toa maximum of Rs. 1, 50,000.U n d e r S e c t i o n 8 0 ( c ) o f I n c o m e Tax ,


Principal amount for the repayment of loan along with other savings &
i n v e s t m e n t s i s eligible for tax deduction up to aMaximum limit of Rs. 1, 00,000.
Recent changes:
According to the new policy changes of the direct tax code billintroduced in the
parliament in the month of august 2010 only u p t o R s 1 . 5 l a k h d e d u c t i o n i s
allowed on the interest paid onthe housing loan and there is no deduction
a v a i l a b l e o n t h e principal amount. So if your equated monthly installment is
Rs1.50 lakh, comprising interest and principal outgo of RS 75000 each, you can avail
deduction of only the interest.

CONCLUSION
The home loan market in India has grown at a rapid
a n d alarming rate of over 40% over the period of the last four years.A n d f r o m t h e r e p o r t s
from some of the industry experts, it isevident that there is very little
chance that there will be anysignificant decline in growth rates in the
future. Therefore itb e c o m e s i m p o r t a n t a t t h i s p o i n t i n t i m e t o
examine the keyfactors that have been instrumental in triggering
this highg r o w t h p e r i o d . T h e r e a r e s e v e r a l r e a s o n s
t h a t c a n b e considered as having attributed to the growth of the home
loanmarket. On the demand side, the first and the most important f a c t o r f o r
the growth has been faster rise in incomes as compared
t o p r o p e r t y p r i c e s , t h u s m a k i n g h o u s i n g m o r e affordable.Most of the
housing finance companies in India have introducedseveral new home loan products in order to

meet the needs of aw i d e v a r i e t y o f c u s t o m e r s . T h e v a r i o u s h o m e l o a n


s c h e m e s have their different interest rates in the market. The customer can choose
those schemes which he feels is good for him and h a v e t h e c a p a c i t y t o r e p a y i t
o n t h a t s p e c i f i e d t i m e p e r i o d . I f unwavering liability is what suits your profile, then
fixed interestr a t e h o m e l o a n s h o u l d b e t h e n a t u r a l c h o i c e . O n t h e
o t h e r hand,i f y o u c a n h a n d l e r i s k s a n d a r e w i l l i n g t o g o t h e e x t r a m i l e
t o benefit from any further fall in interest rates, floating rate home loans will be best
suited for you.

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