Chapter-1: N.R.K&K.S.R Gupta Degree College, Tenali

A SURVEY ON HOME LOANS B.
COM
CHAPTER-1
INTRODUCTION
.
N.R.K&K.S.R Gupta Degree College,Tenali Page 1

A SURVEY ON HOME LOANS B.COM
Introduction
Definition
1. 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 immovable property or by a surety commonly used in a
Member State for that purpose.
2. A home loan requires you to pledge your home as the lender's security for
repayment of your loan. The lender agrees to hold the title or deed to your
property until you have paid back your loan plus interest.
Thus in the simplest terms home loan is the loan taken from any financial institution
for the purchase of newly home by paying interest as agreed during the deal. Thus
the rate of interest depends on the bank as also it differs from banks to banks. Some
banks may charge higher price where as some banks charge low price.
Typically, banks and HFCs offer up to 85 per cent of the property cost as housing
loans. The total cost of the property include various charges as acceptable to the
HFCs, such as agreement value of the property, stamp duty and registration
charges, society transfer charges, garage charges for parking cars, electricity and
water connection charges, as well as cost of additional furnishings done by the
developer or builder, for which an amenities agreement has been entered into
between the customer and developer that has been duly stamped and registered.
However, there are selected banks that offer 100 per cent or even more financing for
your dream home without any extra efforts from your side. You just need to ask the
representatives of these banks or their authorized agents for these offers.

On standard home loan products, Citibank claims to offer home loans up to 90 per
cent of the property value, the highest from any bank. Lately, Citibank has come up
with a new home loan product that it calls "zero down payment loan”. According to
a loan calculator provided by the bank on its website, a person with monthly income
of Rs 30,000 is eligible for a dream home for up to Rs 16,28,372 with a 15-year loan
under this zero down payment plan. Incidentally, the loan amount is same under the
bank's standard home loan plan on similar metrics, according to the web-based
calculator
ICICI Bank, a major player in the housing finance market, also offers "Special 100
per cent funding for select properties”, claims the bank's website. However, the bank
offers only 85 per cent of the property cost as home loans under its standard plans.
The bank sources admit, however, that 100 per cent financing is considered in
special cases.

Types of Home Loans
The type of loan depends on

1) Purpose of loan
2) Nature of the loan (Term Loan or Overdraft)
3) Nature of interest (Floating or Fixed)
4) Interest rates (Daily, Monthly, Quarterly, Semi-Annually or Annually
Reducing Balance)
1. Purpose of loan
Loan from banks and Housing Finance Companies (HFC) can be taken for
the following reasons
 Construction of Property
 Purchase of Property
 Site Loans
 Extension of Property
 Repairs and Maintenance of Property
2. Nature of the loan

Most of the HFCs offer term loans; banks offer both Term loan and Overdraft
facilities. In case of Term Loans, the loan amount is fixed and interest is charged
on the whole loan amount. You should opt for a term loan when you want to
make a fixed installment payment for the property. An ideal situation for term
loan would be buying of an under construction or ready property where the loan
amount you will opt for is known in advance. Overdraft facility is preferred
where the amount required is not determinable.

Example
When the loan is taken for repairs and maintenance.
a. Term Loan
Pros
a. The period of term loan can go up to 30 years.
b. Once the loan is disbursed there is no yearly review
Cons
a. In case of earlier payment, pre-payment charges are levied.

b. A fixed liability is created every month this takes away flexibility.
c. Interest is charged on full amount of loan though it may not be
utilized
b. Overdraft Facility
Pros
a. Interest is charged only on the amount drawn.

b. There is no fixed liability every month.
c. The loan can be repaid earlier without any pre-payment charges
Cons
a. The loan facility is restricted to one year. It may be renewed after

bank reviews the facility.
b. There is a commitment charge involved, and if the loan facility is not
availed a commitment fee is will be charged.
c. The interest rate is higher than interest charged on term loan.

3. Nature of Interest
a. Fixed Rate Plan
In fixed rate plans, the rate of interest remains the same through the
tenure of the plan.
b. Flexible Rate Plan
In the flexible or floating rate plan, the interest rate is pegged to the
bank's retail prime lending rate (RPLR), and varies with fluctuations
in the RPLR. Since the risk of such fluctuations is borne by the
borrower, flexible rate plans quote lower interest rates as compared
with fixed rate plans.
4. Interest Rate
Interest Rate can be defined as the principal outstanding on the date, which is
considered to calculate the interest.
Example
When we say Monthly Reducing Balance, it would mean that interest is calculated on
the principal outstanding at end of every month after taking into consideration
payment of the EMI. As a result, for a loan of an identical amount, tenure and interest
rate, the EMIs for monthly rests are lower than they are for a plan with annual rests

If you take a loan for Rs. 1,00,000 for 5 years your monthly installment will work
out as follows:
Reducing
10.50% 11.00% 11.50% 12.00% 12.50% 13.00% 13.50% 14.00%
Balance
2142.51 2167.05 2191.76 2216.64 2241.68 2266.90 2292.27 2317.82

Daily
2149.39 2174.24 2199.26 2224.44 2249.79 2275.31 2300.98 2326.83

Monthly
Quarterly 2163.57 2189.06 2214.71 2240.52 2266.50 2292.63 2318.92 2345.37
Semi- 2184.69 2211.13 2237.72 2264.47 2291.36 2318.41 2345.61 2372.96

Annually
2226.46 2254.75 2283.18 2311.75 2340.45 2369.29 2398.26 2427.36

Annually
Lets say, Bank A is offering you a loan at 14% rate of interest, annually reducing
and Bank B is offering you a 15% monthly reducing. You may first look at the lower
interest rate and may be tempted to select Bank A. But your monthly installment in
case of Bank A would be Rs. 2427.36 as against monthly installment to Bank B of
Rs. 2378.99. Your loss over the period of 5 years would have been Rs. 2902.

CHAPTER-2
INDIAN HOME LOAN MARKET

Indian home loan market
The housing sector plays an important role in the economic development of the
country. Every rupee invested in housing adds 78 paise to the GDP. Over 269
industries are directly or indirectly dependent on the housing sector.
There is an estimated shortage of 20 million housing units in the country with an

estimated investment requirement of over Rs 1500 billion. In this context it is
important to note that the organized housing finance industry barely accounts for
30% of the home loans disbursed in the country.
The last few years have seen the home loans market growing at a CAGR of over 30
percent. The growth has been mainly fuelled by certain fiscal, social and regulatory
drivers as follows:
1. Changes in demographic profile including increase in the rate of household,

Formation due to structural shift from joint family system to nuclear
family.
2. Ever increasing middle class, migration of population and increasing

urbanization resulting in acute shortage of housing units.
3. Increase in disposable income levels due to decrease in marginal tax rates

and increase in total income levels.
4. Aggressive lending by banks to the housing sector due to lower credit offtake
by the corporate sector, attractive spread and lower non performing assets.

Growth trends
The Indian housing finance industry has grown by leaps and bounds in past few
years. Total home loan disbursements by banks and housing finance companies
(HFC’s) has risen from Rs. 29359. 29 crores in 2001- 2002 to Rs. 51672.7 crores in
2002 – 2003 witnessing a phenomenal growth of 76 % during this period.
Home loan disbursements (in Rs. Crores)
Year HFCs Banks Total Growth over previous year %
2000 - 01 12637.85 9787.24 22425.09 13.70
2001 –02 14614.44 14744.85 29359.29 30.72
2002 – 03 17832.17 33840.53 51672.7 76.00
Source: National housing bank
The robust growth experienced by the industry in the last few years has been
triggered by the number of factors as given below:
1. Tax rebates on housing loan announced in the recent budgets.

2. Lowering of real estate prices to affordable levels.
3. Greater amount of professionalism being exhibited by developers and
builders who are today acquiring clearer titles and are doing more timely
completion of projects.

4. Slashing of interest rates on home loans: fixed interest calculated on an

annual rest basis for a loan of Rs. 5 Lakhs and tenure of 15 years has fallen
from 16 % in 1997 to 10.5 % in 2017. This declining trend is expected in the
coming years.
16 %
10.5
1997 2017
In the recent development, foreign bank has announced 6 % rate of interest for
housing loans during the first year of the life of the loan and 6.5 % during the second
year. The rate will be pegged at 50 basis point above the housing PLR in the
subsequent years. This development bring into light the aggressive strategies used
by foreign banks to woo retail consumers and to grab a share of this growing mar

The impact that lower interest rates have been had on home loan disbursements can
be seen from the following graph
14. 50
60000
51672.7
14.00
50000
13.50
40000
13.00
30000 29359.29
22425.09 12.50
20000 19723.36
12.00
10000 11.50
0 11.00
1999 – 2000 2000 – 01 2001 –02 2002 - 03
Thus the Indian home loan market is growing at an extreme pace

CHAPTER-3
COMPANIES PROVIDING
HOME LOANS

Companies providing home loans
There are various banks available that provide home

loans are as follows:
ICICI
Introduction
ICICI Home Finance Company Limited was incorporated on May 28, 1999 as 100% subsidiary
of ICICI Personal Financial Services Limited (ICICI PFS). ICICI Home Finance Company
Limited, was set up with the objective of providing long term housing loans to individuals and
corporate. The Company was registered on March 30, 2000 with National Housing Bank (NHB)
under National Housing Bank Act, 1987 in terms of Housing Finance Companies (NHB)
Directions, 1989. With effect from May 3, 2002, ICICI Home Finance has become a 100%
subsidiary of ICICI Bank Limited.
Overview:
ICICI Home Loans are at present available to customers in 150 cities/towns across the country.
Loans are offered for purchase of new homes, purchase of resale homes and home
improvement. Besides, the company also offers loans for commercial property and loans against
existing property. The loans are offered for tenors up to 30 years. The company has also
introduced several customer friendly services such as 'door-step' service, 'know your loan on
phone' facility and 'ICICI Ho me Search' - free property brokerage services.

The current ICICI Home Loan rates are as follows:
Adjustable rate Home Loans
Tenure New Rate (% per

(Yrs) annum)
1-5 10.50
Home Loans
6-20 11.00
Fixed rate Home Loans
Tenure New Rate (% per

(Yrs) annum)
1-5 11.00
6-10 11.50
Home Loans
10-20 11.50
21-30 12.00

HDFC
Buying a property requires a complete knowledge of real estate and in today’s

complex financial market it is difficult to choose the appropriate home loan
company. HDFC Bank brings home loans at your doorstep. With over 25 years of
experience, a dedicated team of experts and a complete package to meet your
housing finance needs, ever eager to guide you with a basket of value added
products and services.
That’s why HDFC says, any one can offer you housing finance, but only the most
experienced can guide you completely.

Citi Bank
The Citibank Home Loan. No hassles now. No surprises later. You'll find the
Citibank Home Loan hassle free all the way right from the application stage to the
time you pay your last installment
Interest Rate Chart (Floating Rates)

Salaried Self Employed
Tenure (Years) Interest Rate (p.a.) Interest Rate (p.a.)

Upto 5 7.25% 7.50%
10 7.25% 7.50%
15 7.25% 7.50%
20 7.25% -

Eligibility Criteria
Min 25 yrs Min 25 yrs
Age Limit
Max 58 yrs Max 65 yrs
Min 2.1 Lakhs Min 2.1 lakhs
Loan Amount (Rs.)
Max 2 Cr. Max 2 Cr.
Net
Income p.a. (Rs.) Gross 1 Lakhs Business 85,000/-
Income
Minimum Work
2 yrs 3 yrs
Experience
Other Charges
MoF Charges Yes
Admin Charges Nil
Pre-Payment Nil
Guarantor Nil
Processing Charge 0.50%
Other types of home loans by Citi Bank:

1. Citi home pre approval
2. Refinance
3. Buy out of loan
4. Buy out with enhancement
5. Top up
6. Property power
7. Cross sales (for Citibank cardholders only)

IDBI
Buying a home of one's own is every individual's first stop in life. Which is precisely
why, IDBI bank have pulled out all the stops to sew together a home loan product
that has flexibility as its very foundation. They have created a product that is
competitively benchmarked, that is amply affordable and one that is customer-
sensitive. Only because when it comes to buying a house, the first thing you need to
do is to feel at home with your bank.
IDBI bank offers you only Floating rate home loans. Under the floating rate option,
interest rate varies from time to time, increase or decrease as applicable.

Upto 5 7.50% 7.75%
10 7.50% 7.75%
15 7.50% 7.75%
20 7.50% -

Eligibility criteria
The bank will decide the loan amount based on your repayment capacity taking into
consideration factors such as your income,age,qualifications, number of dependants,
spouse's income, assets, liabilities, savings history, stability and continuity of
occupation etc. however, the maximum loan amount shall not exceed 85 per cent of
the cost of property which includes costs of property which includes costs towards
registration, stamp duties, amenities, utilities as applicable.
Age Limit
2 Lakhs Min 2 Lakhs

Loan Amount (Rs.) Min
Max 3 Cr. Max 3 Cr.
Income p.a. (Rs.) 1.20 Lakhs Net Income 1.00 Lakh

Gross
Minimum Work
2 yrs 2 yrs
Experience
Other Charges
MOF Charges NIL
Admin Charges (upfront) NIL
Pre-Payment (floating) NIL
Guarantor NIL
Processing Charge 0.75%
Types of loan available:

1. Constructing a house
2. Buying a ready house
3. Refinance of existing home loans

Standard Chartered
Standard chartered home loan offers you variety, flexibility and great savings.
And it’s hassle-free.
Flexible interest rates
You can choose between fixed and floating rates of interest. You can also shift
between the two options during the loan period
Interest Rate Chart (Floating Interest Rate Chart (Floating

Rates) Rates)
Interest Interest
Tenure (Years) Tenure (Years)
(p.a.) (p.a.)
5 7.50% 5 7.50%
10 7.50% 10 7.50%
15 7.50% 15 7.50%
20 7.50% 20 -
Other Charges
MOF Charges NIL
Admin Charges
NIL
(upfront)
Pre-Payment (floating) NIL
Guarantor NIL
Processing Charge 0.50-1%

Options to suit your need
Amount and Tenure
Only Loans for Homes offers you the options and flexibility to choose the loan that's
just right for you. Consider the 85% finance options for construction renovation
and extension. Or the largest loan amount of Rs 1 crore. And a loan period of up to
15 years. A look at the table will tell you how much you can benefit from Loans for
Homes.
Loan Loan to Value Upper Limit of Max. Tenure of

(up to) Loan (Rs) Loan (Yrs)
85% 1 crores 20
Self - construction
Home renovation 85% 25 Lakhs 15
Home extension 85% 1 crores 15
Home Buying 85% 1 crores 20

Age Limit
Loan Amount (Rs.) Min 6 Lakhs Min 6 Lakhs

Max No Limit Max No Limit
Income p.a. (Rs.) Gross 1.32 Lakhs Net Income 1 Lakhs

(p.a.)
Minimum Work Experience 3 yrs 3 yrs

Conditions
1. Finance up to maximum of 85% of the price of property or the cost of

construction is provided.
2. Applicant should be buying a house and must be residing with in the city
limits of areas where Standard Chartered operates.
Types of loans by standard chartered
Standard Chartered Grindlay’s offers the world’s most complete home loan for
Homes.
You can avail of a loan for any of the following purposes:

1) Buying a home under construction
2) Purchasing a constructed home
3) Constructing a home on a plot of land owned by you or your spouse
4) Extending your existing home
5) Renovating your existing home
Loan Repayment
Determining Repayment Capacity
Repayment capacity is assessed by considering age, income, assets, liabilities
and employment.
Repayment of Loan
Repayment of loan will be in E uated
q Monthly Installments (EMIs),
comprising principal and the interes t. The (EMIs) will commence from the
month following full disbursement. T he EMIs are payable every month and
the date of payment depend on the date of final disbursement. Postdated
cheque towards the EMIs will be collected at the time of disbursement.

UTI
UTI also provides in a most comprehensive manner, which are as follow:

Tenure (Years) Interest Rates (p.a.) Interest Rates (p.a.)
Upto 5 7.50% 7.50%
10 7.50% 7.50%
15 7.50% 7.50%
20 7.50% 7.50%
Fees and charges
1. Processing fee up to 1% of the loan amount
2. No other expenses (e.g. legal charges, stamp duty) will be charged

Age Limit
Loan Amount Min 1 Lakh Min 1 Lakhs
(Rs.) Max 50 Lakhs Max 50 Lakhs
Net
Income p.a. (Rs.) Gross 90,000 1.50 Lakhs
Income
Minimum Work
3 yrs 3 yrs
Experience

Kotak Mahindra Bank

The interest rates and eligibility criteria for Kotak Mahindra home loan are as n
follows:

3-5 7.50% 7.50%
10 7.50% 7.50%
15 7.50% 7.50%
20 7.50%
Age Limit
Min 5 Lakhs Min 5 Lakhs
Loan Amount (Rs.)
Max 2 Cr. Max 2 Cr.
Income p.a. (Rs.) Gross 1.50 Lakh Net Income 1.50 Lakhs
Minimum Work
2 yrs 3 yrs
Experience
Other Charges
MOF Charges NIL
Admin Charges (upfront) NIL
Pre-Payment NIL
Guarantor NIL
Processing Charge 0.50-0.75%

Comparison of home loans
INTEREST RATES PROC

AGE *
CATEGO TENUR ESSIN
BANK LIMI
RY E G
T FIXE FLOATIN
FEES
D G
25-58
Salaried 1-20 yrs 7.50% 7.25%
yrs
CITIBANK 0.50%
Self- 25-65
1-15 yrs 7.75% 7.50%
Employed yrs
23-58
Salaried 5-20 yrs 7.75% 7.50%
STANDAR yrs
D 0.50-
CHARTER 1.00%
ED BANK Self- 23-65
5-15 yrs 7.75% 7.50%
Employed yrs
24-58
Salaried yrs 1-20 yrs N.A 7.50%
IDBI BANK 0.75%
Self- 24-65
1-15 yrs N.A 7.75%
Employed yrs
24-58
Salaried 1-20 yrs 9.75% 7.50%
yrs
UTI BANK 1%
Self- 24-65
1-20 yrs 9.75% 7.50%
Employed yrs
21-58 0.50%
Salaried 3-20 yrs N.A 7.50%
KOTAK yrs
MAHINDR
A
BANK Self- 21-65
yrs 3-15 yrs N.A 7.50% 0.75%
Employed

Housing Loans Rates

With the RBI reducing the Bank rate, the housing sector of late witnessed the loan
rates nose-diving by 50 basis points. Also, ICICI has become the first player in this
sector to announce a housing loan for a 30-year period. While this will increase the
end cost of the house, it will facilitate people to plan their house over a longer
duration. With the rates moving southwards diving and the repayment period going
northside, it is now easy for you to buy that dream house you thought of all along
Interest rate for public sector HFC’s
Rs1.5 Rs3.01
Less Rs10,001 Rs25,001 Rs50,001 Rs70,001 Rs2.01 Rs5.01 Rs8.01 Rs10.01
L L Rs. 15 L
SLABS than to to to to L to L to L to L to
to to & Above
Rs10,000 Rs25,000 Rs50,000 Rs70,000 Rs1.5 L Rs3 L Rs8 L Rs10 L Rs15 L
Rs2 L Rs5 L
PUBLIC SECTOR HFCs
BOB
Housing 12 12 12 12.75/13 12.75/13 12.75/13 12.75/13 12.75/13 12.75/13 12.75/13 13.25/13.5 13.25/13.5
Finance
Can Fin
13.25 13.25 13.25 13.25 13.25 13.25 13.25 13.25 13.25 13.25 13.25 13.25
Homes
Cent
Bank 12.25 12.25 12.25 12.25 12.25 12.25 13 13 13 13 14 14
Home
Corp
bank 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5
Homes
GIC
Housing 11.75 11.75 13.25 13.25 13.25 13.25 13.25 13.25 13.25 13.25 13.25 13.25
Finance^
HUDCO
11.5 11.5 11.5 12.75 12.75 12.75 13 13 13 13 13 13
Niwas^
Ind
Bank 12 12 12 13.5 13.5 13.5 13.5 13.5 14 14 15 15
Housing
LIC
Housing 12 12 13 13 13 13 13 13 13 13 13 13
Finance$
PNB
Housing - - - 13 13 13 13 13 13 13 13 13.5
Finance
SBI
Home 13 13 13 13 13 13 13 13 13 13 13 13.25
Finance+
Vibank
Housing 12.25 12.25 12.25 13 13 13 13 13 13 13 13.5 14
Fin

HUDCO, GIC Housing Finance charges interest on a monthly rest basis
$ LIC Housing Finance's rates are for tenure upto 15 years. It charges 14 per cent
interest for terms between 16 and 20 years.
+ For amounts between Rs 5.01 lakh and Rs 10 lakh, SBI Home charges 15 per cent
for up to five years, 15.5 per cent for upto 10 years and 16.5 per cent for above 10
years. For loans above Rs 10 lakh, it charges 15 per cent for up to 5 years, 15.5 per
cent for up to 10 years, and 16.5 per cent for over ten years
# HDFC will charge a fixed rate of 13.25 % on all loan slabs and 12.75 %
floating rate for all slabs too
@ For HSBC, first figure for tenure 1-7 yrs, second for tenure 8-15 yrs. Floating
rate at PLR where PLR for 1-7 yrs: 15.5% and for 8-15 yrs:14.2%
* Includes Interest Tax.
Source – Indiainfoline survey

CHAPTER-4
LOAN PROCESS

Loan process
Invest in a Home...Don’t just buy it!
Many of us buy a Home to put a shelter over our heads…but only a few realize that
real estate is an excellent way to save for the future.
Most of us save money for the future through depositing money in a Bank or
Company Fixed Deposit while others invest in gold. Several others invest in a home /
real estate while a few adventurous types (really very few!) invest in a business or
buy shares of companies
Historical evidence has shown that over a long period of time (25- 30 years) the
cumulative wealth of those who invested in real estate and those who invested in a
good business (or bought shares of good businesses), multiplied several fold
compared to the rest. Just look at the Raheja’s, Hiranandani’s, Birla’s, Tata’s and
the Ambani’s for validation. Both real estate and business investments gave returns
to the investor that were much higher than the rate of increase in prices of goods
and therefore multiplied wealth.
You have often heard people say, "A Rupee today can buy goods worth only Ten Paise
20 years ago". In India, studies over the last 20 years show that returns given by
investments in Fixed deposits and gold are so low that we can buy less goods with
this wealth today than we could have with the original investment
In India, historical evidence also shows that both real estate and shares have given
compounded return of over 20% p.a. over a 15-20 year holding period. Fixed
Deposits and investments in gold have given returns of 5-8% p.a over the last 20
years while prices of goods have risen at over 10% p.a in the same period

If you carefully choose the location of your property, you can be a multi -
millionaire when you retire at 65! Remember that land is a limited commodity
(there is only so much of it that you can buy!). If you happen to buy land in a fast
growing location, you can be sure that the price of this land will be bid up over time.
Land in Bombay has appreciated in value far in excess of that in Pune instead of
land in Patna, you would have had at least 5 Mercedes Benz cars parked around
your palace today. There are several instances of people who start Investing in a
Home with a small investment of Rs.3-5 lacs. Having chosen the home wisely, they
are in a position to sell the home after a few years at over
Rs. 15 lacs and then buy a new home at another strategic location. This
"trading" continues to compound wealth at an ever increasing rate.
Example
Assume that you are 30 years old today and you have invested Rs. 5 lakhs in a home.
If real estate prices move up in line with the long term average rate of about 20%
p.a compounded, then at the age of 60 you will have Rs. 12 crores. However, prices
of goods will also move up in this period (say at the rate of 10% p.a). You would still
have added to your NET Wealth as you can now buy an equivalent of Rs. 68 lakhs
worth of goods (at the higher prices) with the money.

Why take a loan to invest in a Home?
Besides the obvious answer that goes “because I cannot afford to buy a shelter over
my head outright", there are several other reasons why a Home Loan makes sense
from a long term Savings perspective.
Your grandfather may have told you “Son, don’t take any loans, they are only
trouble" but this is no longer true in the New World. You may have also heard the
saying that "Wealth begets Wealth". However, great many of us cannot put up that
initial capital to kick-start the wealth creation process.
Assume that you have identified a Gemstone that can be bought for about Rs. 2 lacs
today but would be worth Rs. 31 lacs in 15 years (a compounded return of 20% over
the 15 year period). You would have grabbed the offer but for the fact that you have
a bank balance of just Rs. 50,000. A friend comes along and offers to loan you Rs.
1.5 lacs but at an interest of 10%. You will immediately buy the Gemstone as you
calculate that the return from the investment in the Gemstone is far higher than the
interest cost that you have to pay your friend.
We put the same principle to work for you while taking a housing loan. Just
substitute "Home" instead of "Gemstone" and " Housing Finance Company" in
place of "Friend” in the previous example and you will see why. The long term
average return in investing in a home is about 20% p.a. while the average cost of
borrowing funds in the market today is about 10% p.a. (after considering all tax
breaks). As long as the cost of financing the home is less than about 20% it makes
sense to borrow and buy. There is one key difference however………you can live in
the Home as well!

Choosing a Loan
There are several features of a Home loan that you must consider based on an
analysis of your specific needs.
How much can you afford?

As the investment in a home does not yield any monthly income, (unless you have
rented out the home) your ability to repay the loan depends entirely on your salary
or regular income from a stable business. Finance companies would normally give
you a loan to the extent that your monthly repayments are less
than 35-50% of your gross monthly salary. AbodesIndia.com gives you the
ability to find the Maximum loan that you can afford among the companies in the
database.
How much must you leverage?

Having found a Rs. 10 lac property that you want to buy, you must decide how
much of the cost can be funded by a loan.
Normally Housing Finance Companies will loan you about 80-85% of the property
value. You need to make a minimum down payment of 15-20% of the property
value. Please also remember that you have to normally bear the following fixed costs
before your loan is disbursed:
1. Processing and administrative fee (1.5-2% both included)

2. Legal fees
3. Stamp duty charges (for resold property)
4. Property insurance premium
5. Accident insurance premium
Make sure that you have an asset base that is easily converted to cash (e.g. cash in a
Bank FD etc.) to cover all charges including down payment.

As the value of the loan amount increases, the interest rate charged usually also
increases. You may feel tempted to take a smaller loan by funding the large down
payment (the difference between the value of the property and the loan you have
applied for), by withdrawals from other investments. If your investments are in
Fixed Deposits that are giving you about 11% p.a (about 7.4%
after tax) and the effective post tax cost of you Home Loan is 10% (about
15% before tax) then this is a good idea. However, if you expect to make over
20% p.a. (about 13.5% post tax) by investing in shares or in a business, then
you must borrow as much as you can on the Home Loan and not withdraw
money from your other investments.
Another important consideration is your tax bracket and the extent of using
available tax breaks. The tax breaks are directly related to the level of interest and
principal repayments made each year, with an over all upper limit. You may not
qualify for the full tax break if your loan is relatively small. Also remember that the
government is keen to give more concessions to the housing sector and the overall
cap on tax breaks will go up in the future. It is prudent to lock into a large loan
today rather than a smaller one.
If you have identified other profitable avenues of savings that are expected to give
you 15-20% returns p.a, you can use the Home Loan as a way of getting a cheap
loan. In this case borrow up to the limit of 80-85% of the property value rather than
withdraw cash from the other savings to make the down payment on the loan.
What is the tenure of the loan?

Loans are usually for a maximum period of 15 years (which may go upto 20 years in
some cases). Longer tenure loans have smaller monthly installments. You can still
get a large loan on a relatively small monthly salary by choosing to take a longer
period loan. However, longer period loans maybe more expensive (higher rate of
interest) even though the monthly installment payment is lower. Convenience always
comes at a cost!

Statistical evidence also shows that most people take a longer tenure loan of 10- 15
years but end up prepaying the same in 5-6 years. This happens because salaries
invariably improve with time. There are two costs that could have been avoided
through better planning. The first is the Prepayment penalty of 1-2 %
and the second is the higher interest rates quoted on longer tenure loan
(especially over 20 years). In this example, both costs could have been avoided by
taking just a 5-6 year loan. Further, if you intend to sell the home after about 5- 10
years, take a 5-10 year loan only. There is no point paying a higher interest rate for
a longer tenure loan of 15-20 years, if you intend to PREPAY the loan in 5-10 years.
How will interest rates move?
Till recently you did not have to make this decision as all loans were given on a
FIXED RATE basis. This means that the interest rate is fixed for the full tenure of
the loan and so is your monthly repayment amount. Life was simple. You could
easily plan for the future as your cash flows each monthly after the loan repayments
were very predictable.
However, interest rates in the economy, changes depending on the demand and
supply of money. When industry is booming and everyone needs money to do
business, interest rates move up and vice –versa. Home loan customers became
unhappy about having to pay a very high interest rate that they were locked into,
when rates subsequently fell.
For the customer’s convenience, FLOATING RATE loans were recently

introduced. The interest rate on these loans changed every time the interest rate in
the financial system changed. The monthly installment falls if interest rate in the
economy falls (HSBC home loan product). With other companies the monthly
installment amount was kept fixed but the tenure of the loan reduces if interest rates
in the economy falls (e.g. HDFC floating rate loans). Normally, floating interest
rates are quoted in the form of "PLR plus premium". The PLR (Prime Lending
Rate) varies from company to company and changes as frequently as once in 3
months.

Example
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.
In a floating rate loan, the customer gains if interest rates fall, but will take a severe
beating if interest rates rise. In order to reduce this disadvantage of the floating rate
loan some progressive 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.
Example
You can take a 15 year loan specifying that you will have a fixed interest rate for the
first 3 years, after which you have the option to convert to a floating rate loan. If you
think that interest rates are about to fall them you will opt for a floating rate loan after
3 years. If interest rates were to rise during the 3-year period you are fully protected as
you had locked in a rate for 3 years.
You will want to stay on with a Floating rate loan 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. As these changes never happen
overnight, you will have enough time to make the move provided you watch interest
rates carefully.
This additional flexibility can be capitalized to substantially lower the cost of the
loan, often saving as much as 50% of the total interest you may have paid on a
simple Fixed rate loan. But…there is a cost the trouble of tracking interest rates and
taking a forward looking view on interest rates.

Are there any prepayment penalties?

Each monthly installment consists of a portion that goes towards repaying the
original loan principal and the balance going towards interest on the outstanding
loan. If you pay anything over the amount that would go towards principal
repayment, the excess amount is construed to be a loan prepayment. Most Housing
Finance companies charge a fee of 1-2% on the amount being prepaid. This can be a
big disadvantage in several cases.
1. Your earning capacity will normally increase with age and a prepayment fee
deters you from completely retiring your debt before time.
2. Your ability to refinance the loan if interest rates subsequently fall gets
constrained
3. You may want to sell the home during the tenure of the loan and you find
prepayment costs are an unnecessary burden.
If you may need to do any of the above, choose a loan with no prepayment fees.

The Total Effective Interest Rate (TEIR) versus the

EMI comparisons
It is very important for you to understand the total cost of the loan and try to
minimize this cost to the extent possible. As home loans are of a long duration even a
0.5% difference in interest rates can cost you a lot of money over time.
Example
If you had taken a taken a 15 year loan of Rs. 5 lacs at 15% p.a you would have paid
Rs. 31000 less than a 15 year loan of Rs 5 lacs for 15.5%.
Most of us compare the cost of the loan by comparing the EMI’s (Equated Monthly
Installments). This can be misleading as you are ignoring the "time value of money"
which means that you need to look at when the EMI is being paid. This is because
the value of One Rupee today is vastly different from the value of a Rupee 10 years
ago. Using a Discounted Cash flow Model that calculates the Effective interest cost
depending on when the EMI amounts are being paid solves this problem.
Thus these are the most important factors to be considered while planning for a
home loan.

Choosing a Housing Finance Company

Remember that you are entering 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 lacs); the Total Effective interest rates can vary widely between Finance
Companies. However, for the more common, long tenure loans the interest rate
differences between companies are small. In that case, Companies that have lower
documentation requirements and those 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.
Home Loan Companies quotes interest rates based Daily/Annual/Monthly rest. This
can be confusing for customers. Abodes India.com simplifies this by calculating all
quoted interest rates on a common basis. For comparison purposes all interest rates
quotes are converted into an effective Monthly Rest basis. That quote on a (M.R)
Monthly Rest basis normally provides the lowest cost loans
A member of hidden costs needs to be explored. Most Companies doesn’t pay for the
technical valuation report of the property other insists on a registered Mortgage
that will increase costs of taking the loan.
But one of the most expensive hidden costs takes the form of a prepayment penalty.
Avoid Housing Companies that charge these penalties if you hope to retire the loan
before are full period (or sell the home). Though people take a 10- 15 year loan,
improving cash inflows (from a bonus or job promotion) invariably results in
prepayment of the loan in 5-7 years.

Steps involved in getting a home loan

1. Submit an Application form along with relevant documents
The finance company will process your application to check your loan
eligibility based on your income and personal profile. Usually an up front
(non –refundable fee) of about 0.5-1% of the loan amount must be paid
before processing begins.
2. Verification of the property and supporting documents
A company representative may visit the property as well as your residence to

vary information submitted in your application form. Further, a property
valuation maybe carried out by the company to determine the maximum
amount they are willing to lend you. Any references submitted by you in the
Application Form may also be contacted. You may be personally interviewed
and any further clarifications in the documents submitted maybe sought.
3. Sanction of the loan
A sanction letter is issued which you will have to sign. This letter will contain
the amount and the terms of the loan. Some companies specify the period for
which the loan sanction is valid. You will have to pay a Commitment fee
(normally 1% of the unutilized loan amount) if you do not draw on the
ENTIRE sanctioned amount before that period.
4. Submission of the original Property documents and signing the

loan Agreement
You will be required to leave the title deed of the property with the
company as a security for the loan. You will be required to go to the
company’s office to execute the legal loan papers.

5. Disbursal of the Loan Cheque
You can draw the loan in parts depending on the stage of construction of
the building. Until such time that the entire sanctioned amount is NOT
drawn, you will pay a simple interest on the Actual Amount drawn (without
any principal repayments). The EMI payments will commence only after
the entire Sanctioned Loan Amount is drawn

When to refinance a Loan.

Refinancing means repaying an existing home loan before its tenure with the
money from a new loan taken under new terms and conditions. The following
circumstances may trigger refinancing:
1. Interest rates in the economy have fallen and it makes sense to retire the old high
cost fixed rate loan with a new fixed rate loan at the lower rate. You can do this
provided rates have fallen enough to cover your prepayment penalty and the up
front costs of initiating a new loan (like processing fee, administrative fee etc.).
2. If you plan to sell the home during the tenure of the original loan you will need
to terminate the loan borrowing the remaining principal amount against the
home equity or from the potential buyer.
3. Switch from a Fixed rate loan to a more flexible Floating rate / Hybrid product
You may want to switch from a Floating rate loan to a fixed rate loan if interest
rates start to move up.
4. You can lower your monthly installment payments by extending the tenure of
the new loan. In order to improve your monthly cash flows you can prepay
an existing loan with 5 years to go by taking a new 15-year loan for the
remaining principal amount.

Impact of budget 2017 on home loan

That the sweeping tax reforms proposals in Budget 2017 will leave most taxpayers
better off is by now universally known. But one trickle-down beneficial
effect of these proposals for homebuyers has gone largely unnoticed. As a
consequence of the proposed changes, home loans have overnight become much
more tax-efficient. Significantly, it’s not only those who now propose to take a home
loan who will benefit even those who are years into the repayment will stand to gain.
A look at how these proposals impact the tax efficiency of your home loan–and
strategies to make them even better.
The roots of these changes can be traced to two significant Budget

2017 proposals:
1. Home loan interest payments up to Rs 1.5 lakh per person per year will
continue to qualify for a deduction under Section 24
2. Investments up to Rs 1 lakh in qualifying instruments will qualify for a

deduction under Section 80C. The qualifying instruments are the same as
those that until now qualified for a rebate under Section88, except that the
sub-limits that existed earlier will no longer apply. The one that is of
relevance to homebuyers is the repayment of principal; up to Rs 20,000
qualified for the Section 88 rebate, but now that the limits have been
removed, principal repayments up to the entire Rs 1 lakh will qualify for the
Section 80C deduction. And, significantly, even those with taxable incomes
over Rs 5 lakh can claim the deduction.

To understand just how beneficial these proposals are, let’s assume that we are
planning to take a Rs 35 lakh home loan for 15 years at 7.5 per cent, the prevailing
rate on a floating loan. Our EMI will work out to about Rs 32,450. Since we are
paying interest only on the amount outstanding at the end of each month, the
principal and interest components of our EMI vary each month. In the above case,
till the 69th month, the interest component will account for a higher proportion of
your EMI. Over the tenure of the loan, the share of the interest payment comes
down, and the principal repayment accounts for a higher percentage of your EMI
Indicatively, in the first year we will pay about Rs 2.58 lakh as interest, and about
Rs 1.31 lakh as principal repayment. Then Under the earlier tax regime,
our interest payments up to Rs 1.5 lakh a year would have qualified for the
deduction under Section 24. But of the Rs 1.31 lakh we have repaid towards the
principal, only Rs 20,000 would have qualified for the Section 88 rebate
In other words, since interest payments do not typically exceed the Rs 1.5 lakh limit
beyond Year 10 or so, the juiciest tax breaks on our home loan have by then been
had. From then on, the breaks progressively get thinner.
Now. As a consequence of the budget proposals, we will still be able to claim a

deduction of only up to Rs 1.5 lakh on the interest payment under Section 24. But
now up to Rs 1 lakh of our principal repayment qualifies for a deduction under
Section 80C. In the 30 per cent tax slab, that straightaway translates into a tax
saving of Rs 30,000 in the first year.
We will make that additional tax saving not only in the first year of your loan,
but during the entire tenure. Consider this:
In Year 2, your interest payment adds up to about Rs 2.48lakh, and principal
repayments to about Rs 1.41 lakh. The qualifying amount for tax breaks: Rs 1.5
lakh on the interest and Rs 1 lakh on the principal. The net additional tax saving: Rs
30,000.

Likewise, in the above case, we can maximize our tax savings (Rs 1.5 lakh on
interest payments; Rs 1 lakh on principal repayments) upto Year 9. Beyond that
stage, our interest payouts during each year dip below Rs 1.5lakh. But significantly,
the principal repayments (which add up to Rs 2.39 lakh in Year 9) will continue to
qualify for the Section 80C deduction up to the Rs 1 lakh limit.
The same is the case right up to Year 15, when our loan is fully repaid. Existing
borrowers too gain. What this means is that it’s not just those who will now take a
home loan who gain. Even if we had taken a home loan some years ago, and are in,
say, the sixth year of repayment, we will stand to make the additional tax saving to
the extent of Rs 30,000 every year That’s a saving of Rs 2,500 a month. In other
words, our EMI is effectively lower to that extent.
All these calculations, of course, make one critical assumption: that the Budget 2017
proposals for tax breaks on home loans will continue going forward. There’s no
certainty of that–but it can be said with near-certainty that of all the tax breaks that
are targeted for withdrawal, those on home loans will be the last to go.

CHAPTER-5
DATA ANALYSIS &
INTERPRETATION

DATA ANALYSIS & INTERPRETATION
Survey objective
Basic objective of the survey was to survey assess the performance ICICI and
HDFC banks in the home loan sector.
Survey methodology
Survey was conducted among 80 correspondents, both male and female, who are
customers of the either of these banks and have taken loans from these banks 1 or
more than a - year back.
Survey results are explained with the help of graphs and diagrams.
Note: the respondents were the customers of either ICICI or HDFC

1. From which bank have you taken loan?
ICICI
HDFC
The results are as follows:
.
62 %
38 %
HDFC
ICICI
62 % of the respondent who were interviewed had taken loan from

HDFC bank where as the 38 % of the respondent has taken loan from
ICICI. These shows that loan taken from HDFC is comparatively higher
than ICICI.

2. Which loan have you taken?
Home loan
Vehicle loan
Mortgage loan
Others
Home loan
Vehicle loan
74 %
Mortgage loan
Others
18 %
6%
2%
Our figures reveals that the necessity of the Makan is still on the top of
the chart while vehicle loans and mortgage loans follows them.
Thus it shows that home loans still ruling the market with intensive
competition.

3. From where you get informed about home loan?
Newspaper
Newspaper
Agent Agent
Bank
Bank
Magazine
Magazine
56 %
32 %
10 %
2%
It is correctly said, that advertisement plays a crucial role in selling the

products and the banks are also understanding it, thus 56 % of our
respondents said that they got informed about home loan through
newspapers whereas 32 % of our respondents said that they
got informed through their Agents so it can be said that word of
mouth also plays a huge role. Thus 10 % of the people have learnt
from bank and 2 % of people have learnt from magazine.
Note: These figures are exclusively for ICICI and HDFC

4. What is the tenure for your payment?
 2 – 5 years 15 – 20 years
 5 – 10 years
10 – 15 years
 10 – 15 years
 15 – 20 years 5 – 10 years
2 – 5 years
71 %
18 %
6%
5%
Our figure reveals that 71 % of the respondents have taken loan for 15
to 20 years where as 18 % of our respondents have taken loan for 10 to
15 years whereas 6 % of our respondents have taken loan for 5 to 10
years. Whereas 5 % of our respondents have taken loan for 2 to 5 years.
From this it concluded that most of ICICI as well as HDFC

correspondents have option for long-term loans.

5. Did you submit all the documents you submitted?
100 %
Yes
100 % of our respondents said that they have submitted all the
documents.

6. Are you satisfied with the loan you purchased?
98 %
Yes
2%
No
98 % of our respondent said that they were satisfied with the loan
whereas 2 % of our respondent said that they were not because they
have to stick to the rules of the company and have to pay installments
on time and if the installments not paid in time they have to suffer from
penalty charges.

7. Will you refinance your loan?
86 %
Yes
14 % No
86 % of our respondents said that they will refinance their loan whereas
14 % of our respondent said that they will not refinance it. This reveals
that both ICICI as well as HDFC is more likely to have major market
share of home loans.

8. Will you refinance your loan?
86 %
Yes
14 % No
86 % of our respondents said that they will refinance their loan whereas 14 % of
our respondent said that they will not refinance it. They this reveals that both ICICI
as well as HDFC is more likely to have major market share of home loans.

Conclusion of the survey:
Thus from the survey we can conclude that both of the companies have
performed well and also have bright future in the loan market. The
competition is definitely going to rise with increasing market share as
well as new players coming in but, proper strategy applied at the time
will help the company to prosper whereas on the other hand they have
to retain their old customer as well, which will bring goodwill and
reputation for them

Conclusion
This industry is witnessing a boom at present boosted by generous budget sops and
rock bottle real estate prices.The demand is a result of genuine individual needs for
housing. Thus, the housing finance industry is on good ground and has interesting
prospects ahead.
Home loans are operative over longer time periods like 15-20 years and taking a call
on interest rates over such tenures would be a difficult proposition. However what
loan seekers must do is, make choices in tune with their risk appetites and profiles.
If an unwavering liability is what suits your profile, then fixed rate home loans
should be the natural choice. On the other hand, if you can handle risks and are
willing to go the extra mile to benefit from any further fall in interest rates, floating
rate home loans will be best suited for you. Either ways ensure that you have
understood the implication of `fixed/floating rates' as defined by HFCs, since this
has undergone some change in 2004.
Another important area going forward will be the need to make informed choices.
Loan seekers can no longer afford to be oblivious to the necessity in their home loan
agreements. Various clauses in the agreement can have a significant bearing on your
liabilities; ensure that you have a thorough understanding of what the agreement
entails and that there are no unpleasant surprises.

Bibliography
Books
1. Finance & investment - John Downes
2. Close to home -vandana shiva
3. Home loans -Times publication
Reports
1. National housing finance report
2. Report on home loans by GOI
News Papers
1. Times of India
2. Economics times
3. Free press journal
4. Business standard
Internet
1. www.thinkglink.com/
article.asp?Title=When_To_Refinance.htm&ID=723
2. www.hdfc.com
3. my.countrywide.com/
4. www.homeloans.va.gov
5. hsbc.co.in/in/personal/loans/homeloan2.htm
6. www.apnaloan.com/
7. www.indiainfoline.com/pefi/apply/hlon/ibnk/
8. www.icicibank.com/pfsuser/ loans/homeloans/hlhomepage
Places visited
1. Indian Merchant Chambers (churchgate)

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A SURVEY ON HOME LOANS B.

N.R.K&K.S.R Gupta Degree College,Tenali Page 1

1. A "home loan" is a credit to a consumer for the purchase or transformation

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N.R.K&K.S.R Gupta Degree College,Tenali Page 3

Types of Home Loans

The type of loan depends on

2. Nature of the loan

N.R.K&K.S.R Gupta Degree College,Tenali Page 4

a. In case of earlier payment, pre-payment charges are levied.

a. Interest is charged only on the amount drawn.

a. The loan facility is restricted to one year. It may be renewed after

N.R.K&K.S.R Gupta Degree College,Tenali Page 5

a. Fixed Rate Plan

b. Flexible Rate Plan

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2142.51 2167.05 2191.76 2216.64 2241.68 2266.90 2292.27 2317.82

2149.39 2174.24 2199.26 2224.44 2249.79 2275.31 2300.98 2326.83

Quarterly 2163.57 2189.06 2214.71 2240.52 2266.50 2292.63 2318.92 2345.37

Semi- 2184.69 2211.13 2237.72 2264.47 2291.36 2318.41 2345.61 2372.96

2226.46 2254.75 2283.18 2311.75 2340.45 2369.29 2398.26 2427.36

N.R.K&K.S.R Gupta Degree College,Tenali Page 7

N.R.K&K.S.R Gupta Degree College,Tenali Page 8

Indian home loan market

There is an estimated shortage of 20 million housing units in the country with an

1. Changes in demographic profile including increase in the rate of household,

2. Ever increasing middle class, migration of population and increasing

3. Increase in disposable income levels due to decrease in marginal tax rates

N.R.K&K.S.R Gupta Degree College,Tenali Page 9

Home loan disbursements (in Rs. Crores)

Year HFCs Banks Total Growth over previous year %

2000 - 01 12637.85 9787.24 22425.09 13.70

2001 –02 14614.44 14744.85 29359.29 30.72

2002 – 03 17832.17 33840.53 51672.7 76.00

Source: National housing bank

1. Tax rebates on housing loan announced in the recent budgets.

N.R.K&K.S.R Gupta Degree College,Tenali Page 10

4. Slashing of interest rates on home loans: fixed interest calculated on an

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1999 – 2000 2000 – 01 2001 –02 2002 - 03

Thus the Indian home loan market is growing at an extreme pace

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Companies providing home loans

There are various banks available that provide home

N.R.K&K.S.R Gupta Degree College,Tenali Page 14

The current ICICI Home Loan rates are as follows:

Adjustable rate Home Loans

Tenure New Rate (% per

Fixed rate Home Loans

Tenure New Rate (% per

N.R.K&K.S.R Gupta Degree College,Tenali Page 15

Buying a property requires a complete knowledge of real estate and in today’s

N.R.K&K.S.R Gupta Degree College,Tenali Page 16

Interest Rate Chart (Floating Rates)

Tenure (Years) Interest Rate (p.a.) Interest Rate (p.a.)

N.R.K&K.S.R Gupta Degree College,Tenali Page 17

Other types of home loans by Citi Bank:

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Interest Rate Chart (Floating Rates)

N.R.K&K.S.R Gupta Degree College,Tenali Page 19

2 Lakhs Min 2 Lakhs

Income p.a. (Rs.) 1.20 Lakhs Net Income 1.00 Lakh