According to the RBI’s guidelines, all categories of loans sanctioned after July 1 have to be linked to base rate — the floor rate below which a bank cannot lend, while the ones extended during the old regime could continue till they are up for renewal or a switch over takes place on mutually agreed terms.

For home loan borrowers, what the recent PLR hike means is that those who have taken a loan after July 1 — when the base rate regime came into being — will not be affected by this hike, but those who have not made the switch to base rate yet will see their equated monthly instalments (EMI) moving northwards. It is seen as an attempt by lending banks to coax borrowers to embrace the new benchmark.

Consequently, the question topmost on the minds of borrowers with home loans linked to PLR is whether it’s best to voluntarily shift to base rate to ensure lower home loan interest rates. The answer to the question perhaps depends on the situation you are in.

If last instalment due is several years away

Those who have taken a home loan, say five years ago, and still have several years to go before the repayment tenure ends would do well to look at moving to base rate. “Borrowers would be better off switching to base rate as it is mathematically arrived at and is a more transparent method of computing the benchmark. Any changes in the liquidity situation or policy rates will have a direct bearing on home loan rates for all borrowers,” explains Kamlesh Rao, executive vice-president, personal finance and mortgages, Kotak Mahindra Bank.

The purpose of getting banks to devise a new methodology of determining benchmark was to introduce more transparency into loan pricing and ensure a fair deal for old borrowers. In the past, banks have been accused of meting out step-motherly treatment to existing borrowers. During the global slowdown, when the central bank reduced policy rates to prevent economic growth from slipping, banks were quick to cut lending rates to attract new borrowers, but the benefits were passed on only sparingly to existing borrowers. On the other hand, when interest rates move upwards, banks rarely hesitate to increase the home loan rates.

The new mechanism requires banks to review their base rates at least once every quarter and ensure that any changes made are applicable to all class of borrowers. For instance, if your bank has fixed its base rate at 7.5% and the home loan rate is pegged at base rate + 2%, that is, 9.5%. If the base rate is revised downwards by 50 basis points, your home loan too will have to come down to 9%. In the earlier regime, this would not necessarily have been the case as banks could afford to avoid reducing PLR, while continuing to lend to corporate at sub-PLR.

If your loan is nearing closure

Now, consider another scenario, where you have merely a year left to call your house entirely your own. Do you opt for base rate, since it is meant to be loaded in favour of the borrower? “Such a situation calls for a comparison between the rates applicable currently and the ones linked to base rate. If the old rate is beneficial, it may be better to continue with it,” says VN Kulkarni, chief counsellor with the Bank of India-backed Abhay Credit Counselling Centre.

If you have borrowed under the special teaser rate schemes

Such borrowers are currently best placed in terms of being spared of the dilemma to choose between base rate and PLR. These loans are so structured that a pre-determined interest rate is charged in the initial years, after which it tracks the interest rates prevailing then. Therefore, once the fixed-rate period draws to a close, their loans will be automatically linked to base rate. In short, at the moment, they do not need to do anything.

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ROI from the date of first disbursement to 31.4.2011

ROI from 1.4.2011 to 31.3.2012

ROI from the 1.4.2012

ROI from the 1.4.2013

The above table shows the current ‘teaser schemes’ in the market till 30^th April. HDFC and ICICI re-launched their offers while SBI continued its offer. The government is concerned about a rate war that could lead to an increase in non-performing assets with the lenders due to these teaser rates. The government holds the view that such loans will result in a pile up of bad loans, putting pressure on banks’ financial stability.

The Finance Ministry is keen to stop more public sector banks from offering teaser rates ahead of 1^st July, when the more transparent ‘base rate’ regime for loans comes into effect.

Minister of state for finance Namo Narain Meena said, “Borrowers with low financial means may get attracted to such loans on finding the initial low interest rates to be within their financial means, but may land themselves into a financial distress should interest rates start rising”.

Earlier, RBI had raised concerns over teaser loans being offered by banks. It had said that banks need to explain to their borrowers about the implications of such rates and to appraise repaying capacity of the borrowers when the rates go up.

“Some of the schemes under teaser rates have been hugely popular and prompt customers to switch over. Other banks may be forced to come up with similar schemes,” he said, requesting anonymity. Teaser loans schemes offer a low fixed rate in the initial years, but shift to market rates after 2-3 years.

The government may further ask public sector banks to give details of the number of loans processed under such schemes. Amongst the public sector banks, SBI, Canara Bank, Union Bank of India and IDBI has teaser loan schemes. Since the government is the majority shareholder in all public sector banks it has an obligation to protect the interest of both the shareholder and the public.

Banks’ take: Some banks argue that such business decisions should be left to the bank’s management. Banks say it is the cost of funds for each bank that determines the interest rates and each bank has a different business strategy.

Once the base rate comes into existence, the banks will have to redraw their strategy as base rate system will increase the transparency on fixation of reference rates for floating rate loans, said an anonymous senior banker.

According to estimates, since the teaser rate regime kicked in, loans totaling nearly Rs 45,000 crore have been sanctioned. SBI accounts for over 66% of this, lending almost Rs 30,000 crore since February 2009.

Conclusion: All said and done, if a consumer assesses his/her repayment capacity and plans for his loan there is no way that he/she can make the most of the teaser schemes in the market and own his/her dream house.

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“A 0.50 per cent hike in interest may make an emotional impact on buyers. But if it goes to a level of 2-2.5 per cent, then it would definitely affect the sector,” real estate money management and services firm, Jones Lang LaSalle Meghraj’s (JLLM) Chairman & Country Head, Anuj Puri, told media here.

Rising inflation is a worry as it would set the stage for further monetary tightening by regulators. But, hopefully, the revised income tax norms will negate the negative impact in the long-term, he said.

“While interest rates do have an effect on residential real estate sales, the fact is that the newly-revised income tax norms will negate any negative impact in the long-term,” Puri said.

“In the last budget, Finance Minister assured that the Direct Tax Code, which will be introduced in the next fiscal, will bring more money into the taxpayers’ pocket. This will help buyers to overcome the interest rate-hike,” he said.

Considering the need for low-cost homes in India, the demand for affordable housing will sustain for decades to come, he said.

“The shortfall in this segment, at this point in time, is still in the range of millions, and India’s ever-growing rate of urbanisation will act as a constant demand catalyst.

However, both affordable and mid-income housing will continue on parallel paths, since they represent two entirely different and equally valid business propositions to developers,” Puri said.

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Eligibility:

Housing Loan may be sanctioned to those who have regular income sufficient enough to liquidate the loan along with interest within stipulated period of repayment. The employees who have availed of housing loan from their own organizations may also avail of loan from the Bank under this scheme if they are having regular income sufficient to liquidate the loan within the stipulated period and are able to comply with other stipulations of the scheme.

However, special facility is also available as under

a. Repayment Option for salaried persons desirous to extend the repayment period beyond the date of retirement under Public Housing Loan Scheme of the Bank will be eligible up to 5 years after the date of retirement.

b. Availability of Progressive monthly installments (PMI) options under public housing loan scheme.

Purpose:

• For construction of residential house on land already owned.
• For purchase of plot by salaried persons from Govt. Agency / Development Authority or any Govt. recognized agency (viz., HUDA, HOUSEFED) and construction of residential house thereon.
• For purchase of house/flat to be used for residential purpose.
• For renovation / extension / repair of residential house already owned.
• For purchase of unfinished / old house(maximum 20 year old) and
• Renovation /extension / repair of the same.
• For taking over of housing loans from other finance companies / financial institutions / banks.
• Bank finance extended to a person who already owns a house in town / village where he resides, for buying / constructing a second house in the same or other town / village for the purpose of self occupation.
• Bank finance extended for purchase of a house by a borrower who proposes to let it out on rental basis on account of his posting outside the headquarters or because he has been provided accommodation by his employer.
• Bank finance extended to a person who proposes to buy an old house (Maximum 20 years old) where he is residing as a tenant.

Supplementary finance:

• Additional finance may be granted by the bank within the overall ceiling for carrying out alterations/ additions/repairs to the house/flat.
• Bank finance to individuals who have raised funds for construction / acquisition of accommodation from other sources and need supplementary finance from our bank after creating pari-passu charge over the property mortgaged in favour of other lenders and/or against such other security.

Nature of Loan: Term Loan

Loan amount:

a. In case of salaried persons: The loan amount will be restricted to 60 times of monthly gross salary last drawn subject to the condition that it is within the project cost less stipulated margin and Total deductions including EMI of proposed loan should not exceed 40% of the Gross monthly salary of the applicant.

b. In case of others: The loan will be restricted up to 4 times of gross Income average shown in last 3 years Income Tax Assessment Order/ acknowledged copy of income tax return subject to the condition that it is within the project cost less stipulated margin and Total deductions including EMI of proposed loan should not exceed 40% of the Gross monthly income of the applicant as per IT Returns.

Income Tax returns will be verified by engaging services of Chartered Accountant.

For repairing/furnishing of house/flat: Maximum loan for Repairing/ Furnishing of existing House/ Flats will be 75% of the estimated expenses or Rs 3, 00,000 which ever is low subject to the condition that borrower has sufficient repaying capacity as per income criteria given hereunder: The minimum take home monthly salary/income taking into account all deductions (including EMI of proposed loan) should not be less than 40% of last month’s gross salary in case of salaried persons & 50 % of average gross monthly income as per average of last three years IT Return in case of others.

For application money raised by Housing Boards/ Development Authorities: Permissible Loan amount for Application Money raised by local Housing Boards/ Development Authorities will be 75% of application amount or Rs 3,50,000/- which ever is lower subject to the condition that the borrower has capacity to repay the loan within stipulated repayment period.

For Joint Borrowers: While computing repaying capacity in case of joint borrowers*, income of all borrowers may be clubbed. Joint borrowers may be the co-owner of the property or they may not be co owner (but must be legal heirs of owner of the property / PF nominee / Spouse having future interest in the property) but their income is to be considered as one of the source of loan repayment. (*However, Income of Co- borrower / (s) will be clubbed only if source of income of co-borrower is salary and co-borrower / (s) is a permanent employees of Government / Semi Government / Public Sector Unit/ Multinational Corporate Houses/ Blue Chip Companies / reputed companies.)

Note: Income Tax return must be obtained in all cases including salaried persons.

Margin:

• 25 % of project cost and
• in case of repairing / furnishing 25% in all categories (including salaried class)

Project cost will consist of -

• Purchase price of land/ house/ Flat, plus
• Cost of construction/ renovation/ extension (if applicable) plus
• Stamp duty and registrations charges, as applicable plus Accrued Interest amount of moratorium period, if proposed to be capitalized
• It will be ensured that margin at all stages has been contributed by the borrower upfront where disbursement is to be made in phases.

Rate of interest (Note: Loan upto Rs.20.00 Lac for maximum period of 20 years-Please see Special Package to Housing Loan Scheme (Public)-Given below)

Floating Rate :

Fixed Rate:

*Detail given below under the Head Special Package to Housing Loan Scheme (Public)-

Fixed rate of interest will be subject to following conditions:

• Subject to “interest rate reset” clause in terms of which fixed rates may be reset at the end of every three years on the basis of interest rate prevailing at that time.
• Subject to “force maejure” clause in terms of which Bank is authorized to revise fixed interest suitably and prospectively in the event of major volatility in interest rates.
• Borrower of housing loan may exercise the option to switch over at any point of time from floating to fixed or vice versa on the condition that borrower has to pay as under:

From Fixed to Floating- 2% of outstanding balance for exercising the option From Floating to fixed- 0.50% of outstanding balance for exercising the option

Security:

· Primary:

• Equitable/ Registered mortgage of the property or
• Pari- passu charge over the property if the borrower (salaried person) has already availed loan from his organisation.

· Collateral Security:

• Personal Guarantee of one person of means and standing acceptable to the Bank will be taken in all cases. However, in case of delay in creation of mortgage Personal Guarantee of two person of means and standing will be taken, where delay over 6 months in creation of equitable mortgage of the property to be financed by the Bank is expected. In case of delay in creation of equitable mortgage of the property beyond 6 months, collateral security to the extent of loan amount in the shape of immovable property or financial securities or personal guarantee of two persons of means & standing acceptable to the Bank will be taken. However, the same will not be needed where a property is being purchased from seller/builder as mentioned hereunder:
  • Housing Board/ Development Authority /Govt agency
  • Good rated /reputed housing company / builder/developer well known at national / state level (VIZ: Ansal, Gujarat Ambuja, Bengal Ambuja, Bengal Peerless, Sahara Housing). List of such reputed housing companies/ developers will be circulated by respective Zonal Offices after its careful scrutiny and a copy will be endorsed to Retail Credit Section, Head Office.
  • Approved Housing Societies notified by Zonal Offices.
  • Builders/Developers whose project has been approved by the Bank as per bank’s guidelines. (Approval of housing projects for the purpose of tie-up arrangement for loan to their prospective buyers where builder/developer is not seeking finance from the bank for the housing project may now be accorded by the Zonal Head).

Documentation: In a booklet form complete in all respect.

Processing Fees: 0.50% of loan amount, Maximum Rs. 10,000/-

Documentation Charge: Actual expenses / charges incurred for creation of mortgage.

Special Package to Housing Loan Scheme (Public)

All new Housing Loans (upto Rs.20.00 Lac for maximum period of 20 years) availed upto 30th June 2009 and shall not apply to swapping (takeover/ renewal) of loan w.e.f. 17/12/2008.

(i) Interest Rate: -

*The rate of interest will be reset after 5 years from the date of withdrawal of the first installment and the borrower will then have the option for going for a fixed rate or a floating rate of interest.

@ If Housing loan is sanctioned for tenure above 20 years to 25 years and/ or amount above Rs.20.00 Lac, existing instructions/ guidelines will remain unchanged.

(ii) Margin: -

(iii) Processing fee: -

(iv) Prepayment charges: -

(v) Free Life Insurance cover for the entire amount of outstanding loan will be provided to the borrower.

Calculate your Eligibility for home loan:  Home Loan Eligibility Calculator

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Punjab National Bank (PNB) has also announced an extension of its festival offer on housing loans to December 2009.

SBI (State Bank of India) has also extended its special home loan scheme at 8% interest rate by over four months to March 31, 2010, a move which would provide relief to small home loan borrowers. The bank, which offers the special scheme under ‘My Home Campaign’, offers 8% fixed interest rate for 5 years for loans up to Rs 5 lakh, with a maximum tenure of 10 years. For loans above Rs 5 lakh and up to Rs 50 lakh, interest rate has been fixed at 8% during the first year and 8.5% during second and third years. The bank is also offering SBI MaxGain, under which it offers home loan as overdraft with possibility of saving interest. Targeting customers buying high-end properties, the bank is offering SBI Home Loan Advantage, which would carry a fixed interest rate of 8% during the first year and 9% during second and third years, SBI said. These schemes help clients to know about their loan repayment obligations at low interest rates for 3 to 5 years.

Taking cue from bigger banks, state run Bank of Maharashtra (BoM) has slashed its home loan rates. Loans sanctioned up to December 31, 2009 will avail the benefit of rate reductions. Following the reduction, the bank would offer home loans up to Rs.30 lakh at a fixed rate of 8% for the first two years, 8.5% in the third year, 9.5% in the fourth and 9.75% in the fifth year. After the fifth year, the rates will be reset based on the benchmark prime lending rate of the bank. For loans above Rs 30 lakh, for the first two years the rate will be 8.25%, for the third 9% and 9.75% in the subsequent fourth and fifth years. It has also reduced lending rates on vehicle loans.

Check Offers on Hotels in Manali for Holidays.

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- For construction of house/flat,purchase of ready built house/flat.

- For repairs/renovation/extension/improvement of existing house/flat.

- For take-over of housing loans from other banks/institutions.

- Housing loans under Fixed Rate of Interest is offered upto 20 years only. The home loan rate of interest will be reset at the discretion of the Bank once in 5 years.

Interest Rates (floating)

Available products :- Corporation bank personal loan
Corporation bank Home Loan

Contact Number
Bangalore: (080) 25582836 / 37 / 38 / 39, Chennai: (044) 28520837 / 534,
Delhi: (011) 25763661 / 25711977, Kolkatta: (033) 22290103,
Mangalore (Head Office): (0824 ) 2442008, Greater Mumbai: (022) 22837699 / 22852713

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1. For construction/acquiring of new or existing house/flat not older than 30 years.
2. For extension in the existing flat.
3. For repairs /renovation/ alteration in the existing flats.
4. For purchase of Plot for construction of house with composite plan.
5. Attractive Home loan rates.

Repayment of Home Loan under Direct Housing Finance Scheme (DHFS)

» Maximum period of 25 years or age of retirement or on borrower reaching the age of 70 years whichever is earlier.
» In the case of new construction, installments will start after 18 months from the date of first disbursement or 6 months, after the date of completion whichever is earlier.  In other cases, installments will start from second month of disbursement.

Central Bank of India Housing loan Interest Rates – BPLR (w.e.f. 01.04.2009)  12.00% p.a.

Processing Charges

» 0.50% of the loan amount subject to maximum Rs.20,000.00.

♦ Prepayment Charges

» Nil in case borrower repays entire loan amount out of his/her own sources.  1% of outstanding amount if account is taken over by other Bank/FIs.

♦ Take over of loan

» Take over of loan from other Bank/FI is allowed on certain terms and conditions.

Available Products of Central Bank of India

• Central Bank of India Housing Loan
• Central Bank of India Personal Loan

Contact Number -

Mumbai – 022 – 6638 7777, Agra – 0562 – 2850154/3424, Ahmedabad – 079 – 25503586, Bhopal – 0755 – 2674037/36/35/34/33, Chennai -044 – 28554792/4692/4620,New Delhi – 011 – 23318964, 23319268/69

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