Interest rates on loan can be changed, easily. Just read the agreement.

In case of floating interest rates, take rate change for granted. I read a clause in a home loan agreement of one of India’s largest private sector bank. The clause is that this rate of interest is linked to what is known as its Floating Reference Rate (FRR). And, the bank holds the right to change it at its sole discretion. The bank also holds the right to increase or decrease the EMI at its sole discretion. It’s called adjustable interest rate anyway!

What about fixed rates? I have read that banks do offer something called a fixed rate but then there is a rest clause attached to it. In the agreement terminology, it is known as “Fixed rate of interest with money market conditions.” (This is how ‘fixed’ your interest rate really is). The clause in the agreement goes something like this:

“From time to time, ___ Bank may, in its sole discretion, alter the rate of interest suitably on account of change in ___ Bank’s internal policies or if unforeseen or extraordinary changes in the Money Market Conditions take place during the tenure of the Facility. Thenceforth, the rate of interest varied as aforesaid shall be applicable to the Facility.
___ Bank shall be the sole judge to determine whether such conditions exist or not. If the Borrower/s is not agreeable to the revised rate by ___ Bank then within fifteen (15) days of the receipt of the notice from ___ Bank intimating the change, the borrower (s) shall be entitled to ___ Bank to terminate the Facility and prepay Facility and all the amounts due to ___ Bank in full in accordance with the provisions of the Facility/Agreement relating to prepayment.”

Basically, the bank allows it unlimited wriggle room to increase rates as and when they damn well please. Not that they do that, but they have legal immunity built in because of the clause.

My friend in Bangalore is a builder. Steel and cement prices are going through the roof. He says that banks have money but are unwilling to lend (Don’t look at me, I am just the messenger here.) Major construction sites are all downsizing their workforce, working with a third of required workforce, cashiering the rest of them. It isn’t pretty.

Anyhow, while discussing all this, he gave me his personal take on the housing market over there.

The average software professional (mid to late twenties) earns about Rs. 40000. Along with the spouse it is Rs. 80,000. Subtract 20000 toward household expenses. Another 10000 towards the car loan. Subtract another 10000 on credit card dues and/or personal loan EMIs. That leaves them with Rs. 40,000 to spend on a house of their own. It follows that the Rs. 35-40 lakh flat in Bangalore is the upper limit of capability for the average couple.

I asked him, what about the single dudes who aren’t married, how does he intend to sell stuff to them? How’s he gonna get them to get married?

My friend is opening a marriage bureau.

If a house is still under construction, only a partial disbursement of the loan is made by the lender. This is done periodically and the final disbursement is made on completion of construction.

However, in some cases, the home loan company may be willing to make the entire payment even if the construction is not complete.

This is known as the Advance Disbursement Facility.

An advance disbursement is generally made if the buyer requests the home loan company to do so and if the home loan company is fairly convinced the builder will complete the construction on time.

No tax benefits are available in respect of repayment of a home loan in the year in which the construction of the property is not completed.

The process to find the best home lender to get the best home loan deal seems to be complicated for most of us. The reason is unsystematic approach towards it. Home loan seekers always dream to get the best deal. It’s commonly said - when you can dream it you can actual do it. In this article we will throw light on certain guidelines, which may help you to make your dream come true.

1) Finalize your property

Who wants to lose business? The answer is no one. Lenders very well know at the back of their mind that one who has finalized the property is genuinely looking for home loan and if they do not provide the best deal he/she may look for some other lender for the loan. So finalizing property strengthens negotiation power of the borrower, which is an added advantage. One more trick you can play if your property is bought from a reputed builder is to negotiate for the interest rate till 23rd or 24th of the month. As many banks have monthly targets for its staff and as the month end nears, the banks may offer slightly better rate to enable the staff to fulfill the targets.

2) Eligibility

Banks differ slightly in calculating the home loan eligibility. If getting higher loan amount is an issue, than check for the following:

• Check whether the bank will allow the clubbing of income of relative other than the spouse, such as income of parents, brother, son/daughter.
• Look for banks that give better eligibility of loan based on your disclosed income.
• Check whether the entire income is being considered including annual component of income.
• If you are self employed and income are spread over many entities look for bank that will consider all these entities.

3) Interest rate

Banks offer home loans on fixed or floating rates. Before opting for fixed or floating it is essential to understand the term correctly. Fixed interest rate is commonly understood as fixed interest rate for the entire tenure, which is not true. Fixed interest rate only remains fixed for certain period of time and not for the entire tenure. It always has a reset clause. The reset clause varies from banks to banks. It may be 3, 4 or even 5 years. So the lender has full authority the change the interest rate further. A floating interest rate, as the name suggests, “floats” upwards or downwards, subject to market conditions. Hence, these rates are revised whenever required by the bank. So if you are looking for floating interest rate check whether the rate of interest has gone down for a couple of years or not.

4) Check other charges

A good deal largely depends upon how one negotiates. It can save your cost on loan. Before lending lender’s primarily take into account the income and personal profile. While choosing the best home loan lender what you also have to take into consideration along with the interest charges are processing fees, prepayment charges, valuation fees, legal charges, and hidden cost.

5) To win something you have to lose something

To get a home loan the first step is to fill the home loan application form. A fee is charged which would be around 0.5 to 1% of the loan amount. The fee is known as the processing fee. One has to understand that paying the processing fee along with the application form does not mean approval of the loan. It only guarantees that the application would be seen. So you should be ready to bear the cost of processing fee.

I have availed a home loan from an MNC bank at an interest rate of 9%. They have revised rates of interest several time and current rate stands at 12.50%, since 1/8/08 ( previously it was 11.75%). Last year in August, they raised rates by 2% in one go and after lot of arguments and conversation, the rate was agreed at 10.25%. The requisite changes have still not been made. On asking the bank, I got to know that the executive who had made this commitment had no authority. I have written several times to several heads without receiving any response till date. All my EMI payments have been regular in spite of an increased interest rate. I have once again received yet another letter regarding revision of the interest rate, now to 12.50%-which is very high.

Axis Bank is charging 11.5% for my home loan but your site shows it as 10.5%. Also, I got a salary hike recently, can this help my home loan application?

I recently made a partial pre-payment towards my IDBI home loan account. I wrote to their usual query email ID to know my outstanding and tenure. I got a reply that IDBI has discontinued sending statements over mail and I will have to pay Rs. 115 at the asset centers to get a statement. Are we not entitled to know our balances on a regular basis? This is a very basic service and I don’t think I need to pay to know even this. The email also said they would send a statement by post every 6 months. How am I to know my balance at the end of every month? I need an answer from IDBI on how I can get my monthly statement on outstanding and the current interest rate?

I have a very bad credit records for various reasons. Currently, I have loans amounting to Rs. 15, 00, 000, in spite of the fact that my wife and I earn pretty well.

These debts have accumulated as a result of excessive expenditure towards education of my children and other contingencies. I also have a history of cheque bounces on my account. My weak financial situation will last for another two years, till the completion of the education of my 2 children who are undergoing their 5th semester (of an eight-semester course) in Engineering. Once my children are through with their course, I may be able to save some money, even if we don’t get any financial support from them. I am also willing to ensure full security of bank loan in case of my death or retirement as a normal course. I am a salaried individual with 7 years of service pending before retirement. Will there be a bank willing to lend me? The situation I am in was unavoidable; will this mean that I can’t get a loan ever? Can I get some sort of a loan with an option to pay of the loan within 10-20 years. I can afford to pay an EMI of Rs. 17, 000 per month.

We purchased a flat in a building that is 7 years old. There are a total 6 flats in the building. Flats are completely legal with all necessary documents like title clearance, approved plan copy, etc. We even got a home loan on our flat as the building is completely legal. But recently we came to know that there is a huge loan on the plot on which the building is constructed, which is not paid by the builders. Now, Bank of Baroda has contacted us. They haven’t given us any notice. I just want to know what action can the bank take and what should we do to safeguard our flats?

I still receive letters from banks stating that my loan EMI is overdue? This is sort of surprising because I have not taken a loan from any bank. I had applied for a loan a few months back but my application was rejected. Please help.