The Collateral World of Mortgaging Property
January 21, 2022
January 21, 2022
The present year 2021 has been identified as a good year to invest in homes due to the lower interest rate on home loans as well as the reduction in Stamp Duty and registration charges by many state governments. Realising that this is the best time to offer home loans for applicants to take the best advantage of the prevailing low-interest rates, several leading banks such as State bank of India, Axis Bank, HDFC Bank, ICICI Bank, Canara Bank, Bank of Baroda, Union Bank of India, LIC Housing Finance and Punjab National Bank are offering attractive as well as competitive interest rates on home loans.
Although, 2021 has been a bad year for the Indian economy due to the COVID-19 outbreak. The government and the banking sector have both been trying to revive the economy. The first step in this direction was the Reserve Bank of India (RBI) maintaining the repo rate at the same level. Interest rates on home loans are still low and the banking sector has requested keeping the floating interest rate and the Marginal Cost Of Funds-Based Lending Rate (MCLR) also low.
The State Bank of India has come a long way since its inception as the Imperial Bank of India in 1806. The history of this bank goes back even earlier when the three presidency banks of Calcutta, Bombay and Madras were merged. It was in 1955 that the State Bank of India was born out of the Imperial Bank. The State bank of India is also the largest mortgage loan lender in India.
The State bank of India offers home loans up to a maximum term of 30 years. The interest rate is 6.7% (up to a peak of 7.05%) for salaried people and 7% (up to as high as 7.4%) for entrepreneurs and businessmen. There is a processing fee of 0.4% of the loan amount from a minimum of ₹10000 to a ceiling of ₹40000.
The advantage of taking a home loan from SBI is that the rates are almost immediately adjusted with changing interest rates. A disadvantage is the requirement of numerous documents to process a loan application and the provision of higher interest rates with lower credit ratings below 750.
The Housing Development and Finance Corporation is a financial institution that is primarily focussed on providing home loans to individuals. The HDFC bank is not the same but one of the subsidiaries of HDFC.
The advantage of taking a housing loan from HDFC is the flexibility with which it amends interest rates almost immediately after the Reserve Bank of India announces interest rate cuts. The disadvantage is the higher interest offered to applicants with poor credit ratings.
The interest rate offered by HDFC banks for home loans is 6.75% for both salaried and self-employed professionals (up to a maximum of 7.4% for salaried people and 7.85% for entrepreneurs). There is a processing fee of 0.5% of the loan amount up to a cap of ₹3000 only. The loans are for a maximum period of 30 years.
The Industrial Credit and Investment Corporation of India (ICICI) is one of the largest financial institutions which diversified in 1994 to form the ICICI bank. This bank has grown to become the second-largest private bank in India and has 5288 branches in India and that too in more than 10 countries around the world. ICICI bank was recently in the news for having acquired Yes Bank.
The advantage of dealing with the ICICI bank is the ease and the short time they take to process loan applications with minimal hassles. The disadvantage is the number of calls that will start coming from different business divisions of the ICICI bank.
The ICICI Bank offers housing loans for up to 30-year terms at interest rates of 6.75% to 9% for salaried persons and 7% to 9% for entrepreneurs and businesspersons.
Punjab National Bank, the second-largest Government owned bank in India, was founded in 1894 in Lahore. Today this bank has its headquarter in Delhi and has 6937 branches in 762 cities in India and a presence in 12 countries. PNB began its merger history with the merger of Bhagwan Dass Bank in 1940.
The advantages of banking with Punjab National Bank are the waivers offered by the banks due to the pandemic. Another advantage is lower interest rates for people with credit ratings of 750 and above.
The disadvantage is the bad image that Punjab National Bank has earned in recent bank scams and huge unrecovered loans. Another disadvantage with PNB is that the loan processing takes time and is cumbersome and not as efficient as private banks.
Punjab National Bank provides housing loans to both salaried employees and self-employed professionals at rates varying from 6.8 to 7.4%. The loans are for a maximum 30-year term. There is a processing fee of 0.35% of the loan amount subject to a maximum of ₹15000 but PNB has graciously charged this fee from applicants from 01 Jan to 31 March 2021.
LIC housing finance is the house loan division of the Life Insurance Corporation of India and has provided home loans to 3.35 lakh people. LIC housing finance has recently made a move to raise ₹2334 crores from the Life insurance Corporation as equity capital.
The advantage of LIC housing finance is that it offers 90% of the value of the property as a loan. The main disadvantage is the slightly higher interest rates.
The interest rates for home loans from the LIC housing finance are 6.9% to 7.8% for people belonging to the salaried class and 7% to 7.9% for the self-employed group of people. Loan terms are 30 years maximum. Like all other banks, LIC housing finance charges a processing fee but it is 0.25% of the loan amount up to a maximum of ₹10000.
Canara Bank has been growing steadily ever since its inception as the Canara Bank Hindu Permanent Fund in the year 1906 by a philanthropist named Ammembal Subba Rao Pal in the city of Mangalore. It became a public limited company in 1910 and was nationalised in 1969. It has 10391 branches across India and recently merged with Syndicate Bank.
The advantage of doing business with Canara Bank is that a person can repay loans in EMIs until the age of 75 years. Hence it is advantageous to apply for a loan at a later age. The main disadvantage is that only 75% of the cost of the property is given as a loan.
Canara Bank charges interest rates varying from 6.9% to 8.9% for both the salaried and the self-employed class of customers. The loan can be paid back in 30 years and there is a processing fee of 0.5% of the loan amount up to a maximum of ₹10000.
This bank was opened by the Maharaja of Baroda in 1908 and has grown to become the third-largest bank in India. In2019, Bank of Baroda combined with Dena Bank and Vijaya Bank in a merger. The advantage of doing business with the Bank of Baroda is the online portal that facilitates the loan application process.
Bank of Baroda charges an interest rate of 6.75% to 9% for people drawing salaries and 7% to 9% for the business class. There are no loan processing fees. Housing loans are given for a maximum period of 30 years.
The Union Bank of India was incorporated in 1919 by Seth Sitaram Poddar and inaugurated by Mohandas Gandhi in 1921. The Bank has come a long way from just 4 branches in 1947 to over 9500 branches in India today. Union Bank has recently merged with Andhra Bank and Corporation bank.
The advantages of applying for a home loan from Union Bank are the lowest age limit of 18 years as compared to 21 years by other banks. The interest rates of loans from this bank are the lowest.
Union Bank of India presently charges one of the lowest interest rates out of all the banks. The interest range is 6.7% to 7.15% for loan applicants from the salaried class and 6.9% to 7.35% for self-employed individuals.
Axis Bank was incorporated in 1993 as UTI (Unit Trust of India) Bank. At that time, this bank had been promoted by the Life insurance Corporation of India, the Unit Trust of India and 3 other major Insurance Companies of India. This bank was later merged with the Oriental Bank of Commerce in 2004. It changed its name to Axis bank in 2007.
Axis bank charges interest rates on home loans at rates of 6.9% to 8.4% for the salaried grade of customers and 7% to 8.55% interest on loans to self-employed entrepreneurs. There is a processing fee of 0.1% up to a maximum limit of ₹10000.
The first point to take note of is that a good credit rating of 700 and above is necessary to avail the lowest interest rates. Thus, it is necessary to pay off previous loans and to apply for a home loan where there are no other EMIs (Equal monthly instalments). A lot of people apply for a vehicle and a home loan together and pay off EMIs together. Banks do not encourage the prepayment of loans. This is paradoxical because an early repayment is actually a sign of good creditworthiness. There is no penalty for such prepayment, and this should not be paid either.
This Status is only required during the time of application of loan. Banks never question any change afterwards. You may have to update your status in periodic KYC (Know your customer) updates.
Banks will not permit sale as your property is mortgaged to them during the term of your loan. You can, however, apply for prepayment of the loan from the proceeds of the sale of your property. You cannot register the sale of your property because the loan will show up in the encumbrance certificate.
Please check the terms and conditions of the loan document before applying. Most banks do not reduce interest on the basis of credit rating once the rate has been fixed for the entire term of the loan.
Most finance companies have an insurance division and a separate home loan division. An example is the Life Insurance Company of India which has a LIC housing finance division.
Yes, IDBI bank offers housing loans with interest rates starting from 6.85%.