Beware of the Reset Clause in Your Fixed-Rate Loan!

Bank of India: Reset Clause can come into effect every five to ten years. Normally, ten years.

State Bank of India: Reset Caluse can come into effect every two years. The first reset is due in March 2008.

Corporation Bank: Reset Clause can come into effect every five years.

HDFC Bank: Does not offer fixed loans with a Reset Clause.

UTI Bank: Does not offer fixed loans with a Reset Clause.

ICICI Bank: Does not offer fixed loans with a Reset Clause.

Union Bank: Does not offer fixed loans with a Reset Clause.

Housing Loan EMI Calculator

I have found a nice place for EMI Calculator and Info on Tax Benefits on Home Loan. You may also want to visit:

http://lichousingfinance.communicate2.com/lichf.html

Home Loan Insurance

In order to insulate one's family from the uncertainties of the future, one needs to take certain precautions. Hence, individuals can opt for an insurance cover such that in case of the untimely death of the borrower of the home loan, the outstanding amount of the loan is repaid by the insurer. Hence, the family members will not be required to pay the remaining EMIs. Most banks and housing finance companies offer reducing term insurance. This is a single premium decreasing term plan. So, as the loan amount decreases on repayment, the sum assured also reduces in the same proportion. This ensures that the customer pays only for the protection that is required and does not end up paying additional premium. Mostly, lenders club the premium amount with the original amount to be taken as home loan. HDFC's Standard Life Insurance offers a home loan protection plan for its home loan customers. Any existing or a new customer can avail of this loan. ICICI Bank has a reducing cover policy called Home Assurance Policy with ICICI Pru. SBI offers the policy as a Group Insurance plan.

Planning For a Home Loan

• Evaluate expenses towards your other commitments and emergency funds. Borrow only in tune with your repayment capacity and avoid having a tough time making repayments for a huge home loan.
• Lenders offer newer and innovative repayment schemes that can suit your earning capacity and potential. Explore all such offers before choosing a scheme.
• Overages are the difference between the lowest available price that a Bank is willing to offer and any higher price that the home buyer agrees to pay for the loan. The brokers are often allowed to keep some or all of this difference as extra compensation. Negotiate hard to bite into this margin and clinch a better deal for yourself.
• Inexpensive loan products may have some hidden charges. Check twice.
• When selecting a lender, talk to a couple of borrowers from the same lender to know about their experience with the lender.
• There is a plethora of fees - Processing fee, administration fee, valuation fee, legal fee, etc. Many of these fees are negotiable. Get the best deal.
• Loan insurance, house holders policy and cover against accidents are offered by lenders themselves for a nominal premium. This can make home loans still more lucrative. Either the borrower pays a lump sum amount upfront towards the additional insurance cover or the premium is clubbed with the EMI dues. Borrowers are assured of great convenience in this mode. However, you can always select a different insurance company for your needs. Look around and verify if the lender is offering you the best deal.
• Banks have come out with numerous repayment options that are tailor-made to suit borrower's needs. Repayment options are plenty, so select the right option that suits your financial needs well. For instance, Step-up repayment facility allows borrowers to avail higher amount of loan and pay lower EMIs in the initial years. Subsequently, the repayment is accelerated proportionately with the assumed increase in income.
• Home Loan enhancement products available in the home loan market are home improvement loan, home equity loans, land loan, home extension loan, etc. You can obtain a loan for making modifications, additions and alterations to your house. This is called the home improvement loan. Home Equity Loan is the loan offered against the mortgage of property. Home equity loan is available only for self-occupied residential property.

Banks that Can Help You With A Home Loan

• Allahabad Bank (Zonal Office), Allahabad Bank Building, 17 Parliament Street, New Delhi - 110001 Contact Person: Ram Janam Tiwari Tel: 011-23743694, 23368604, 23368757, 23361286, 23341152
• ABN Amro Bank, 15 Hansalaya Building, Barakhamba Road, New Delhi - 110001 Tel: 011-23702555, 23755470, 95124-4111111
• Andhra Bank, Signature Towers, Ground Floor, South City, NH-8, Gurgaon Tel: 95124-2581936 Contact Person: Raj Shekhar
• Bank of Baroda, Bank of Baroda Building, 16 Parliament Street, New Delhi - 110001 Contact Person: Rishi Tel: 011-23325557, 13328666
• Bank of India (Zonal Office), Jeevan Bharti Building, New Delhi - 110001 Tel: 011-28844086, 23319231, 28844087,23317302, 23326337 Contact Person: Harish Vij (9810118164)
• BHW Home Finance Ltd (011-66564222,9873336199, 9899810029, Toll Free: 1800114222)
• Canara Bank, Ansal Towers-38, Nehru Place, New Delhi - 110019 Tel: 011-26293209
• CANFIN, DDA Building, Near Paras Cinema, Nehru Place, New Delhi - 110019 Tel: 011-26430236 Contact Person: Sunil Kumar Mittal
• Dena Bank, Bank of Baroda Building, 16 Parliament Street, New Delhi - 110001 Tel: 011-23719682-85 Contact Person: Badan Singh Siddhu
• HDFC, Core 6A, 5th Floor, India Habitat Centre, Lodhi Road, New Delhi -110003 Tel: 011-24643755, 24601574, 24601577
• IDBI Ltd, 3rd Floor, 65 MM Road, New Delhi-110055, 9911219968, 9911597866)
• Indian Overseas Bank, 1/209, Sadar Bazar, Delhi Cantt, Delhi - 110010 Contact Person: Shailesh Vishwakarma Tel: 011-25692879, 25693518, 25699904, 25688306
• LIC Housing Finance Ltd (www.lichousing.com sms 'lichfl' to 3636)
• Oriental Bank of Commerce, E Block/ M Block, Connaught Place, New Delhi - 110001 Tel: 011-23417121, 23418138, 23416538, 23416630, 23416854, 23415991, 23415992, 23415993, 23415994
• PNB Housing Finance, 9th Floor, Antariksh Bhavan, 22 Kasturba Gandhi Marg, New Delhi - 110001 Tel: 011-23357171, 23351992 Contact Person: Sandeep Bhagat
• Standard Chartered Bank, 17, Allahabad Bank Building, Parliament Street, New Delhi - 110001 Tel: 011-3733888, 23733777, 41502108, 23364079, 23406414, 23406700 Contact Person: Srinivasan
• State Bank of India, Subroto Park, Cantonment, Delhi Cant - 110010 Tel: 011-25692147, 25690273, 25667297
• Sundaram Finance Ltd, 19 West Avenue Road, Punjabi Bagh, New Delhi - 110001 Tel: 011-25738099, 25228778
• Tata Housing Finance, 18, 3rd Floor, Kanchenjunga Building, Barakhamba Road, New Delhi - 110001 Tel: 011-23310354, 23310355
• Union Bank, M-11, First Floor, Middle Circle, Connaught Place, New Delhi - 110001 Tel: 011-23417402
• UTI Bank, 5th Floor, Ashoka Estate, Barakhamba Road, New Delhi 110001 Tel: 011-41515446, 41515447, 41515448, 41515272, 41515271, 9873131031, 9891797777
• UTI Bank, Lajpat Nagar Branch Tel: 011-41722823
• Vijaya Bank, Vijaya Bank Building, 3rd Floor, Barakhamba Road, New Delhi - 110001 Tel: 011-23712241, 23712289, 23711093, 23711098

Home Loan Interest Rate Hiked By ICICI Bank

The home loan rate has been raised by at least by one bank - ICICI Bank. Existing floating rate customers of ICICI Bank will now have to pay an interest of 11.75% per annum as against 10.75% earlier. The hike comes into force from February 9. However, the existing fixed rate customers whose loans are fully disbursed will not be affected by the hike and their contracted rates will remain unchanged. HDFC, another lead player in housing loan sector, has said it will not raise the rates immediately, while the public sector banks will hold it for the present at least, as the Finance Minister has asked them to desist from hiking the interest rate on housing loans.

Home Loan Interest Rate - Floating or Fixed?

It is very difficult to answer the question, is that not so? After all, interest rates have been on a roller coaster ride over the past five years or so. From 14 per cent in 2000 to 7 per cent in 2004, the current home loan interest rate is ten per cent and it is set to go up further any time now, with the stringent credit policy measures announced recently by RBI in order to bring down the current inflation rate of over 6% and stabilize it around 5%. What should a potential home loan consumer do? Lower floating rate with the risk of being done in by a huge increase in interest rates in the future or a fixed rate with the relative safety attached to it, but at a price?

The fact that the Indian economy has been growing at a hectic pace of 8-9% per annum is leading to more demand from corporates for money for expansion plans. However, RBI has been taking conscious steps in its successive quarterly reviews of annual credit policy to curb the inflationary tendency in economy but there is always a lag before these measures will have their desired effect. Once inflation rate is brought down, the interest rates must follow suit and RBI can be expected to enable such a scenario. My own gut feeling is that it will be sooner than later and I am willing to stick my neck out and say that the interest rates could just have peaked or close to it that it can only come down from there. Further, the US economy could soon be opting for a slowdown leading to a softening of interest rates there and it could have a ripple effect on interest rates back home. Let's see how it pans out in the next few months!

In the current economic scenario, I would personally opt for a transparent, floating rate home loan. By transparent floating rate, we mean that the potential consumer should know the benchmark rate like PLR, FD rate, etc to which the floating rate is linked to, so that he/she can ensure that he/she gets the benefit of a reduction in the benchmark rate as and when that happens. My preference for a transparent floating rate home loan over a true fixed rate home loan is for the following reasons:

• It is a simple physical law that what goes up must come down and interest rates are no exception. Floating rate will enable me to use that to my benefit.
• Floating rates at any point of time are at least 1.25 per cent cheaper than a true fixed rate home loan for a comparative tenure.
• Even if the interest rates rise in the immediate future, I have a cushion of 1.25 per cent and it will not hurt me as long as it is within this limit of 1.25 per cent.
• Housing sector must grow to fuel the basic industries like Cement and Steel that lead the economic growth and no government worth its salt will take any steps to drive the individual home buyers from the market with high interest rates. The recent RBI steps have, therefore, been to curb the tendency on the part of the builders and the middlemen to jack up the prices through artificial demand, rather than hurt the individual home buyers. My guess is that the RBI policy will do a good turn to the individual home buyer soon.
• There has been a correction in the Real Estate market and the prices have come down by 10-20% recently. This could well indicate that the grip of artificial demand created by middlemen through cornering of new housing space with the help of bank loans is loosening. A logical corollary is that there is likely to be less pressure on bank funds from this segment and this is one of the objectives of the recent RBI steps.
  

If anyone still wants to go in for a fixed rate home loan, then he/she should seek to know from the bank and understand whether it is fixed for the life time of the loan or if it is fixed only for an initial period of three to five years. If it is fixed only for a limited period, the rate is not a true fixed rate home loan. I am saying this because even if the rate is said to be fixed for the entire tenure, there could be a clause tucked away in an obscure corner in the loan agreement allowing the bank to review and increase the said "fixed rate", subsequently!