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FAQs on Housing Loan


   Home Loan Introduction
   Home Loan How To
   FAQs On Housing Loan
   Documents for Home Loan


What Is Monthly Reducing Loan?
Under this scheme, the principal on which you pay interest reduces every month as you pay your EMI.

What Is Annual Reducing Loan?
Under this scheme, the principal reduces only at the end of the year. Hence the consumer continues to pay interest on a portion of the principal which he/she has actually paid back to the lender.
In effect, the consumer has to pay more under the Annual Reducing Loan as compared to a Monthly Reducing Loan.

What Is Fixed Rate Of Interest?
A fixed rate of interest means that the rate of interest on the loan amount remains unchanged for the entire duration of the loan agreement, irrespective of the change in the interest rates in the economy. Hence if the consumer opts for a fixed rate of interest he will not be able to benefit if the interest rates are falling.

What Is Floating Rate?
A floating rate of interest is one that fluctuates according to the market lending rate. Hence, in an environment were the interest rates are rising, your budgeted expenditure on the house loan also goes up.

 

What Are The Other Incidental Costs Associated With A Housing Loan?
The following are some of the extra costs associated with a housing loan:

· Interest Tax: This is the tax payable on the interest paid on a home loan and not on the  principal. This tax is sometimes included in the interest rate of the loan, or may be charged separately as interest tax.

· Processing Charge: This is a fee payable to the lender on applying for a loan. It is either a fixed amount or a percentage of the loan amount. The loan amount received by you could be net of this fee.

· Pre-payment Penalties: When a consumer opts to pre-pay his loan, housing finance companies charge a pre-payment fee of between 1% and 2%. The reason for this is that the lender has to adjust his cash flows and match his asset-liability structure.

· Commitment Fees: To prevent their resources from being wasted, housing finance companies charge a commitment fee from each of their clients. This is done in order to cover the expenses incurred in the process of sanctioning the loan.

· Registration of mortgage deed.

What Is The Security Most Housing Finance Companies Require?

In most cases, the property itself, bought or intended to be bought, becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some companies require additional security such as life insurance policies, FD receipts, share or savings certificates.

What Is Time Taken For Loan Approval?

Between two and three weeks.

What Is The Time Taken For Loan Disbursement?

After a complete check of all the relevant documents and other formalities, including the payment of margin money on the loan, is done, the loans are disbursed in maximum one or two weeks.

What Are General Documents Required?
Proof of Identity
Proof of Residence
Proof of Income

What Are The Tax Benefits That The Person Who Takes A House Loan Gets?
The exemption limit on annual interest of a housing loan has been increased from the previous Rs30,000 to Rs75,000 which means an effective reduction in income tax of around Rs25,000 for somebody in the highest tax bracket. The exemption is only valid for those who take new housing loans after 1 April, 1999 and construct their house; the construction should be completed by 1 April, 2001.
In view of the increased cost of housing, the ceiling of Rs10,000 on repayment of housing loans has been raised to Rs20,000 under Section 88 of the Income-Tax Act.

 

 

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