FAQ

What is the tenure of the loan?

You can repay the loan over a maximum period of 3 years. Repayment will not ordinarily be extended beyond the age of retirement (if you are employed) or on your reaching 60 years of the age, whichever is earlier. However, Credit Wizards will be endeavoring to determine the repayment period to suit your convenience.

What is home loan?

Its a loan taken to purchase a home (may be an under construction property), or to purchase a piece of land, or to renovate/ extend an existing home.
Home loan tenure can be up to 30 years. Longer the tenure, lower your EMI will be. However if you stretch your loan tenure, you will end up paying more in interest amount and your loan will be costly.

How will the rate of interest calculated?

Interest is calculated on daily reducing balance. Your monthly out-go (equated monthly installment - EMI) is much lower as compared to the interest on annual reducing balance.
You repay the loan in Equated Monthly Installments (EMIs) comprising principal and interest. Repayment by way of EMI commences from the month following the month in which you take full disbursement.

How will your bank decide your home loan eligibility?

Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, (which in turn is based on factors such as total monthly income / surplus less monthly expenses) and other factors like spouse's income, assets, liabilities, stability of income etc. The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.
The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo / outflow which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants.

What is an EMI?

You repay the loan in Equated Monthly Installments (EMIs) comprising both principal and interest. Repayment by way of EMI starts from the month following the month in which you take full disbursement. (For understanding how EMI is calculated, please see annex).
In addition to all legal documents relating to the house being bought, banks will also ask you to submit Identity and Residence Proof, latest salary slip ( authenticated by the employer and self attested for employees ) and Form 16 ( for business persons/ self-employed ) and last 6 months bank statements / Balance Sheet, as applicable . You also need to submit the completed application form along with your photograph. Loan applications form would give a checklist of documents to be attached with the application.

What is monthly reducing balances method?

Borrowers benefit more from a loan that's calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.
The longer the tenure of the loan, the lesser will be your monthly EMI outflow. Shorter tenures mean greater EMI burden, but your loan is repaid faster. If you have a short-term cash flow mismatch, your bank may increase the tenure of the loan, and your EMI burden comes down. But longer tenures mean payment of larger interest towards the loan and make it more expensive.

What security will you have to provide?

The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.
Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely).

What should be your strategy in dealing with the banks?

Give yourself comfortable time. Do not hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees.
Find out how much of a down payment you are required to pay, and find out all the costs involved in the loan (including processing fees, administrative charges and prepayment charges levied by banks). Knowing just the amount of the EMI or the interest rate is not good enough. Similarly, ask for information on loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and take an informed decision.

Can you repay your loan ahead of schedule? Is pre-payment of loan allowed?

Yes, most banks allow you to repay the loan ahead of schedule by making lump sum payments. However, many banks charge early repayment penalties up to 2-3% of the principal amount outstanding. Prepayment penalty may vary according to the reasons and source of funds - if you obtain a loan from another bank for pre-payment the charges are usually higher than when you pay from your own sources. However, you may credit more than your EMI amount into your loan account on a periodic basis and bring down your interest burden as and when funds are available with you. Most banks do not charge a pre-payment penalty if you deposit more than your EMI payable on a periodic basis. Please check such stipulations while availing the loan
When other banks reduce the interest rate, you may prefer to close your account with the bank with whom you are banking, to avail of the loan from the bank offering reduced rates of interest. You have to pay pre-payment charges for doing so. In order to ensure that their customers do not approach other banks for availing reduced interest rates, banks allow customers to switch over from a higher interest loan to a lower interest loan by paying a switch over fees which is lesser than the pre-payment charges. Generally switchover fee is taken as percentage of the outstanding loan amount.

Do you get a tax benefit on the loan?

Yes. Resident Indians are eligible for certain tax benefits on both principal and interest components of a loan under the Income Tax Act, 1961. Under the current laws, you are entitled to an income tax rebate for interest repayment up to Rs. 1,50,000 /- per annum. Moreover, you can get added tax benefits under Section 80 C on repayment of principal amount up to Rs. 1,00,000 /- per annum.
At the time of sourcing the loan, banks are required to provide information about the interest rate applicable, the fees / charges and any other matter which affects your interest and the same are usually furnished in the product brochure of the banks. Complete transparency is mandatory.

What do you do if you have a grievance?

If you have a complaint against only scheduled bank on any of the above grounds, you can lodge a complaint with the bank concerned in writing in a specific complaint register provided at the branches as per the recommendation of the Goiporia Committee or on a sheet of paper. Ask for a receipt of your complaint.
The details of the official receiving your complaint may be specifically sought. If the bank fails to respond within 30 days, you can lodge a complaint with the Banking Ombudsman. (Please note that complaints pending in any other judicial forum will not be entertained by the Banking Ombudsman). No fee is levied by the office of the Banking Ombudsman for resolving the customer’s complaint.

Can I repay the loan ahead of schedule?

Yes. You can repay the loan ahead of schedule. No Prepayment / Foreclosure charges after expiry of 6 months of final disbursement, if the borrower pays from his own source of funds.

Does the property have to be insured?

You will have to ensure that the property is duly and properly insured for fire and other appropriate hazards, as required by Credit Wizards, during the tenor of the loan and to produce evidence thereof to the Bank each year and/or whenever called upon to do so.

What is refinancing?

Refinancing means taking loan from a bank to pay off the loan taken from another bank. You may opt for this if you are not happy with the service of your existing bank or if there is a chance of getting lower rate of interest from another bank. Banks and HFCs may reduce (or completely waive off) the prepayment penalty if you pay the loan from your own source of funds and may charge a penalty if you pay it by taking a loan from another lender depending on the current loan scheme (i.e, floating or fixed interest loans).

Do I need an insurance for my home?

Yes, you need to insure your house from various vulnerabilities such as fire and any natural hazards as per the requirements of the bank. The bank will be the beneficiary of the insurance during your home loan tenure.

What are the tax benefits on home loan?

The borrower will get tax benefits on principal as well as interest component. You can claim deductions on Rs. 1,50,000 (or actually paid whichever is less) paid towards interest and Rs. 1,00,000 (or actually paid whichever is less) paid towards principal amount in a fiscal year. For more read our posts on home loan tax benefits and exemptions.

How does a Salary Account help me get a personal loan?

You get a preferential rate of interest and processing fee, speedy processing and minimal documentation if you have a Salary Account with HDFC Bank. This is taken into account at the time of disbursal of the loan. You can pay through a Standing Instruction to debit your HDFC Bank account with the EMI amount.

What is Guarantor?

A Guarantor is a person who guarantees to pay for someone else's debt if he or she should default on a loan obligation.

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