Tag: home loan

4 mantras to help you borrow wisely

Personal Finance

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There’s plenty of personal finance advice on saving and investing wisely. But for most young folks, borrowing to fund their lifestyle often precedes investing.

Biting off more loans than you can chew early in life can put a spoke in your wealth creation plans even before you get started. With many lenders jostling for the retail loan pie, loan products today come in slick disguises too. So here are some tips to avoid the pitfalls and borrow wisely.

Borrowing for a good purpose

Any kind of borrowing entails taking on future hardship in the form of loan obligations to gratify an immediate need. But getting into the habit of instant gratification for all your needs, wants and luxuries locks up your future incomes in EMIs and robs you of the flexibility to make career or life decisions.

This makes it important for you to put some thought into the kind of spending for which you will borrow. To ensure that loans don’t deplete your wealth, distinguish between appreciating assets and depreciating ones.

When you borrow to invest in an appreciating asset such as land, a home, or an educational degree, returns you earn in the long run can compensate, at least partly, for the interest costs you incur.

But if you borrow to fund depreciating assets, you face the double whammy of interest costs on top of eroding asset value. Folks who take loans to replace their smartphone every year would know the pain of paying EMIs, long after an item has outlived its usefulness.

Don’t step-up EMIs

When assessing if they can afford a new car, consumer appliance, or home loan, most folks look at only the EMI or equated monthly installment. Knowing this, lenders obligingly structure their EMIs ‘flexibly’ as step-up or balloon EMIs, so that the initial EMIs are small, but expand as time goes by.

But this gimmick hurts more than helps you as a borrower. Lower EMIs at the beginning of your loan term merely postpone your repayment and help the lender load extract additional interest, adding to your total outgo.

Take the case of a ₹10 lakh car loan for 5 years, at a fixed rate of 7.5 per cent. The EMI based on the old-fashioned fixed calculation would be ₹20,038 per month. This essentially means a total outgo of ₹12.02 lakh including interest on the ₹10 lakh loan at the end of 5 years.

Should you opt for a step-up EMI, where you pay ₹8,990 for the first six months and ₹22,240 for the next 54 months, you end up shelling out ₹12.55 lakh for the same term. In a balloon repayment scheme, which stretches your loan tenure to 7 years, you start with an EMI of ₹11,110 in the first year, going up to ₹12,220 in the second year, and so on until your EMI hits ₹99,990 in the last month. In this case, you’d end up shelling out ₹14.12 lakh to the lender. That’s 17 per cent more than the simple EMI.

Shop around for better rates

When it comes to investment products, most folks are constantly on the hunt for better rates. But with loans, they carry a misplaced sense of loyalty to their lender and pay EMIs like clockwork.

Worries about processing charges and paperwork are also deterrents to making any switch.

However, Indian lenders are no longer allowed to charge prepayment penalty on floating rate loans.

Most lenders are quite willing to offer attractive deals with minimal paperwork to customers jumping ship from their competitors because they like to add new clients with a readymade repayment record.

Your existing lender may take his own sweet time to reset your interest rate when market interest rates are falling.

But most lenders are quite willing to offer much lower rates to their brand-new customers. This makes transferring your home loan balance to a new lender the best way to expedite rate resets.

Given the size and tenor of home loans, a simple switch from one lender to another can make quite a difference to your wealth in the long run. Switching a ₹30 lakh home loan with a remaining tenure of 15 years, from a bank charging 8 per cent interest to one charging 6.75 per cent, can reduce your EMI outgo from ₹28,670 a month to ₹26,547 and your total loan repayment from ₹51.6 lakh to ₹47.7 lakh.

Prepay at every opportunity

Loans, as we explained earlier, can rob you not just of the ability to spend, but also of career and financial flexibility. This makes it important for you to pay down your loan whenever you accumulate a reasonable lump sum.

If you’ve built up significant sums in your bank deposits from salary cheques, bonus from your employer, or a windfall from the stock market, use that to prepay your loans as soon as you can.

While prepaying, prioritize high-rate loans and keep tax benefits in mind. But ultimately, if you have sufficient sums saved up to prepay your home loan, don’t let tax considerations nudge you into continuing with EMIs.

The tax saving on a home loan repayment only lets you save on your interest costs and doesn’t really bolster your income or wealth.

This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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Godrej Housing Finance launches ‘design your EMI’ home loan product

Banking & Finance

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Godrej Housing Finance (GHF) has launched a ‘design your EMI’ home loan product to enable customers to customise their equated monthly installments (EMIs). This is aimed at optimising their cashflows and bring down the cost of home ownership.

Manish Shah, MD & CEO, Godrej Housing Finance said EMIs can be tailored to suit customers’ requirements —a customer might want to start with a smaller EMI and gradually increase it or start with a bigger EMI (since expenses are down in Covid-19 times) and normalise it.

For example, when a customer puts down money to buy a home, with the possession date being 12-24 months later , the finances can be challenging —if he is currently staying in a leased accommodation, rent needs to be paid and there is EMI for the new house, he said.

Also read: Home finance firms to comply with risk-based internal audit norms

“Suppose, EMI for a ₹50 lakh loan is about ₹40,000. So, the customer can start with small EMIs — ₹10,000 a month in the first year; ₹20,000 a month in the second year…The EMI can go up slowl,” he said.

“There can be another scenario where the customer feels that since some of his expenses have come down in the pandemic, he wants to increase the EMI to, say, ₹60,000 a month. Later on when the expenses go back to normal, the EMIs can get normalised to ₹40,000 a month,” explained Shah.

Launch of customised EMIs

The GHF chief emphasised that his company, which started its operations in November 2020 and is seeking to build a balance sheet of ₹10,000 crore in three years, offers an assisted journey for designing EMI for customers.

“The whole team is trained to handhold the customer for trying various permutations and combinations. They will customise it (EMIs). We have launched this in Pune. Now we are rolling it in all our markets (Mumbai, National Capital Region and Bengaluru),” he said.

On the service front, the company has piloted an end-to-end digital home loan sanction process, whereby the loan sanction process is completed without the customer and GHF employee coming face-to-face. This ensures that both are not put at risk in the current pandemic times.

“We have initiated this (end-to-end sanction) process with over 100 customers between May and now,” Shah said.

According to ICRA, GHF is currently owned by the Godrej family through Anamudi Real Estates LLP (AREL). The entire shareholding of GHF is proposed to be taken over by Godrej Industries (GIL) through Pyxis Holdings (PHPL).

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Survey, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Real estate portal Magicbricks on Wednesday released its survey report on home loans, suggesting that a repayment period of up to 10 years is most preferred among consumers. The sample size of the survey is 500, it said.

“The period of up to 10 years is the most preferred duration of home buyers with 26 per cent of the respondents giving the nod for it. It was followed by 10-15 years (25 per cent) and 15-20 years (23 per cent) as the next most preferred tenures for home loans,” Magicbricks said in a statement.

About 16 per cent of respondents said that they would like to take a loan for more than 25 years, while only 10 per cent preferred repayment tenure of 20-25 years.

Last year, online property classifieds Magicbricks entered into home loan services and had tied up with leading banks, aiming to offer homebuyers a plethora of integrated services from the discovery to the transaction phase.

“With average home loan interest rates hovering between 6.65-6.90 per cent, borrowers now want to repay their mortgages as fast as possible,” Magicbricks Chief Executive Officer Sudhir Pai said on the survey report.

Magicbricks has monthly traffic exceeding 20 million visits and over 1.4 million property listings, the statement said.

Magicbricks.com is owned by Magicbricks Realty Services, which is a subsidiary of Times Internet, the digital arm of the Times of India Group.



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Dec quarter saw rise in home loan delinquencies: CRIF High Mark

Personal Finance

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CRIF High Mark, however, mentioned that active housing loan borrower base has witnessed a growth during the December quarter.

Credit bureau CRIF High Mark, in its quarterly report, on Wednesday said that delinquencies in the housing loan book of banks as well as NBFCs increased during the third quarter of the last financial year (Q3FY21). The report said that delinquencies in the housing loan book increased 23 basis points (bps) year-on-year (y-o-y) to 2.49%. These are the accounts where instalments were due for more than 90 days (90+ DPD). The report from the credit bureau comes at a time when lenders are likely to face more stress in their loan book due to second wave of Covid-19.

The highest stress was seen in the small ticket housing loans below Rs 5 lakh. While housing finance companies (HFCs) faced 7.84% delinquencies, public sector banks saw 6.3% loans under stress during Q3FY21. Similarly, private banks were dealing with 5.28% delinquencies in the same period. The credit bureau also analysed delinquencies based on locations. The housing loan delinquencies of borrowers in the metro cities rose 21 bps y-o-y to 2.4%. However, in tier 2 cities delinquencies dipped 33 bps y-o-y to 3.27%.

CRIF High Mark, however, mentioned that active housing loan borrower base has witnessed a growth during the December quarter. The active housing loan borrower base as of December 2020 registered a 5% growth, compared to pre-pandemic levels of December 2019. The third quarter of last fiscal (Q3FY21) witnessed 28% quarter-on-quarter growth in disbursements compared to 6% growth in the same period in 2019-20.

Vipul Jain, head of products, CRIF High Mark, said: “Almost 50% of all loans sourced in the year was in the last three months of 2020.” Affordable Housing (loans up to Rs 35 lakh) contributed to 82% of sourcing volumes with growth driven by Tier II and Tier III cities, he added.

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SBI hikes minimum interest rate on home loans by 25 bps to 6.95%

Banking & Finance

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In a clear signal that soft interest cycle for home loan borrowers is over, State Bank of India (SBI) has hiked the minimum interest rate on home loans by 25 basis points (bps) from 6.70 per cent to 6.95 per cent with effect from April 1, 2021.

This hike in minimum home loan rate by SBI will prompt other lenders to follow suit.

SBI had lowered the minimum interest rate from 6.80 per cent to 6.70 per cent on March 1, 2021 for a limited period up to March 31, 2021.

The Bank will also charge a consolidated processing fee. This will be 0.40 per cent of the loan amount plus applicable GST, subject to a minimum of ₹10,000 and maximum of ₹30,000 plus GST.

However, for builder tie-up projects where individual TIR (title investigation report) and valuation is not required, the processingaforementioned fee will be 0.40 per cent of loan amount subject to maximum recovery of ₹10,000 plus applicable tax. And, if TIR and Valuation is required, then normal charge will be applicable., as per the Bank’s website.

The lender had waived home loan processing fees till March 31, 2021.

In February, the Bank said it expects to double its home loan portfolio in the next five years to Rs ₹10 lakh crore on the back of higher economic growth and growing preference of the new generation to buy a home early.

SBI took about 10 years to grow its home loan portfolio from ₹89,000 crore in FY2011 to touch the ₹5 lakh crore mark, Chairman Dinesh Kumar Khara told media in February 2021.

SBI took about 10 years to grow its home loan portfolio from ₹89,000 crore in FY2011 to touch the ₹5 lakh crore mark, Chairman Dinesh Kumar Khara told media at a press meet in February 2021.

 

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Indian women took more home loans during pandemic, BFSI News, ET BFSI

Banking & Finance

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Home is where the heart is, and it is also where the Indian women seem to be putting their money.

Indian women are availing more credit in the form of home loans compared to personal loans and auto loans, according to a study by CRIF High Mark.

As of December-end 2020, about 29 per cent of the Rs 20.6-lakh crore home loan market was accounted for by women.

Maharashtra retains the top position in women home loan borrowers, with an outstanding portfolio of Rs 1,37,845 crore as of December 2020 against an outstanding of Rs 1,31,591 crore a year ago. The book size of home loans availed by women in Karnataka is Rs 65,012 crore as against Rs 60,731 crore a year ago. For Tamil Nadu, it is Rs 65,005 crore against Rs 61,215 crore a year ago.

Compared to other loan segments

Women accounted for 16 per cent each in the case of personal loans (market size of Rs 5.95-lakh crore) and auto loans (Rs 4.58-lakh crore), the CRIF study said.

“Indian women are availing more credit in the form of home loans as compared to personal and auto loans,” it said.

Home loan ticket size

Also, the average home loan and auto loan ticket size of women is higher when compared to their male counterparts, as per an analysis by credit information bureau CRIF High Mark.

The average home loan ticket size for women was higher at Rs 16.69 lakh in December 2020 (Rs 16.38 lakh as of December-end 2019) against Rs 14.71 lakh (Rs 14.45 lakh a year ago) for men. “Size of home loans borrowed by women is 13 per cent higher than those borrowed by men, both having seen a growth of 2 per cent over the last year,” it said.

Being prudent

The average size of loan borrowed by women continues to be smaller than that borrowed by men, while the average auto loan size borrowed by women is 8 per cent higher than that borrowed by men. The share of top five states in the personal loan portfolio outstanding for women has increased by 18 per cent over the previous year, and women borrowers from southern states have higher credit book size as compared to western and northern states, it said.

The break-up

A total of 1.8 crore loans – split into 18 lakh auto loans, 15 lakh home loans and 1.5 crore personal loans – were given out in the first three quarters of 2020-21, it said, adding that this was 40 per cent lower than the 2.97 crore in the year-ago period.

In terms of the value of loans disbursed to women borrowers, public sector banks have had the largest share observed over the past four quarters, followed by NBFCs and private banks, it said.

Maximum loans are given to women in the age group 26-35 having a share of 40 per cent in the overall disbursements in the year 2020, it said, adding that 6.26 crore women borrowers have a credit history as of now.



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Can you get home loan tax benefit when property acquisition is pending?

Personal Finance

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My cousin participated in the e-auction of immovable properties mortgaged to one of the nationalised banks during Dec 2019 and he was declared the successful bidder of the house property (flat in Chennai). He was asked to remit the stipulated sum within a period of 20 days from the date of auction. He arranged 30 per cent of the value of the property from own source and balance sum has been borrowed from a nationalised bank as housing loan.

He was able to fulfil his commitment within the time frame. In view of litigations between the borrowing company/guarantor and the lending bank, he was able to get the sale certificate in the month of January 2020. The litigations are not yet over. The bank has not yet handed over the possession of the property to my cousin. Due to impending legal cases, my cousin is compelled to get the sale deed executed in his favor by the bank on resolution of the legal issues to avoid forfeiture of stamp duty etc.

I would like to know whether my cousin is eligible to get deduction under Section 80-C on the repayment of principal sum to the loan account and interest amount paid to the loan account under Section 24

.

RM Ramanathan

As per the provisions of Section 80C of Income-tax Act, 1961 , an assessee may claim deduction of the amount paid as re-payment of principal component of a loan taken for the purpose of purchase or construction of a house property, income of which is eligible to be chargeable to tax under the head ‘Income from House Property’.

As per the provisions of Section 24(b) of the Act, where the property has been acquired or constructed using borrowed money, while calculating income under the head ‘Income from House Property’, deduction shall be allowed towards payment of interest on housing loan.

In the instant case, I understand that the sale deed is not yet executed in favour of your cousin pending the litigations.

Thus, technically speaking, your cousin cannot be considered to have acquired the property. Since the acquisition of the property is pending, principal repayment and interest payment on housing loan shall not be eligible for deduction in hands of your cousin.

I am a private sector employee. I have PPF and EPF accounts. I am making 20 per cent VPF contribution to my EPF account. I also park 1.5 lakh each year in PPF account. Kindly clarify the impact of PF taxation as per 2021 budget. Does the 2.5 lakh exemption limit include, 1) PPF contribution + Employee contribution in EPF account+ voluntary contribution in EPF account (or) 2) Employee contribution in EPF account + voluntary contribution in EPF account (or) 3) Only to voluntary contribution in EPF account.

Arun A

Budget 2021 has proposed to amend Sections 10(11) and 10(12) of the I-T Act, 1961, which are summarised below:

Amendment in Section 10(11): Interest accrued inPPF account shall become taxable, to the extent it relates to contribution (in aggregate) made in excess of ₹ 2.5 lakh during a financial year. It is also to be noted currently the PPF scheme allows a maximum deposit of ₹1.50 lakh in a financial year (including amount invested in minor child’s account of which the parent is guardian).

Amendment in Section 10(12): Interest accrued in EPF account on employee contribution exceeding ₹ 2.5 lakh in a financial year shall be taxable. These amendments are proposed in separate section and have independent limit of ₹2.5 lakh each. Further, the employee contribution to provident fund shall include both the statutory as well as voluntary contribution.

The writer is a practising

chartered accountant.

Send your queries to taxtalk@thehindu.co.in

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SBI slashes home loan rates to 6.70%, BFSI News, ET BFSI

Banking & Finance

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India’s largest lender, State Bank of India (SBI) has cut home loan rates by 70 bps to 6.70% for a limited period offer which will be ending on 31st March 2021.

Further the lender is also giving 100% waiver on processing fees. The lender said, ” The interest concession are based on loan amount and CIBIL score of the borrower. SBI believes that it is important to extend better rates to customers who maintain good repayment history.”

SBI Home loan interest rates are linked to CIBIL score and start from 6.70% for loans upto Rs. 75 lakh and 6.75% for loans above Rs. 75 lakhs. Customers can also apply from the ease of their home via YONO App to get additional interest concession of 5 bps. On the eve of International Women’s day, a special 5 bps concession is being made available to the women borrowers.

Saloni Narayan, DMD (Retail Business), SBI said, “Our customers have complete trust in us because of our total transparency. The reduced interest rates are one of the best interest rates in Home Loans anyone can wish for.”

Last month SBI had achieved the mark of Rs 5 trillion in its home loan business and is projecting touching Rs 7 trillion mark by 2024.

Back then, Dinesh Kumar Khara, Chairman at State Bank of India said, “We are the cheapest home loan provider and we have the best quality loan profile with very less NPAs. We hope to continue the same growth.”

Khara added, “We have always treated home loans as a growth driver for the nation and not just as mere transactions. We, at SBI, will continue focusing on enhancing customer delight that will in-turn enable the bank to scale newer heights.”



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SBI achieves Rs. 5 trillion mark in the home loan segment, BFSI News, ET BFSI

Banking & Finance

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State Bank of India has touched a business of Rs 5 trillion in the home loan space.

Country’s largest lender said this growth was achieved in the last 10 years.

Dinesh Kumar Khara, Chairman at State Bank of India said, “We are the cheapest home loan provider and we have the best quality loan profile with very less NPAs. We hope to continue the same growth.”

Khara added, “We will achieve next Rs 5 trillion in 5 years.. and not 10 years.”

Speaking on a media call, he added, “We are also supporting the builder community and and approving their projects.”

SBI‘s flagship digital banking proposition YONO recorded 8% disbursals under the home loans.

On being asked about the home loan rate going forward, he said, “Only time will tell when will revise the Rate of interest.”

He also added that amongst all lenders SBI has the largest book of affordable housing finance under the Pradhan Mantri Aawas Yojana (PMAY).



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You don’t need to declare purchase of property

Personal Finance

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I bought a flat (first-time home-buyer) in August 2019 for ₹58 lakh. I have taken a home loan of ₹40 lakh, with my wife as co-applicant. I paid the remaining ₹18 lakh, registration, TDS and other charges by liquidating some FDs and using the amount that I got from family members. Neither I occupy the flat nor have I rented it out. My wife and I have already utilised the ₹1.5 lakh (deduction) under Section 80C. I have claimed HRA, with my rent as ₹ 17,500 per month for financial year 2019-2020.

1. Under which section can I claim rebate? Is it Section 80EEA?

2. Do I need to declare that I bought a flat along with my wife? If yes, under what section? Do both of us need to disclose it individually?

3. Do I need to declare the money I got from my /my wife’s FD and from family members? If yes, under what section?

4. My wife has already filed ITR-1, without any of the above declarations on the online portal. How do I rectify it ? Which items do I consider for rectifying her filing of returns?

-Shashi

I understand that you purchased the property in August 2019 along with your wife as co-owner of the propertyThe property was not rented out during the year, ie, FY 2019-20 and you do not own any other property in your name or in joint name. In light of the above, please find my responses to your queries:

1. We have provided below a list of few illustrative deduction / exemptions (limited to the facts in your queries) that may be claimed by you and your wife:

U/s 80C of the Income Tax Act: The repayment of principal component and stamp duty paid on registration can be claimed as deduction up to a maximum of ₹1.5 lakh

U/s 80EEA of the I-T Act: Interest payment on the housing loan can be claimed as deduction up to a maximum of ₹1.5 lakh upon fulfilling the following conditions:

i. The loan has been sanctioned during the period April 1, 2019, to March 31, 2020

ii. The stamp duty value of the property does not exceed ₹ 45 lakh

iii. The taxpayer does not own any residential house property on the date of sanction of the loan

iv. The taxpayer doesn’t claim any other exemption/ deduction in respect of such interest payment in any other section (including Section 24(b) as mentioned below)

U/s 24(b) of the I-T Act: Deduction of interest payment on housing loan can be claimed as deduction from house property income. In case the property is not rented out and is self-occupied, such deduction can be still claimed. In such cases, the deduction would result in loss and such loss can be set off against income of the taxpayer from any other sources, except capital gains (Loss under house property to be restricted to a maximum of ₹ 2 lakh). In such a case, deduction u/s 80EEA shall not be available).

2. Purchase of property is not required to be declared at the time of filing of tax return. However, in case you claim deduction u/s 24(b) of the I-T Act, reporting would be required in Schedule ‘HP’ of the ITR form. However, if your total income exceeds ₹50 lakh, the property would be required to be reported as an asset in Schedule ‘AL’ of ITR form.

3. There is no specific requirement to report liquidation of fixed deposits (though interest incomes are to be taxed). Loan obtained from relatives are to be reported as Liabilities Corresponding to Asset in case you have a reporting requirement in Schedule ‘AL’ of the ITR form.

4. Your wife may file a revised return u/s 139(5) of the I-T Act for AY 2020-21, the due date for which is March 31, 2021. Aforesaid items can be considered in the revised return of income.

The writer is a practising chartered accountant

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