Home Loan Advantages The need for home loans arises not b ecause property prices are heading upwards all the time but because home loans make great sense from a long- term savings perspective. Not only are home loans a handy tool for the common man to own a roof over his head but they also help save money in the long run. With skyrocketing real estate prices, people are increasingly opting for housing loans to acquire their dream home. Interest rates are coming down all the time and the housing finance companies are literally falling over each other to lure the prospective home-seekers. Not with standing the tax breaks and generous lending rates, a lot of people still can't arrange resources for the down-payment, which comes out to be at least 15 per cent of the property value. Taking cognizance of the situation, HFCs are coming up with home loan products c alled ’zero down payment loans,’ wherein 100 per cent funding is provided for s elect properties. These lucrative offers are other major reasons for why p eople are opting for home loans. Even if one can afford to buy a home with one's own money, home loans should be availed because they act as good savings instrument. According to industry estimates, the long term average return in investing in a home is about 20% p.a. while the average cost of borro wing funds in the market today is about 10% p.a. (considering all tax breaks). For salaried employees, housing loans are the best way to avail tax benefits. Many people simply go for the home loans in order to avail these benefits. Interest payments up to Rs 1.5 lakh on housing loans are deductible from the taxable income and there is a further tax deduction of Rs 4,000 against repayment of principal. In case a person stays in a rented house, the cost of the loan will be nearly zero p er cent since he will be s aving a decent amount on rent. NEED FOR HOME LOANS Few decades back, buying a home was not a very easy task as there were hardly any lenders available to loan theever increasing astronomical lump sum of money. However, with time, the rising property prices and the burgeoninghousing finance market in the country, made the phenomenon of the home loans easy and the dream of buying ahome possible. Also, the HFC’s (Housing Finance Companies) and banks have c ome up with so many home loanplans that they have become an answer to every customer’s necessity. Apart from this, the changin g equation ofmarket has also provided customers with s everal reasons to opt for a home loan. Here are few reasons to why homeloans have gradually became a necessity in the society.
The calculation of interest will be done on EMI basis.[EMI or Eqadated monthly installmentsrefers to the fixed sum of money that you will be paying to the bank every month. The EMI
comprise of both interest and principal repayment.
The calculation of rate of interest will done on half yearly basis ,in the case of loan of
employees/staff of bank.
Margin money
In the cases of House loans margin money of 20% is fixed.
Processing fee
Processing fee will be charged upto RS 0.75% of loan amount or minimum of 500. The
processing fee will not be charged for bank employees/staff.
rates dive downwards the banks kept the PLR unchanged.
On the other hand when interest rates are sky rocket, the banks increase the benchmark rate, thus making
customers pay a higher rate and consequently increase the number of EMIs too. The RBI ordered th banks to amend
such illogical rules.
Thus the elaborate RBI directives for home loans aim at making the home loan process more logical and transparent.The detailed RBI guideline for Home loan has underlined the fact that the individual borrowers should ask for the
exact tenure and EMI while taking a fixed rate loan. The RBI has also promised to probe into all consumer complaints
if it is bought to the regulator's notice.
1. What is banking?2. Basic Definition: A system of trading money which:
provides a safe place to save excess cash, known as deposits.supplies liquidity to the economy by loaning this money out to help businesses grow and to allow consumers topurchase consumer products, homes, cars etc.
3. What are banksInstitutions which deals in money and credit.An intermediary, which handles other people’s money both for their advantage and to its own profits.A financial institution that links the flow of funds from savers to the users.Plays an important role in the economy of any country as they hold the saving of the public.
4. Types of banks in India
o Central Bank: The Reserve Bank of India is the central Bank that is fully owned by the Governmento Public Sector Banks: State Bank Group, Regional rural bankso Private Sector Banks: Foreign Banks, Scheduled and Non- Scheduled Bankso Co-operative Sector: State Co-operative Banks, Central Co-operative Banks, Primary Agriculture Credit
Societieso Development Banks/Financial Institutions: IDBI, ICICI, NABARD
5. Commercial Role of BankingIssue of banknotes (promissory notes issued by a banker and payable to bearer on demand)Processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other meansIssuing bank drafts and bank chequesAccepting money on term depositLending money by way of overdraft, installment loan or otherwise
6. Commercial Role of BankingProviding documentary and standby letters of credit (trade finance), guarantees, performance bonds, securitiesunderwriting commitments and other forms of off-balance sheet exposuresSafekeeping of documents and other items in safe deposit boxesCurrency exchangeActing as a 'financial supermarket' for the sale, distribution or brokerage, with or without advice, ofinsurance, unit trusts and similar financial products
7. Economic Role of BankingIssue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer'sorder.Netting and settlement of payments.Credit intermediationCredit quality improvementMaturity transformation
