Should you go for the 3-month moratorium for your home loan?

The short answer is YES, if you are looking for liquidity; and NO if you have enough cash at hand.

People are especially spooked by the possible impact that is mentioned by SBI

• "Impact in case of Auto Loan – For a loan of Rs.6 Lacs with a remaining maturity of 54 months the additional interest payable would be Rs.19,000 approx. equal to additional 1.5 EMIs.
• Impact in case of Home Loan – For a loan of Rs.30 Lacs with a remaining maturity of 15 years, the net additional interest would be approx. 2.34 Lacs equal to 8 EMIs"

The bank is spot on about the impact but the impact is not so much if one understands how a loan product works. 
However, given the psychology of the customers about the notional impact they see that is spread over the entire loan term (typically 20 years for a home loan), the bank might have decided to alert the customers about the potential impact beforehand so as to avoid any unpleasant communications afterwards. 

I think the bank could also have mentioned about a recourse of reducing the impact e.g. if you increase your EMI by around 2%, the additional 8 EMIs would be effectively nullified. But then the banks would need to revise ECS mandates, post dated cheques etc. 

It's high time RBI introduced a variable ECS (with upper limits if need be) mandates so that any changes the interest have an instant impact on the EMI amount. 

I will recommend once again: Blindly go for the 3-month deferment if you really need a liquidity. The impact is not beyond the simple interest charged to you on the outstanding loan amount. 

SBI Home Loan with Maxgain: A cool experience

First and the foremost: SBI Home Loan with Maxgain feature is THE best home loan product in the market. If anyone thinks otherwise then we can speak. 

Since last few months or so, SBI has completely separated their home loan business. The complete loan processing happens at RACPC. Your home branch only acts as a "sourcing branch". 

Now the managers in your branch can't play spoilsport to your loan party. They can no longer cross sell insurance, loan cover etc. Nor can they delay or reject your applications for frivolous reasons. 

Here are the high level steps during the course of a loan. 

Stage 1: Online or Offline? 

Most of the banks have started accepting online applications for different types of loans and SBI is also not behind. If you are very particular about filling the form yourself and probably want lesser visits to the branch/agent then "online" is the better way for you to start. 

In any case, the online application tool is a good way to check your eligibility, the actual applicable prevailing interest rates in your particular case, or any variants of home loan products. 

Stage 2: Arranging personal documents

It is the simplest part. Start collecting your personal documents like bank statements for 6 months, 3 salary slips etc. Check the entire list to avoid any problems later.

Stage 3: Arranging property documents

As almost everyone who has availed or tried to avail a loan from SBI will tell you, SBI has a stringent check on the property documents. 

Here a good agent can make a lot of difference. Remember that for every problem there is an alternative. Don't lose hope if you find anything short in your set of documents. There are ways to get alternative or duplicate documents. 

You also need society NOC (Yo should get the SBI format beforehand) before your loan is sanctioned. 

Stage 4: Agent or no agent? 

Although I usually prefer to do things myself, a good and experienced agent is always recommended. Moreover it's the bank that pays these agents so you don't have to worry about any brokerage or extra charges. 

In my case, the agent prepared a "watertight" file which was sanctioned within just 1 day after the file got "logged" in their system. 

Stage 5: Loan application

It's the time when you actually submit the application after completing all the formalities like arranging personal and property documents, issued cheques for the processing fees (if any), title report, structural audit report (if any) etc. 

Stage 6: File logging

Your loan application file is actually logged in after the bank manages to get all the documents from you and all other dependent documents like the society NOC (if society), CIBIL report, structural audit, title report etc. 

Stage 7: Sanctioning

As I have mentioned in the point no. 4, if you apply stringent checks at the time of procuring the documents, then the sanctioning process is like a breeze of air. But in case there are any exceptions (e.g. if there is more than a month's delay then you will have to again get the bank statement and income proof for the delayed period; or any problem in CIBIL score etc. ) then it will unnecessarily cause further delay. 

SBI also sends an sms confirmation once a file is taken in, and then after it's sanctioned. 

Stage 8: Appointment for disbursement formalities

Once your HL application gets sanctioned then SBI will be in a hurry to disburse it to you. You may take your own time for the disbursement though. 

You get a call for an appointment (it takes around 1 hour for an HL application to complete the formalities, so don't take it lightly). 

You will have to keep cash and cheques for the payment towards stamps, property insurance etc. 

Stage 9: Disbursement

You should always be on time for the disbursement appointment. There are always people who just walk in. But if you stick to your time then people at SBI will always cooperate with you. 

These days a loan interest rate is based on MCLR (Marginal Cost of Funds Based Lending Rate) which is very beneficial especially falling-rates regime. Don't worry if that is too technical for you. 

Stage 10: Operating Maxgain (OD account)

Every HL equal to or greater than 20L qualifies for a Maxgain account. It's basically an OD account which helps you save immensely in the long run. Always insist on Maxgain. 

I have not included much technical terms (it's a different thing that I am also not an expert in it ;-)). Feel free to ask any question in the comments seciton, technical or non technical regarding SBI HL. 

Disclosure: I have absolutely no commercial interest in SBI or any of its agents. I personally took my loan from SBI from the RACPC3, Baner, Pune branch where I got a very good experience which compelled me to write this post. 

Switch your loan now!

Contrary to what the ET says I would like to present my view regarding why one should switch to a new lender in the current market situation. 

Whenever there is a high interest regime, the spread tend to be low i.e. interest rates move closer to the base rates. 
e.g. Axis Bank and BOB are offering home loans at the base rate (0 spread). Most other banks are also maintaining the spread for new customers at the minimum for roughly the following two reasons. 
1. They have to structure the final (base rate + spread) interest rates competitively, so there is a limitation on the likelihood of increased base rate. 
2. With high cost of funds, the reduction in base rate is already ruled out. 

As a result, the only sane option left for them is to move the base rate and the final interest rate as close as possible!

Therefore when you switch now, you will stand to gain in the long term. Whenever interest rates crash, you will automatically benefit as you have very less or even 0 spread. 

Don't hesitate to switch your home loan now!

HDFC reduces RPLR to 16.40%

HDFC has done a great favour to its customers last month by reducing the RPLR from 16.50 to 16.40, i.e. a huge drop of 0.1%. 

Even the existing customers will benefit with this significant move. 

I request the readers to post their would-be savings (I'm sure it must be in multiples of lakhs and crores) with the revised interest rates. 

Thank you HDFC. 

Paypal Charging $1 and $1.95?

Those who add a new credit card to paypal will notice that actually the following two transactions take place on your card. 

a) $1 immediately once you add a card
b) $1.95 when you "verify" your credit card

But don't worry, the $1 transaction is canceled after some time (In my case i got the cancellation sms right after the card verification). 
And the $1.95 will be credited back to your card account in couple of working days after you enter the verification code. 

Generally there are misconceptions regarding paypal and people are reluctant to use it. Paypal is also responsible for their bad reputation as in many cases it's very difficult to reach them. (I remember having to call them multiple times over phone using gmail's call phone feature with proxy US IP ;-))

These things apart, you can buy using paypal with confidence once you know what you are doing. 

Additional 1L deduction for Home Loan buyers!

Source: http://economictimes.indiatimes.com/news/economy/policy/budget-2013-home-loan-borrowers-allowed-additional-deduction-of-rs-1-lakh/articleshow/18725752.cms

Wait.. don't jump with joy if you are an existing home loan customer. 

The additional 1L deduction is applicable to only those who fullfil the following criterias

1. First time home loan

2. Loan amount not above 25L

3. Disbursement during the FY 2013-14

That means if you are an existing customer then forget about any benefit.
Switching to a new borrower will not help either as it will not be considered as a first time loan. (evil laugh)

Enjoy!

Shifted to Axis Bank Power Home Loan

Finally after much deliberations I have actually shifted my loan to Axis Bank. 
The terms of the loan are as below: 

1. Interest rate: 10.25% (Base Rate 10.00 + Spread 0.25)
2. Processing fee: Rs. 5620/-
3. Mortgage charges: ~Rs. 3900/-
4. Other charges: ~Rs. 1700/-
5. Loan tenure: 8 years

It feels good to be out of a discriminatory system (BPLR) and to have moved to the Base Rate. 

Have the rates increased after the prepayment penalty has been scrapped?

Almost a year ago, I had written that there was no reason for the banks to increase the interest rates in case the prepayment penalty was scrapped. 

Now nearly 10 months after the NHB and RBI told the NBFCs and Banks to stop charging for prepayment, not one bank dared to increase the interest rate. 

Right time to transfer your home loan

If you are burdened with a loan with very high interest rates, then this is the right time to lessen your burden i.e. transfer your loan to a competitive bank. 

Here are a few good options: 

1. SBI is a currently the number one institution in the home loan space. 
Features of the current offer: Processing fees is flat Rs. 1000. 
Lowest Interest rate of 10.25% (10 + 0.25)

2. Union Bank of India
Zero Processing fees
Interest Rate: 10.5% (The good thing about it is there is 0 spread. i.e. Interest rate = base rate)

3. Central Bank of India: Very similar to the Union Bank of India. Please check with the bank. 

Watch out for other banks for waiver of processing fees, and hefty discount in the spread, and in turn, the final interest rate. 

Warning: Only approach Banks.. and not other HFCs which are still lending based on the PLR. Ask them "Are you a Bank?"

SBI about to launch a great offer for BT!

http://www.moneycontrol.com/news/economy/sbi-to-cut-processingconversion-feeshome-loans_751201.html#toptag

It's expected that SBI is going to make an offer that you can't refuse. 
Highlights: 
Processing fees expected to be cut to Rs. 1000/- flat for any amount of loan. 
Lowest spread i.e. 0.25. Understand this component very seriously. A spread of 0.25 means you will not be discriminated in the interest rates compared to the then "new" customers by more than 0.25%. 

The festive season offer is expected to last for 3 months. Hurry.. SBI takes time to finish the procedure. I'm going to my SBI branch on Saturday!!

HDFC fined by consumer court!

In an interesting verdict, a Delhi consumer court has fined HDFC Ltd Rs. 25000 + Rs. 5000 for litigation charges. 


http://www.indianexpress.com/news/hdfc-told-by-consumer-forum-to-pay-rs-1.28l-to-customer/950115/


Moral of the story: Don't be afraid of the biggies. If you think someone is cheating you, file a consumer case!

Another burden on your new home loan!

Bad news for new home loan customers. 


http://business-standard.com/india/news/reserve-bank-puts-new-clamphome-loans/463845/


RBI has asked the banks not to consider stamp duty and registration charges while calculating the finance amount. 


Stamp duty is approx 4% of the property value while the registration charges are 1% (with 30k cap currently)


Be ready to take a hit of 5%; i.e. approx reduction in your property value while calculating the finance amount

Rs. 100 per transaction removed by HDFC

It appears that HDFC has removed the transaction charge for online payment for EMI. 
Please refer my thoughts on transaction fee of Rs. 100 that HDFC had introduced last year. 


Has NHB's circular done the trick?
(I bet they will soon introduce some irresistible "schemes" for existing customers who are paying much higher interest rate (apart from the regular loan conversion offers))


But hold on before you jump the guns. 
HDFC requires you to register your bank account with them if you want to continue availing the online payment facility. Get the form here. 

Evil banks

http://economictimes.indiatimes.com/news/economy/policy/rates-to-rise-if-prepayment-fee-is-waived-banks-tells-rbi/articleshow/10480550.cms


This is nothing but hypocrisy on part of the banks. 
I have known for the last few years that Axis bank doesn't charge any prepayment penalty at all (even for balance transfer). 
If Axis bank can afford it, there is no reason for other banks to not do the same. 


If you want to pass on the burden to the customers, then go ahead and do it. Ultimately it is banks like these who will be doomed because there are always going to be good and ethical banks. 

HDFC not aware of NHB's circular

As expected, HDFC is not aware of the NHB circular dated 19th Oct 2011. 


I visited HDFC Baner (Pune) branch today and asked for a foreclosure statement. The lady manager also included 2% prepayment penalty in the letter. 
When I protested and showed her the print of the NHB circular, she said it has not reached them yet and I'd have to talk to the manager in the main branch (Pune). 


For time being, I have collected the letter which mentions 2% penalty. 


I expect all of you to flood HDFC or your HFCs with demands of foreclosure statements so that they understand power of consumers. 

Prepayment penalty - Update

I just spoke to Mr. Ranjan Kumar from DRS (Department of Regulation and Supervision), NHB to clarify my doubt. 


My question: What if the HFC refuses to provide the benefit of prepayment penalty waiver citing the agreement it has with the existing customer? 


Mr. Kumar then clarified that the circular is very much applicable for whoever chooses to prepay/close the home loan (even switchover of bank) anytime after 19th Oct 2011. 


So don't worry and free yourself from the jaws of your lender/HFC. 


Keep the print of this circular handy!

Rs. 1000 gift as a gesture!

With reference to my earlier post, I would like to invite a guest reader on this blog and would expect them to write about their experience and the process of home loan switchover; i.e. basically review of the process and all the details. 


As a goodwill gesture, I will offer Rs. 1000/- by cheque to the one person who is the first one to do the following things: 
1. ..compete the switchover process from one lender to another. 
2. ..write detailed review of the process and allow me to post it on my blog as a guest user. 


Disclaimer: 
1. This is entirely my personal gesture (valid till 30th Nov 2011) and I'm not associated with any bank or HFC. 
2. There are no other terms and conditions

NHB wakes up, finally!

NHB, in its latest circular, has ordered that no HFC (housing finance company) should charge any prepayment penalty, that too in any case, for floating loan customers. 


I am sure this move will be welcomed by lakhs of home loan customers. 


I have a loan with HDFC and the current ROI is 11.50%. If everything goes well, I will soon initiate a process and shift my home loan to a competent HFC or preferably a bank (because of the Base Rate system). 


I appeal all of you who have been suffering and ruing their decisions of availing the home loans from their respective HFCs. 


Do not forget to post your experiences and the process of the switchover to the new lender. 

Teaser Loan Back with a Bang (Bank!)

After SBI was forced to close its teaser loan scheme, teaser loans are back with ICICI Bank. 
It'd be interesting to know the response from SBI, being the pioneer of teaser loans. 
Look for HDFC as well, because generally HDFC and ICICI Bank go along similar lines. 


http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/home-loans-news/icici-bank-launches-new-fixed-rate-home-loan-scheme/articleshow/9648371.cms

The floating rate from the second year will be linked to the base rate plus margin decided at the time of sanction of the loan. 

There is always a catch associated with it.  
Why can't these banks disclose the spread in advance?  

Back-dated effect: HDFC RPLR

In continuation with my previous post:
1st August 2011:  HDFC increased its RPLR by 0.5%
2nd August (morning): Still they kept telling people that they were going to do it this week
2nd August (evening):  They finally announced that they have really done it, with effect from 1st August i.e. back dated
3rd August: All newspapers published it.

I wonder how can a company increase its PLR with back-dated effect. Can anyone explain?