15 Mar 2017

Base Rate vs. BPLR: What should you go for ?

It’s not that rare for people to notice the terms RPLR/BPLR vs. Base Rate. BPLR stands for Benchmark Prime Lending Rate and LPLR is Retail Prime Lending Rate. These terms are the determining factors when finalizing a home loan. Floating home loans are connected with base rate or with BPLR. Now it is quite obvious for a layman to question why can’t there be a single criterion to link floating home loans. This is because two different groups of Financial Corporations are providing the home loans (a) ICICI, Axis etc, (b) Home Finance Companies like HDFC, PNBHF etc.

The difference between Banks and HFC’s lies in the fact that, banks are governed by RBI, whereas HFCs are monitored by NHB (National Housing Bank). But there were numerous grievances among the customers  whose floating loan was linked to BPLR regarding the fact that some customers had to pay high interest relative to the others whereas the other prime complaint was that HFC’s are not showing enough transparency in the procedure. HCF’s were also reported to hike the BPLR when the Reserve Bank of India increased the key rates but when there was a subsequent drop in key rates, these institutions didn’t bother reducing the BPLR. These infuriated a lot of customers. Although the Banks and HFC’s came up with an explanation that BPLR is related to the average cost required to acquire the funds, the customers weren’t totally convinced.

To deal with this, RBI came up with a guideline that was brought into effect from July 01, 2011. The guideline issued stated that existing customers can shift from BPLR to Base Rate and the banks were directed not to charge any extra amount for this. Base rate is essentially the lowest amount of interest rate below which the banks can’t lend any money.

RBI too suggested about scrapping the BPLR system as it is essentially market driven and there are a lot of inconsistencies in the system.  Shifting to Base rate from BPLR will ensure that the part of your EMI which depends on the interests will come down in tandem with the rates. That is to say that when RBI reduces the interest rates, your EMI too will come down. Base rate is also related to the marginal cost rather than the BPLR which is based on average cost. So it goes without saying that if you have taken a floating home loan which is based on BPLR, it might be a wise idea to shift to base rate. Shifting is free of cost as banks or HFC’s won’t charge any additional amount of money from you. All you need to do is to fill up a prescribed request form or simply write a request letter and sign it. The bank would then make the change in 3-7 working days. It isn’t that complicated a procedure.

So by now it must be clear to you why Base rate if more beneficial from a lender’s point of view. It is more transparent system and allows you to pay less when the interest rates come down which was not the case with BPLR.


15 Mar 2017

The Process of Home Loans in India

Home loans are planned long term loans availed by various customer segments in India. It is preferred by both individuals and business users. Home loans are important but can be tricky if proper planning and adherence of the same is not taken into account. Henceforth it is important to understand the process of seeking a home loan and following the same in a step-by-step manner.

  1. Self-Assessment:  Self-Assessment usually works on two levels. At the individual level, you got to assess your own risk factors before taking a home loan. It’s like understanding your current salary and assets and forming an idea how much loan and what should be your ideal repayment time. Secondly, if you have a property in your mind, home loan process becomes quicker. You need to visit the website of a bank or HFC (Housing Finance Company) for list of documents. For cases where you have already finalized your property, arrange the property documents as per as list of property documents required by bank. The main objective is to understand all documents are in place and you have a clear idea that you want to avail a home loan.
  2. Application: You can avail assistance of Bank Representatives or you can yourself visit nearest bank branches to avail a home loan. You can also enquire via the bank website. The representatives automatically will get in touch with you. Fill up the application form and submit all the necessary documents.
  3. Evaluation of application by Bank: Next step is the assessment by bank that the application is duly submitted with all the documents. This is the 1st step of initiation for the internal process. Bank will evaluate all of your documents and fix the loan eligibility. Some factors considered by  bank are :
    1.  Age Proof.
    2.  Income Proof.
    3. Nature of Job.
    4. Existing Liabilities.
    5. Existing Assets.
    6. Repayment capability.

                                    Banks generally carry a Residence, Office and CIBIL verification during home loan process.

  1. Bank Verifications: Banks usually do both property and legal verification for home loan clearance process. As part of the legal process, independent legal verification of the property is conducted by the lawyer. A legal verification report is submitted by the lawyer to the bank. Customers can also have the same paying a nominal amount of fee.

                                  As a part of technical valuation, Bank will appoint a valuer who will assess the fair market value of the property so that appropriate loan amount can be disbursed against the property.

  1. Home Loan Sanction: After all the requisite verifications completed by the Bank, Bank will sanction home loan against property. A sanction letter is issued to the borrower who has to sign the home loan agreement. Home loan agreement will have all the information along with terms and conditions. Borrower has to submit the original documents, ECS along with cheques, as per as Banks requirement for completion of the process.
  2. Loan Disbursement:  Borrower may finalize date of registration after home loan agreement is signed. Borrower may give written request to Bank for disbursement letter and the Bank will issue the DD/Banker’s cheques and the process is completed.

Some Important points to understand here:

  1. Property value less than Rs. 20 Lakhs, You can avail loan up to 90% of property value , else it is 80% of the property value subject to your repayment capability with the bank.
  2.  No matter where in India you want to have a property, you can avail home loan from your base location.
  3. A CIBIL score of 750 is a must but it does not guarantee assured home loan approval.
  4. The entire process usually takes maximum of 10 days to complete.

                                       So Go Grab your home Loan today only.