The problem with Property Loan

The latest in Reserve Bank of India’s measures to protect customers with home loans is a proposal to change the way banks determine their `base rate’ – the benchmark for all floating rate loans. The need for a re-look arose because customers have been complaining of a raw deal in pricing.

In recent years RBI has taken a number of measures to provide a better deal for home loan borrowers. The introduction of base rate ensured that banks do not reduce rates only for new customers by playing with the interest spread. In the past banks could play with the spread as they would lend below the prime lending rate (their earlier benchmark) for new customers while old customers continued to pay over the PLR.  This was not possible with the `base rate’ which was also the floor rate for pricing. In June 2012 RBI forbade banks from imposing a penalty on pre-payment of home loans irrespective of whether the loans were being refinanced or repaid. This made it possible for disgruntled borrowers to move away to rivals if their loans were not re-priced when interest rates were falling.

Property Loans

But there are a number of areas RBI could look into as part of its consumer protection initiative. Here are a few.

Compulsory insurance: Banks have an interest in the property mortgaged with them and they need to ensure that it is protected against any eventuality. At the same time banks also gain by selling insurance policies.  But what needs to be insured is the cost of construction and not the cost of land. A 1000 square foot house may cost Rs 2 crore in Mumbai but the cost of construction would be around Rs 20 lakh. So there is no need of buying property insurance for the whole loan amount. Yet many banks insist that the buyer pay 15-year insurance premium upfront based on the market value of the property rather than the construction cost. Also in cities like Mumbai, the property is owned by the cooperative society which is required to insure the property. It is therefore not clear whether the bank’s insurance policy will pay a claim when the housing society is also making a claim for the property damage.

Non-intimation of interest rate changes:  Most Property Loan borrowers focus on the interest rate at the time of availing home loans. But floating rates are dynamic and vary from time to time. The borrower is not aware of this because while rates vary, the equated monthly installment or EMI does not. Banks merely change the tenure of the loan. So in a rising interest rate regime it is not unusual for borrowers to find that their principal loan amount is unchanged even after years of repayment.  Very rarely does a bank communicate to the borrower changes in interest rates.

Notice of intimation of mortgage: In Maharashtra the government has made it compulsory for all mortgage interests to be registered. This is aimed at preventing fraudulent sale of the property even as a loan is outstanding.  While the objective is laudable, the trouble is with the process. Although the law actually protects the bank’s interest lenders have shifted the onus on the borrower.  Rather than use their institutional clout to facilitate smooth registration, borrowers are forced to approach agents and spend a few thousands to complete this process.

No refinancing of existing loans:  Lenders often poach from home loan borrowers of other institutions. But when it comes to their existing customer they do not offer them the benefit of new rates.  If there is a special scheme running in the bank, existing borrowers are not informed of it. Also banks charge customers a processing fee even when their loan is refinanced within by their own bank but under a different scheme.

Complex pricing: Some banks have resorted to complicating the pricing of home loans introducing interest free years in middle of the tenure of the loan. Innovation in financial products are good only as long as they do not obscure pricing. Borrowers need to have the opportunity to compare the cost of one home loan against another.  One way to make the pricing transparent is to disclose the cost in the form of annualised yield to the lender based on prevailing rates.


How To Get A Mortgage Loan In India

A mortgage loan referred to as mortgage is a type of loan which Is used by property owners against their property for variety of purposes like buying a new property or to raise funds for any other purpose. In simple terms it means that the bank takes the ownership or possession of your property and gives you money in return for that property.

Mortgage Loan In India

The value of that property is calculated on the banking standards or according to the current market price of the property which ever deemed fit. One important feature of mortgage loan is that the size of loan, maturity of the loan, interest rate on the loan, method of paying off the loan and many other circumstances can vary from country to country and from time to time.

Mortgage Loan

How to Get Mortgage Loan in India

Mortgage loans are basically of three types. First one is Fixed Rate Mortgage in which the rate of interest for paying the loan remains same throughout the entire period of payment of loan and the loan is divided into equal monthly installments. Second one is Adjustable Rate Mortgage in which the interest rate of the loan changes during the payment of the loan.

Third one is Interest Only Loans in which you keep paying up the interest for the first few years and then after the set time period you have to pay both the principal amount as well as the interest. This type of loans are for people who do not have regular incomes or in other words whose incomes are irregular. Getting a mortgage loan in India is very easy and hassle free in India despite of all the paperwork involved. We are discussing the steps following which you can get a mortgage loan in India.

First of all you have to open a bank account in the bank from which you are going to take the mortgage loan as this is the first and foremost requirement. For mortgage loans you need to go through sweat breaking paperwork so for you to get hassle free loan we have compiled the documents you will need and explained briefly what is all about.

Documents that will be needed for the application include

  • Proof of identity which may include your Passport, Driving License, Adhaar Card, Pan Card or any other document that backs up the claim of your identity.
  • Proof of address which may include Utility Bills, Electricity Bills, Water Bills, Rental Agreement or any other utility bill that verifies your claim of your address.
  • Proof of Your Regular Income like Bank Statement, Payment Receipts, Balance Sheet or almost anything that verifies your claim of getting a regular income.

Proof of Good Credit

Documents about the property like deed of sale, allotments letter or any other document that verifies your claim that you are the authentic owner of the property.

Some photographs of the property are also demanded by some banks.

In addition to all the above documents some banks in India have special requirements like that any of your close relative might be living in the country to be as guarantor. As mortgage loans are different from the personal or any other type of loans so they have these special requirements to verify each and everything so that there is no discrepancy whatsoever.

Mortgage loans are offered against residential and commercial property as well as any other property that you own in the country. The repayment policies of different banks are different and so are the interest rates charged by them on these loans.


Loan against property: Guaranteed Way of Arranging Funds

Person can get a loan against property only if a person provides collateral to the bank in the form of commercial property, house or flat. Person can use this amount for any personal purpose such as going for a vacation, for paying bills, house extension, initiating new business, education, house improvement, business expansion, marriage expenses, and purchase of goods, debt consolidation and many more. A loan against property means a loan given or disbursed against the credit of the property. Person can avail loan against property as a certain percentage of the property market value which is around 40% to 60%.

Loans against Property

The various features of loan against property are:


  • A person can use this loan for any purpose or need whether it is professional or personal.
  • The Person can get a loan against property on fully constructed property.
  • Person can get a loan at the cheapest interest rates. Banks provide two types of interest rates such as fixed rates and floating interest rates.
  • Person can get an amount of loan up to 60 to 65% of the market value. It depends upon the person property or flat.
  • The client can pay off the loan amount through EMI or monthly installments.
  • Person has to pay off the amount of loan range from 10 to 15 years.
  • Loan against property is a secured loan.
  • The process of Loan against Property is easy, convenient and hassle free.
  • The banks charge 13-18% of the rate of interest on the loan against property amount, which totally depends on the amount of loan and person’s profile.
  • Person has to get minimum of Rs.10 Lakhs for getting loan against property.
  • A person can get a loan up to Rs.10cr.

The tenure provided by the bank is 10 years. The loan amount needs to be repaying in the form of EMIs. In any case, person want to avail loan more than 25 lakh, person need to mention the reason for getting a loan. The loan amount person can get against property can range from 10 Lakhs to 3 crore. This amount is depending upon the property person pledge. The amount of the loan also varies from bank to bank. The age limit of person lies between 21 to 60 years.


What Type Of Mortgage Loan Is Right For You?

Homebuyers and homeowners need to decide which home Mortgage loan is right for them. Then, the next step in getting a mortgage loan is to submit an application (Uniform Residential Loan Application). Although we try to make the loan simple and easy for you, getting a mortgage loan is not an insignificant process.

Below is a short synopsis of some loan types that are currently available.

CONVENTIONAL OR CONFORMING MORTGAGE Loans are the most common types of mortgages. These include a fixed rate mortgage loan which is the most commonly sought of the various loan programs. If your mortgage loan is conforming, you will likely have an easier time finding a lender than if the loan is non-conforming. For conforming mortgage loans, it does not matter whether the mortgage loan is an adjustable rate mortgage or a fixed-rate loan. We find that more borrowers are choosing fixed mortgage rate than other loan products.

Conventional mortgage loans come with several lives. The most common life or term of a

Mortgage loan is 30 years. The one major benefit of a 30 year home mortgage loan is that one pays lower monthly payments over its life. 30 year mortgage loans are available for Conventional, Jumbo, FHA and VA Loans. A 15 year mortgage loan is usually the least expensive way to go, but only for those who can afford the larger monthly payments. 15 year mortgage loans are available for Conventional, Jumbo, FHA and VA Loans. Remember that you will pay more interest on a 30 year loan, but your monthly payments are lower. For 15 year mortgage loans your monthly payments are higher, but you pay more principal and less interest. New 40 year mortgage loans are available and are some of the the newest programs used to finance a residential purchase. 40 year mortgage loans are available in both Conventional and Jumbo. If you are a 40 year mortgage borrower, you can expect to pay more interest over the life of the loan.


A Fixed Rate Mortgage Loan is a type of loan where the interest rate remains fixed over life of the loan. Whereas, a Variable Rate Mortgage will fluctuate over the life of the loan. More specifically the Adjustable-Rate Mortgage loan is a loan that has a fluctuating interest rate. First time homebuyers may take a risk on a variable rate for qualification purposes, but this should be refinanced to a fixed rate as soon as possible.

A Balloon Mortgage loan is a short-term loan that contains some risk for the borrower. Balloon mortgages can help you get into a mortgage loan, but again should be financed into a more reliable or stable payment product as soon as financially feasible. The Balloon Mortgage should be well thought out with a plan in place when getting this product. For example, you may plan on being in the home for only three years.

Despite the bad rap Sub-Prime Mortgage loans are getting as of late, the market for this kind of mortgage loan is still active, viable and necessary. Subprime loans will be here for the duration, but because they are not government backed, stricter approval requirements will most likely occur.

Refinance Mortgage loans are popular and can help to increase your monthly disposable income. But more importantly, you should refinance only when you are looking to lower the interest rate of your mortgage. The loan process for refinancing your mortgage loan is easier and faster then when you received the first loan to purchase your home. Because closing costs and points are collected each and every time a mortgage loan is closed, it is generally not a good idea to refinance often. Wait, but stay regularly informed on the interest rates and when they are attractive enough, do it and act fast to lock the rate.

A Fixed Rate Second Mortgage loan is perfect for those financial moments such as home improvements, college tuition, or other large expenses. A Second Mortgage loan is a mortgage granted only when there is a first mortgage registered against the property. This Second Mortgage loan is one that is secured by the equity in your home. Typically, you can expect the interest rate on the second mortgage loan to be higher than the interest rate of the first loan.

An Interest Only Mortgage loan is not the right choice for everyone, but it can be very effective choice for some individuals. This is yet another loan that must be thought out carefully. Consider the amount of time that you will be in the home. You take a calculated risk that property values will increase by the time you sell and this is your monies or capital gain for your next home purchase. If plans change and you end up staying in the home longer, consider a strategy that includes a new mortgage. Again pay attention to the rates.

A Reverse mortgage loan is designed for people that are 62 years of age or older and already have a mortgage. The reverse mortgage loan is based mostly on the equity in the home. This loan type provides you a monthly income, but you are reducing your equity ownership. This is a very attractive loan product and should be seriously considered by all who qualify. It can make the twilight years more manageable.

The easiest way to qualify for a Poor Credit Mortgage loan or Bad Credit Mortgage loan is to fill out a two minute loan application. By far the easiest way to qualify for any home mortgage loan is by establishing a good credit history. Another loan vehicle available is a Bad Credit Re-Mortgage loan product and basically it’s for refinancing your current loan.

Another factor when considering applying for a mortgage loan is the rate lock-in. We discuss this at length in our mortgage loan primer. Remember that getting the right mortgage loan is getting the keys to your new home. It can sometimes be difficult to determine which mortgage loan is applicable to you. How do you know which mortgage loan is right for you? In short, when considering what mortgage loan is right for you, your personal financial situation needs to be considered in full detail. Complete that first step, fill out an application, and you are on your way!


Benefits of Conventional Mortgages

Home mortgage debtors with a high credit and the funds for larger down payment may be better served by a conventional loan than any other loan option. Bucking conventional might be your calling card, but the words maverick, as well as mortgage, does not develop confidence. Conventional financing never looked so better in uncertain economic times, and conventional mortgage put you on a solid foothold towards homeownership. You have to meet certain needs to benefit from a conventional mortgage, so planning forward and budgeting carefully is very important.

Basics of Conventional

A conventional mortgage is loans underwritten and covered by personal lenders and investors. Unlike FHA or Department of Housing and Urban Development loans that backing and covering from the government. Basically a conventional mortgage puts the lender at risk in case you default on the debt. Because lenders do not have a safety belt for a conventional mortgage, the requirements for this loan is strict for this loan.

Enquiry and Down Payment

Because you face the strict requirements for conventional loans, you get a head beginning over other buyers with smaller qualifications. Usually, lenders require a 20% down payment on the house, so you already have equity in the house at the time you sign the loan papers. Equity is the portion of the home that you own. It helps you if you want to sell during housing downturns. On the other hand, if you own more on a house than it is cost, you could end up trapped in a house you do not want or unable to afford.


The conventional mortgage is usually a fixed rate item. It means that once you have started your loan and lock into an interest rate, you take it for the life long of the loan. Your payment stays the same time to time even month to month, whether interest rates climb or housing prices down. If the interest rates fall enough to make refinancing tempting, you have flexibility with a conventional loan because you have already passed the tough requirements to get the loan.


The stability of a conventional mortgage loan offers you that same stability in your economic future. Saving up a fund in a savings account further adds security to your finances. You trade off some flexibility for predictability in a conventional loan. You need to remember that you must make the payment every month, and you need to refinance to take the advantage of falling interest rates. You should always check the APR or annual percentage rate because it shows what you pay after the lenders add on the fees joined with the loan.

So, although a conventional loan can offer a big list of benefits for you if you are qualified for that. Also, conventional mortgages not required a good credit score like SBA 504. Lenders like to focus on your property and present cash flow in debtor account. It is a good loan program for those who have enough cash and ownership.


Budget 2016: Govt raises agriculture spending to Rs36,000 crore

Increased funding to go into irrigation schemes, crop insurance, and national e-market for farm produce, pulse production and interest subsidy

In a major push for agriculture in the Union budget, funding for the recently launched crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY) has been more than doubled from Rs.2,589 crore in 2015-16 (budget estimate) to Rs.5,500 crore for 2016-17.

The budget announced on Monday placed a renewed focus on the farm sector in a bid to revive agriculture growth and improve farm incomes at a time when rural India is going through a protracted period of distress.

Farmers and rural India will get the government’s immediate attention and the priority is to provide additional resources, finance minister Arun Jaitley said, adding that the government will aim to double farm incomes in the next five years.

The increased funding in the budget will go into a gamut of irrigation schemes, crop insurance, the creation of a national e-market for farm produce, higher production of pulses and interest subsidy for easing the burden of loan repayment for farmers.

Jaitley said that 2.85 million hectares will be brought under irrigation through the flagship Pradhan Mantri Krishi Sinchayi Yojana (PMKSY) scheme in 2016-17.

The government has made irrigation and drought-proofing a priority after two consecutive monsoon failures in a country where over half of the farm lands are rain-fed.

Further, 89 projects under the Accelerated Irrigation Benefits Programme (AIBP) that are languishing will be fast-tracked.

This will help irrigate nearly 8 million hectare, Jaitley said, adding that the centre will spend Rs.17,000 crore on these projects next year, and Rs.86,500 crore in the next five years.


Further, the budget created a dedicated long-term irrigation fund under NABARD (National Bank for Agriculture and Rural Development), with an initial corpus of Rs.20, 000 crore.

The overall budget for the agriculture sector was raised by over 44%, from Rs.24, 909 crore in 2015-16 to Rs.35, 984 crore in 2016-17 (budget estimates).

Rural credit got a boost, too, from a target of Rs.8.5 trillion in 2015-16 to Rs.9 trillion next year. And to ease the burden of loan repayment on drought-hit farmers, the budget allocated Rs.15, 000 crore towards interest subvention.

To increase crop yields in rain-fed areas the budget allocated Rs.412 crore towards organic farming. “The emphasis is on value addition so that organic produce grown in this part finds domestic and export market,” the finance minister said.

For enhancement in pulses production, the budget allocated Rs.500 crore under the National Food Security Mission. The programme will cover 622 districts in the country.

To help farmers get remunerative prices, a national agriculture loan market will be launched in April to connect 585 regulated wholesale markets across the country, Jaitley said.

He added that 12 states have already amended their farm produce marketing laws and more states are expected to join the e-platform.

The centre will also strengthen procurement at support prices across the country, Jaitley said, adding that an online procurement system will be introduced by the Food Corporation of India.

The emphasis on irrigation and crop insurance schemes in this year’s budget comes on the back of consecutive monsoon failures, and after the centre faced flak for ignoring the distress in rural India.

While 2014 saw a deficit of 12% in the June to September south-west monsoon, last year (2015) recorded an even worse deficit of 14% with more than 10 states declaring a drought.

The centre spent nearly Rs.13, 000 crore in drought assistance to states during 2015-16.

While repeated crop failures led to a spate of suicides across the country, farm incomes were also hit by low prices of key crops like rice, wheat and cotton, and lower exports due to a global slump in commodity prices.

Reviving the farm sector was a major challenge for finance minister Jaitley as sectoral growth rate of agriculture nosedived to minus 0.2% in 2014-15, from 4.2% in 2013-14. For 2015-16, the growth rate is estimated to be a dismal 1.1%, and is likely to be revised downwards if winter crop yields take a hit.

Agriculture sustains nearly half of all households in India and needs a new paradigm, said the 2015-16 Economic Survey released last week. The survey urged the government to spend on efficient irrigation technologies, support less water intensive crops like pulses and oilseeds, create a national market for farm produce, and revamp the dismal research and extension services.