You repay loan in equated monthly instalments (EMIs)
But there is often a gap between the date of loan disbursement and the date on which the first EMI begins
You are charged an interest on the loan amount for this period
All housing finance companies (HFCs) charge a processing fee of 0.25% of loan amount and administrative fee of 0.25%
Most HFCs waive the fee, if you ask for
You still pay the fee, but the company reimburses it after the loan is sanctioned and disbursed
No refund is done if the loan is not sanctioned or not taken
You could pay a penalty if you decide to partly or fully repay the loan before the loan tenure
Most home loan takers do pre-pay their loans
Some HFCs don’t charge any penalty if the pre-payment is self-funded, and not through another loan
Some banks charge up to 2% of outstanding principal (+ service tax) as penalty
There are also terms of how much and how frequently can you part pre-pay
All terms and penalties are negotiable
Interest rate on floating loan is linked to what is called the bank’s RPLR—retail prime lending rate
Most banks follow quarterly schedule to reset their loan rates with changes in RPLR*
Some banks reset interest rates every quarter starting from disbursement date and some follow fixed calendar quarters
In case of part pre-payment, this could make a difference to how soon your EMI is reduced
Make sure you find out the reset schedule of your HFC
How the calendar impacts your loan | |||
| PERIOD | CHANGE IN RPLR (%) | HOME LOAN RATE % | |
| Bank A | Bank B | ||
| 1 May - 30 June | 10.25 | 8.25 | 8.25 |
| 1 July - 30 Sept | 10.5 | 8.25 | 8.50 |
| 1 Oct – 31 Dec | 10 | 8 | 8 |
| 1 Jan – 31 March | 9.75 | 8 | 7.75 |
| 1 April – 30 Sept | 10.25 | 8.25 | 8.25 |
| Assumption: The benchmark rate (RPLR) for both Bank A and Bank B is 10.25% and the home loan rate is 2% less. However, Bank A follows fixed reset dates on 1 October and 1 April every year, whereas Bank B changes interest rate with every change in the benchmark rate. This makes the floating rate of Bank A cheaper one quarter and expensive in another quarter. | |||
You can convert your home loan from fixed rate to floating rate, or vice versa, as many times as you want
Most banks charge a fee (up to 2% of outstanding principal plus service tax) on the first conversion
Some banks reduce the fee for subsequent conversions, some don’t
Fee is higher when converting from floating to fixed, than when doing the reverse
That’s because banks take a higher risk with fixed rate loans
Get all details of conversion possibilities and charges when finalising the loan
Rescheduling happens when either the bank changes the interest rate or you part pre-pay the loan
This either changes the tenure of the loan or amount of EMI
Some banks charge a flat fee if you want to keep the tenure unchanged and change the EMI
There is usually no charge if you keep the EMI same and change the term of the loan
HFCs keep the original property documents with them during the term of the loan
Some HFCs charge a fee if you want photocopies of these documents during the term of the loan, some offer it free
Different HFCs take seven days to a month to return the documents after the loan has been paid
It may help to ask for these details and know the number of service centres the HFC has before finalising the loan
* To know all about interest rates read MT Basics in Money Today issue dated 27 December 2007
