Please note this question bank is by no means exhaustive. For detailed information, you may refer to the following online resources available on RBI site:
What is a Home Loan?
A home loan is a secured loan with the property pledged as collateral with the bank or a housing finance company. Most often, a home loan is taken to buy a residential property whether ready to move or under construction. Sometimes, home loans are also taken to repair and renovate an existing house.
What is the meaning of “loan tenure”?
Tenure is the time within which the principal with interest has to be fully paid to the lending institution. Depending upon your age and nature of employment, home loan tenures can sometimes be up to 20 years for a resident individual (salaried & self-employed professional) whereas for self-employed (resident Indian) and NRIs (salaried) the maximum tenure is 15 years subject to maximum 65 years of age.
What is the maximum Home Loan I can apply for?
This would depend on your repayment capability. Generally home loans can be applied for a maximum of 80% (90% in certain scenarios) of the property value.
What would be the eligibility criteria?
It may vary from bank to bank but the common parameters are age, income, number of dependents, financial stability and co-applicant's income.
Can I apply as a co-applicant with my wife?
You can apply individually or jointly with your spouse. Sometimes, the co-applicants need not be co-owners.
What are the main documents required for applying for a Home Loan?
Proof of your identity, address and income are some of the key documents that are required by almost all banks.
What are the various kinds of home loans available?
Here is a brief description…
A home loan with no set repayment term or structure. This kind of a loan allows the borrower to decide when and how he/she will repay the loan.
Offset Home Loans
A loan with a set term (e.g. 25 years) that is repaid in installments - weekly, fortnightly or monthly. This would require the borrower’s bank account to be linked to the loan account as it would reduce the interest component on the loan, thereby shortening the tenure.
Split Home Loans
These are simply two or more loans operating together. Splitting loans can be useful in increasing flexibility and /or reducing interest rate risk.
Construction-linked Home Loans
Construction-linked loans are considered as specialized loans because the security being offered, i.e. the property hasn't been built, so the loan amount is disbursed as the property is being constructed.
What are the various kinds of interest rates?
There are three main kinds:
- Fixed interest rates
- Floating interest rates
- Flat rates
In the fixed and floating interest rates the reducing balance method is used for determining the EMIs whereas in flat rates this method is not used, therefore flat rates is the most expensive of all. In the fixed interest rates the interest rates remains the same as determined during loan disbursal, whereas in case of floating interest rate, the rate changes with the prevailing market conditions.
Rate of interest charged on a loan also varies with the borrower’s profile and past credit history. The main factors that determine the rate of interest for a particular borrower are:
Income status –Very often, banks charge a lower rate of interest for salaried persons than for self-employed persons. People with higher salaries also attract lower rates of interest.
Company status – An employee with a Fortune 500 or a multinational company is likely to be charged a lower rate of interest than the employee of a small company or a government employee.
Credit history – This is a very important but most-often ignored factor. A good credit history is maintained when a person has made all his past loans and credit card payments on time.
What is an insecure loan?
A Business loan may be a secured or unsecured loan. This kind of a loan is sanctioned based on the firm’s previous loan track, financials transactions, and on the basis of their profit and loss a/c. Interest on a business loan generally ranges from 11% to 14%/annum.
What is processing fee?
It is the fee charged by banks for processing a loan application. This generally ranges between 1-2% points of the loan amount.
What is Home Loan Transfer?
This option is generally taken when the interest rates of ne bank are lower than that of the bank that sanctioned your existing loan.
How is loan transfer done?
The process is very simple. The first thing you need to do is to submit a letter to the present lender requesting a loan transfer. The bank will issue you a non-objection certificate (NOC) along with an official statement citing the outstanding amount. You will then have to undergo a credit check and fulfill the repayment criteria of the new lender. All documents related to the property will be exchanged from the old to the new lender. The applicant needs to have photocopies of all loan and property related documents handy, in case the previous lender fails to tender any original documents to the new lender. Once this procedure is completed, your property documents will be handed over to the new lender and any outstanding postdates cheques/ ECS will get cancelled.