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With rising interest rates, both EMI and loan tenure may go up to unmanageable levels A better solution will be to make home loans part of priority sector lending for PSU banks
THE next time you plan to take a home loan for buying your dream home, be doubly cautious and careful. And if there is a running home loan and if you are not monitoring it on a regular basis, then you may eventually end up passing on the loan burden to your grand children. Believe it or not, in this era of increasing interest rates, such a precarious situation can actually come up and ironically this can happen "legally".
Consider this. Someone who had taken a loan of say Rs 20 lakh for 20 years at an interest rate of 9.5 per cent in 2006, may now have to pay for another 32 years and that too at an increased interest rate of 15 per cent. Not only have the EMIs gone up, but the tenure has also been increased from 240 months to 458 months.
Interestingly, while initially sanctioning a home loan, most of the banks take into account factors like years of service left, how long would the borrower remain creditworthy and so on. However, there seems to be no such mechanism followed by the banks while reengineering the debt or readjusting the tenure against increased interest rate. If it is assumed that the person, who was given a home loan for 20 years, would actually reach the age of super annuation at the end those 20 years, extension of his tenure from 240 months to 458 months would mean one would have to go on paying EMIs even 18 years after his retirement.
Even if this reminds you of the days of mhajans or private money lenders, it may not be a case of catching the banks on the wrong foot, because there must have been some fine prints somewhere within the hundreds of pages of documents one signs before getting a loan.
The banks would say that they have three options: to increase the EMI amount, to increase the tenure or a mix of both to get the loan adjusted against an increased interest regime. Therefore from the banks' perspectives, it is perfectly legitimate to increase the EMI amount and tenure both.
The problem lies in the fact that you are only paying interests in the initial five years. Even after paying your EMIs without any default for five years, you would see that your principal outstanding remains the same. Unfortunately, here there are more ways than one to protect the interest of the banks but there is no mechanism to safeguard or protect the interest of the borrowers.
There are options like paying some lump sum amount to bring down the tenure or prepayment or foreclosure of the loan, if you can afford to do that. RBI has also issued instruction that banks cannot impose any penal charges for prepayments. That may well be still only on paper. There has to be some monitoring mechanism to see if all banks are adhering to this instruction.
Once the apex bank ensures that the banks have actually done away with penal charges on pre-payment of home loans, then solutions for a common borrower would be to let his/her loan be taken over by some other bank at a lower interest rate or to insist that his/her existing bank brings down interest rate on the basis of his payment track record.
Actually PSU banks are always a much better choice when it comes to home loans. But since they take much longer time in processing and approval, people move to private sector banks.
Therefore a better solution will be to make home loans part of their priority sector lending for PSU banks. Let there be a priority sector target for disbursement of home loans in case of PSU banks. Then things would move faster.
While that may take some time to come through, the borrowers now have an option to opt for a discounted home loan, courtesy Power Circle, the Mumbai head quartered fledgling company, which comes up with a platform to offer additional discounts for purchasing almost everything electronics, real estate, cars, apparels, watches, dining outs at restaurants, entertainment and what not.
With growing competition, choices before consumers are increasing. Consumers are looking for discounts for buying virtually anything and everything.
Manufacturers and retailers are forced to oblige them. We thought if this is true with any product, why shouldn't this be true with loan products? And since we have been closely associated with the real estate sector and with housing being one of the prioritised categories for the consumers, we thought it appropriate to assist home buyers with our extra discount range
Our model is simple. We are a consumer group. We safeguard the interest of the consumers/customers. We don't charge anything from the consumers. We arrive at a pre-negotiated terms with the vendors and we operate as exclusive partner of a vendor. We pass on a large part of our margins, that we get as exclusive partner, to the consumers .
Unlike DSAs, none from Power Circle is going to bug you. You can connect with them at your sweet will and at your convenience and chose your best home loan deal. And If your home loan can come at atleast 1.2-1.5 per cent cheaper rate, to start with.
For so long you have been enjoying discounts of various degrees for buying FMCG, white goods and so on. Time to check out if this new mechanism works well for aspiring homebuyers.
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