IDBI Ltd raises its RRR on Home Loans by 75 bps

1.Industrial Development Bank of India Ltd. (IDBI) has decided to raise its Retail Reference Rate (RRR), the benchmark used by the Bank for pricing of its floating rate Home Loans, by 75 bps w.e.f April 10, 2007.

2.Accordingly, Retail Reference Rate (RRR) has risen from 10.50% p.a. to 11.25% p.a. w.e.f April 10, 2007. The floating interest rates of all existing Home Loan customers of the Bank has moved up by 0.75% p.a w.e.f April 10, 2007.

3.Accordingly, the Bank's floating rate home loans w.e.f April 10, 2007 stand revised to 11.00%-11.25% p.a., depending on the category of the borrowers.

4.The fixed rate of interest on Home Loans, effective April 10, 2007, for three years shall range from 13.5% p.a. to 14% p.a. while that for five years shall range from 13.75% p.a. to 14.25% p.a.

Sourced From: Adfactors Public Relations Pvt Ltd

PUNJAB NATIONAL BANK(PNB) LAUNCHES REVERSE MORTGAGE SCHEME IN INDIA:RECAP BY HOUSE-BUYER-TIPS.BLOGSPOT.COM

1.PUNJAB NATIONAL BANK(PNB) has become first bank in India to offer reverse mortgage scheme in India and has launched the scheme under PNB BAGHBAN.It offered loan under this scheme to six elderly persons on the day of launch.

2.The name of the scheme is motivated by Hindi movie starring Amitabh Bachhan where the couple Amitabh Bachhan and Hema Malini played the role of elderly couple who are not supported by their siblings and has to suffer.

3.I can only pray that the present generation wakes up to their responsibilities and no elderly couple has to resort to reverse mortgage and live happily with their siblings.

REVERSE MORTGAGE

1.Under reverse mortgage the owner of the house is allowed to live in the house and still earn monthly income by pledging the house in favour of housing finance company.This is best for those people who are owning a house but are not being supported by any of their near and dear ones and does not intend to sell the house in their life time and still want to earn some income.

2.Housing finance companies generally pay as per the age profile of the owner of the house which is as listed below:

3.Age bracket 60-70 will be eligible for 45% of value of property.

4.Age bracket 71-75 will be eligible for 50% of value of property.

5.Age bracket 76-80 will be eligible for 55% of value of property.

6.Age bracket over 80 will be eligible for 60% of value of property.

7.Borrower is not required to service the loan during his life time or make monthly payments.

8.On the death of borrower or leaving the house permanently the property is sold and loan is repaid along with accumulated interest and excess if any is paid to the heir of the owner of the house.

9.Alternatively the borrower or his heir can prepay the loan with interst and have the mortgage released without resorting to sale of the property.

INDIAN GOVERNMENT TO SHOULDER BURDEN VIA INTEREST SUBSIDY IN BUDGET FOR FIRST TIME HOME BUYERS IN URBAN AREAS

1.The Urban Ministry has moted a proposal to provide a 1%-2% rebate in home loan rate of interest for first time home buyers in urban areas.

2.This rebate will be availble for families and individuals falling in a specific salary bracket.

3.The discount provided by banks/financiers would be met through interest subsidies provided in budget.

4.This proposal is yet to be implemented and is still in processing stage to check speculation.

OPTIONS FOR INDIVIDUALS HAVING AVAILED HOME LOAN TO CATER FOR RISING RATE OF INTEREST LEADING TO INCREASE IN TENURE AND EMI

1.In the rising rate of interest scenario the individuals who have availed floating rate of interest are in fix as the burden is becoming unbearable.

2.Options are being presented below to fight rising rate of interest.

3. TWO YEAR OLD LOAN:In past two years seven rate hikes have taken place and increased rate of interest by 4 percent leading to unbearable EMI and tenure.The best option is to prepay the loan by using all your assets earning interest at lower rate of interest.Early repayment make sense as initial period of EMI accounts for more interest paymrnt.

4. FOUR YEAR OLD LOAN:You have benefitted as you had borrowed at higher rate and enjoyed lower rate of interest scenario prevailing in past after you had availed your loan.Presently due to increase in rate of interest your tenure must have had increased by approximately 11 months.You have two options either to prepay by dipping in your savings yielding lower rate of interest or get your EMI or tenure increased but make sure that EMI outgo should not be greater than 40% of your gross monthly income.

5.SEVEN YEAR OLD LOAN:Your bulk of interest repayment has taken place .You have benefitted most from falling rate of interest as your rate of home loan interest was much higher than prevailing rate of interest.So you can continue with your home loan.

6.FRESH HOME LOAN SEEKERS:Wait for some time as it is expected that either property prices will fall or rate of interest for home loan will fall as such higher rates is not sustainable.However if cannot wait than scout for cheapest floating home loan from public sector banks like Canara Bank (9.75%),Bank Of India(7.5%),Punjab National Bank(10%).Private sector banks like HDFC (11.25%) and Icici Bank(12%) rate of interest are higher but their service is better than PSU banks.

RISING RATE OF INTEREST AND HOME LOAN SEEKERS DILEMMA

1.Home loan buyers are feeling the pinch of the successive rate hikes as existing customers are seeing a hike in their EMIs and tenures and new customers will see home loan eligibility going down by almost 35 per cent.

2.Home loan interest rates have gone up by 5% in the past 3 years. Until now consumers were fighting rate hikes by simply increasing their tenures; so the EMIs would remain constant. But that too has now got stretched to the maximum with average home loan tenures rising from 13 to 20 years. Now it's EMIs which are being stretched in India.

3.Customers who would actually see an EMI hike will be close to about 40% and home loan companies endeavour is to reduce this burden by first increasing tenures and then only if home loan companies do not have an option they will pass on the increase in EMI," opines Rajiv Sabharwal, Sr GM - Retails Assets, ICICI BANK.

4.Until 3 years ago, for a 10 year loan of 10 lakh rupees, at an interest rate of 7.5%, the EMI stood at about 12000 rupees. With interest rates at 12.5%, the EMI for the same loan has risen by more than 2500 rupees.

5.New customers are not much better off. Two years ago if you could get a one lakh rupee loan for your home, now it is down to 65,000 rupees.

6.Every 1% hike in the interest rate, reduces loan eligibility by 7% for every lakh of rupees. Consecutive rate hikes have reduced this further.

7.Little wonder that banks expect growth in the home loan business to go up by no more than 20 per cent this year, the lowest in five years.