Home loan EMI: Rs. 1,000 per lakh , Rs. 900 per lakh Which is best?

Home loan EMIs usually work out to about Rs. 1,000 per lakh of a loan availed for up to 20 years

Banks are now lowering EMIs to Rs.  900 per lakh or  / even below by increasing tenure by up to 10 years Experts say this will only win customers in the short term as EMIs will have to go above Rs. 1,000 per lakh given the thin margins in the business

Mr. Dewakar is looking to shift his home loan to another bank or /  housing finance company (HFC).

Currently, he pays an equated monthly instalment (EMI) of Rs. 26,048 on a home loan of Rs. 22 lakh which works out to Rs. 1,184 per lakh.

Many of lenders are offering schemes at Rs. 900 per lakh or / slightly below. On the face of it, it looks tempting as there would be a lower EMI outflow if I opt for Rs. 900 per lakh as against Rs. 1,184 per lakh, which I am currently servicing. I am in talks to get the best possible deal, he says.

Already, housing loan rates are pegged to base rates (9.7% to 10.25 %) or /  close to them. To boost business, lenders are pitching EMIs below Rs. 1,000 for every lakh of rupees availed. The calculation for monthly housing loan repayment has been roughly Rs. 1,000 for every lakh for a loan availed for up to 20 years. Banks are now lowering EMIs to Rs. 900 per lakh or / even below by extending the tenure by up to 10 years.

Punjab National Bank (PNB) has a scheme wherein the EMI is Rs. 926 per lakh on a loan of up to Rs. 75 lakh and a tenure of 25 years. Interest is pegged to the banks base rate of 10.25 %.

Through this, we are looking to extend repayment tenure for the borrower up to 65 years or / even 70 years of age, a senior official of the bank said.

 

Similarly, under its Bhagya Lakshmi housing scheme, LIC Housing Finance (LIC HFL) is offering Rs . 903 per lakh for a 30-year loan at 10.35%. Such schemes help bringing in fence sitters (those who are deferring house purchase in anticipation of a real estate price correction or / interest rate revision), said Mr. V. K. Sharma, Director and Chief Executive, LIC HFL.

Average loan offtake for the company is Rs. 17 lakh Rs. 18 lakh and repayment period usually ranges from 15 to 20 years.

The move towards longer tenures is a reflection of the confidence banks and HFCs have on borrowers.Gross NPA (non performing assets) on housing loans for nationalized banks is 1.8 % and for HFCs the figure stands at 0.44 %. Also, the average tenure of home loans in India ranges from 7 to 10 years depending on the institution &  credit offtake.

Besides, such schemes are attractive from a balance transfer perspective as the new company is getting a seasoned borrower in the first place.There are not much costs involved in loan appraisal &  underwriting as the loan did not originate from the firm taking over and all this results in an immediate growth of the balance sheet, said Mr. R V Verma, Chairman and Managing Director, National Housing Bank (NHB), the apex body for housing loan finance in India.

India's largest lender, State Bank of India (SBI), also has a Rs. 874 per lakh scheme for 30 years at 9.95%. The banks housing loan business reported a year-on-year growth of 18.4 % to Rs.1,24,772 crore in June 2013 as against Rs.1,05,383 crore a year ago.

Others such as Dewan Housing Finance Limited (DHFL) are also looking to introduce a lower EMI scheme. We are contemplating on introducing a 30-year housing loan product to help the customer avail of lower monthly outgo towards the housing loan, Mr. Anoop Pabby, President, Strategic Initiatives, Dewan Housing Finance said.

However, some industry observers say such marketing tactics can only provide short-term gains in market share and that a calculation of Rs. 1,000-plus for every lakh of loan availed would be the only sustainable level in the long run given that margins in the home lending business are around 1% to 1.15 % currently. As of today, incremental borrowing costs range from 9.5 % to 10.3 %.

At best, such schemes help in taking over loans or / converting fence sitters into borrowers. Ultimately, to prop up demand as well as business, we have to move to tier II and tier III locations, Mr. Sharma said.

SRC: TOI

Share: