[Jaguar]

Originally Posted by longhorn

To the best of my knowledge it is applicable only for fixed rate home loans and not for floating rate. In fact, they cannot even charge you anything for partial/ full prepayment. HDFC has no business to ask whether you have begged, borrowed or stolen the money.

Most of the HDFC loans (at least the ones given out 3-4 years ago) had a fixed component for the initial 2 years and floating thereafter. As per them, because of this fixed component, they can charge you for prepayment. How can one verify the law regarding this?

All banks will ask for the source for pre-closure. If your loan is taken over by another bank, I suppose they can charge you. So they have the right to check for the source.

[longhorn]

Originally Posted by Jaguar

Most of the HDFC loans (at least the ones given out 3-4 years ago) had a fixed component for the initial 2 years and floating thereafter. As per them, because of this fixed component, they can charge you for prepayment. How can one verify the law regarding this?

Ask them to give that in writing. If the interest rate is not fixed now, then it is a floating rate currently. So they cannot charge you anything now for prepayment.

Originally Posted by Jaguar

All banks will ask for the source for pre-closure. If your loan is taken over by another bank, I suppose they can charge you. So they have the right to check for the source.

Please go through the below links

https://www.rbi.org.in/commonman/Upl...BC070514DF.pdf

http://articles.economictimes.indiat...losure-charges

Originally Posted by benbsb29

Thanks for your reply.

I had already checked with them previously on this. As this is a joint loan, the cheque has to be in the name of either one of the borrowers. However, this can be presented by any other family member. Somehow, i am not too comfortable with sending across a signed cheque via the mail.

The next requirement which came up the last time we made a small prepayment was the demand for 6 months of bank statement to determine source of funds.

Try if you can open a joint account with your relative in India. Ask someone to send you the account opening forms. It should be feasible in a private bank as the account opening formalities are not that rigid with new gen private banks, as long as the necessary KYC documents are available. You can then wire transfer funds to this account and ask your relative to issue the cheque on your behalf.

Another option is to add your relative and convert your existing sole holder account to a joint account. I believe if your prepayment is under 25% of your original loan amount, you should not face any problem with HDFC. But please have someone speak to them (atleast two different branches) before you initiate the process. The guys sitting at the main branches of a city are usually more understanding.

[wanderer4x4]

Originally Posted by benbsb29

Thanks for your reply.

I had already checked with them previously on this. As this is a joint loan, the cheque has to be in the name of either one of the borrowers. However, this can be presented by any other family member. Somehow, i am not too comfortable with sending across a signed cheque via the mail.

The next requirement which came up the last time we made a small prepayment was the demand for 6 months of bank statement to determine source of funds.

Don't you have a NRE or NRO account? If you have, then just add any family member as mandate holder and get him to issue the cheque. Most of the new age banks execute such account servicing requests from NRIs based on email requests. So, adding a mandate holder also would not be difficult.

[Jaguar]

Originally Posted by longhorn

Ask them to give that in writing. If the interest rate is not fixed now, then it is a floating rate currently. So they cannot charge you anything now for prepayment.

Please go through the below links

https://www.rbi.org.in/commonman/Upl...BC070514DF.pdf

http://articles.economictimes.indiat...losure-charges

I had shifted my loan from HDFC to Stan Chart a couple of years ago and this was the reason given. Hopefully things have changed now.

But still, the links don't talk about prepayment from your own pocket vs loan takeover by another bank.

And these seem to be just guidelines from the RBI rather than strict orders. Just yesterday my mom got a letter from Kotak bank regarding charges for not maintaining minimum balance. That shouldn't be the case as per the link.

[abhjain]

Originally Posted by wanderer4x4

As of now, a bank cannot offer a negative spread. The spread is the margin that the banks maintain against the Base rate while giving a loan. Now, for a bank the rate on a home loan can not be less than the Base rate. So, the spread that you'd get while talking a loan from a bank would be at least Base rate+0%. ( Which could be the best scenario)
Now, let us come to RPLR and negative spread. RPLR is a term used by the NBFCs to denote their reference rate which to be honest is a farce. Since, NBFCs are not governed by RBI, they are free to set and maintain their own RPLR. So, what a NBFC does is jack up the RPLR each time the general interest rates in the market go up and to remain competitive offer a higher spread to new customers. This results in existing customers bearing the brunt of the rate hike. Let us take an example..

Let us say the current interest rate for new home loans is 10%.
Say for a bank the current base rate is 9.50% and a NBFC is maintaining a RPLR 14%.
Now, to offer the home loan at 10%, the banks reference is BASE+0.5% and for NBFC, it's RPLR-4%.
But, both the customers have got the same rate of 10% basis which the EMI will be paid, so why should we bother, correct? Let us fast forward to few more months.
Due to various factors interest rate in the markets go up by 0.5%. So what will be the result? Banks BASE rate goes up by 0.5%, RPLR also goes up by 0.5%, so based on spread formula customers interest rate also goes up to 10.5%. All good till now.

Now fast forward 6 more months. Due to good sentiments in the market, the interest rate goes down by 0.5%. Sooner or later the bank reduces the Base rate by 0.5%. ( Though banks do not always pass on the rate reduction, they can not hold the Base rate too different from the prevailing interest rates as all products and pricing of a bank is linked to the base rate.)
Since the bank has reduced the Base rate by 0.5%, the loan interest in the above example comes down back to 10% now. But, the NBFC decides not to change the RPLR, which was 14.5% after the initial hike in the above example. So, the NBFC interest rate remained 10.5% even after the reduction in rate. So, why would a new customer in this scenario go for the NBFC and pay 0.5% more? Well, for the new customers, they will cheekily increase the spread by 0.5% to make it RPLR-4.5% to remain on a level playing field with competition. But, in this trickery, the existing customers get a hit as they are on a reference of RPLR-4%.

So, you can see that a company offering big negative spread means it has increased the RPLR at the time of rate increase, but have not reduced the RPLR too much when the market rates reduced. So, I'd be wary of the NBFCs offering too much negative spread.

Hope, I've been able to throw some light on it and haven't confused you more.

Slight correction - NBFCs are governed by RBI however since they do not have access to CASA, they are unable to match bank rates.

[wanderer4x4]

Originally Posted by abhjain

Slight correction - NBFCs are governed by RBI however since they do not have access to CASA, they are unable to match bank rates.

Clarification - By NBFCs, I meant non bank housing finance institutions in this context. These are not governed by RBI directly, rather the apex regulatory body for them is NHB ( National Housing Bank) which is a wholly owned subsidiary of RBI.

Indeed the CoF (Cost of Funds) is higher for these NBFCs due to non availability of CASA, but it's not true that they can not match Bank rates in housing loans. Most of the times their rates are at par or better than many banks. This they manage by complex fund management manoeuvres. Let's leave it here, don't want to now go into treasury operations to dig deep to see how the housing finance NBFCs manage to remain competitive.

[condor]

Situation:
Home Loan disbursed about 99%.
A small balance still available

Monthly payment being done - for amount taken.
Registration - done. Original papers are with the finance company now.

Question:
1) Does the monthly payment become EMI or pre-EMI ?
2) Any advantage / disadvantage to leave that balance 1% as it is (like keeping the loan in a state of partial disbursement) ?

[F150]

I think it will still be pre emi as the loan is not disbursed 100%. You loose out on tax savings.

[prashanthyr]

Originally Posted by condor

Situation:
Home Loan disbursed about 99%.
A small balance still available

Monthly payment being done - for amount taken.
Registration - done. Original papers are with the finance company now.

Question:
1) Does the monthly payment become EMI or pre-EMI ?
2) Any advantage / disadvantage to leave that balance 1% as it is (like keeping the loan in a state of partial disbursement) ?

I am in a similar situation where my home loan is partially disbursed. Hdfc, my home loan provider said I can start paying EMI from the day disbursement started which is what I am doing. So my current disbursement only attracts an interest of 6k a month, with the other part of my payment going towards principal repayment. This is in place till the loan is completely disbursed.

So to answer your question, I think you can convert your payment to EMI . its also advantageous to convert to EMI as you would be repaying principal whereas with pre EMI you only pay interest and principal will remain as is.

[wanderer4x4]

Originally Posted by condor

Situation:
Home Loan disbursed about 99%.
A small balance still available

Monthly payment being done - for amount taken.
Registration - done. Original papers are with the finance company now.

Question:
1) Does the monthly payment become EMI or pre-EMI ?
2) Any advantage / disadvantage to leave that balance 1% as it is (like keeping the loan in a state of partial disbursement) ?

The monthly payment automatically does not become EMI in a partly disbursed loan unless the borrower specifically opts for it. So, it's better to check with your loan provider whether the amount is being considered as EMI or pre-EMI. It's always beneficial to opt for EMI even in a partly disbursed loan so as to get the benefit of the principal reduction.

If you don't need the balance 1% amount then ask your lender to reduce the loan amount by that much and to convert your loan to fully disbursed.

[condor]

Thanks, guys.

Most of the monthly payment is going towards interest at this time, and from the begining.

[pahwa]

Folks! I have a LIC home loan whixh was @8.99% for first 3 yrs. The ROI is 11.75% at the moment and does not seem fair at all. Is there a way to reduce it from the same lender? The process to re-finance it from another bank is time taking and needs hundreds of documents.

[Rajeevraj]

Originally Posted by pahwa

Folks! I have a LIC home loan whixh was @8.99% for first 3 yrs. The ROI is 11.75% at the moment and does not seem fair at all. Is there a way to reduce it from the same lender? The process to re-finance it from another bank is time taking and needs hundreds of documents.

HDFC has an option where you can 'reset' the EMI to the current new loan levels by paying a fee. I don't recollect exactly, but it was 1 or 2% of the outstanding principle. The savings on the interest due to the lower rate would offset the fee that one had to pay in a few months. So it was a good deal.

You can check if LIC provides this option. Otherwise I guess you need to switch banks. Ideally if it is floating rate, it should be reduced. I heard from another friend also about LIC not reducing the rates.

[sbala]

Originally Posted by pahwa

Folks! I have a LIC home loan whixh was @8.99% for first 3 yrs. The ROI is 11.75% at the moment and does not seem fair at all. Is there a way to reduce it from the same lender? The process to re-finance it from another bank is time taking and needs hundreds of documents.

I was with LIC earlier and this is what happened to me as well. I asked them about the possibility of lowering the interest rate based on the current base rate. They simply declined and asked to move to some other bank.

Now I am with Citi Bank.

[diyguy]

Originally Posted by sbala

I was with LIC earlier and this is what happened to me as well.

What's the process to shift? I have two plot loans with LIC and guess am bleeding. I have an account with citi too but I think plot loans are not easy to come by!