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How are home loan rates determined?

Posted on by HomeCapital Team

Interest rates on home loans vary from bank to bank as well as person to person. The interest rate difference can increase the total amount being repaid to the lender by a sizeable amount.

Hence, it is vital and beneficial to keep the interest rate low. The best way to do this is to understand how a home loan rate is determined. Several factors work on forming a particular interest rate for every individual. Let us examine all those factors and see how one can reduce it most effectively.

Credit Score

The credit score shows an individual’s creditworthiness and is an essential factor in calculating the home loan rate. A good credit score needs to be above 750. Lenders use the credit score to see how reliable you are in repaying loans. So, if you have a credit score in tally with the ideal benchmark, you will automatically get a reduced home loan rate versus someone who has an average credit score. Thus, before you go in for a home loan, check your credit report, and if there are any discrepancies, dispute them with the credit report company as it can lower your credit score.

Home Loan Amount

The higher the loan amount, the higher is the extent of credit risk for lenders, and hence, the home loan rate is also higher. Usually, the interest rates are divided across three ranges of loan amounts – up to Rs 30 lakhs, between 30-75 lakhs, and above 75 lakhs. The interest rate is the least for loans up to Rs 30 lakhs and maximum for the loans above Rs 75 lakhs.

Down Payment

It is a major factor in the calculation of the home loan rate. The central bank has advised all banks to approve up to 80% of the property value as a home loan (LTV). Thus, the remaining 20% has to be funded by the home buyer themselves. Usually, developers charge up to 20% of the agreement value towards the down payment. However, this varies across developers and the city in which the project is located. In case you have more savings than the required amount, you can make a higher town payment towards the house. There is no upper limit to the amount of down payment. This would also enable you to reduce the amount of home loan you ask from the bank.

Usually, the larger the down payment, the lower the interest rate you pay. This happens because the lender sees a lower risk level when you have already paid a sizeable amount for the property. If you can pay up to 20% of the property value as down payment, it will definitely help lower the home loan rate. If you want help with paying the down payment, HomeCapital, India’s first Home Down Assistance Program, would help you in doing so. It offers up to 50% of the total down payment at no interest rate to be paid in 12 equated monthly instalments.

Type of interest rate

There are mainly two types of interest rates – floating and fixed. Floating rates vary during repayment tenure based on the base rate. Fixed rates remain constant during the entire tenure. In most cases, it is observed that floating rates on home loans are lower than fixed interest rates. It is advisable to opt for a variable or floating interest rate when you can foresee that the interest rates will decrease in the near future.

Employment Status

Lenders are more comfortable giving loans to people with a fixed salary, preferably in the government sector, as they are sure of the repayment capability. So a salaried person vis-a-vis a businessman or a self-employed individual will be given a lower interest rate.

Marginal Cost of Funds Based Lending Rate (MCLR)

This is the lowest base rate that the bank can offer as interest. It is a reference rate for banks that is fixed by the RBI. MCLR mainly depends on the Cash Reserve Ratio and the Repo Rate.

Cash Reserve Ratio (CRR)

CRR is the least percentage of the total deposits that the customer makes for the bank to hold as reserves. It can be in the form of cash or deposit with the RBI. The higher the CRR, the higher is the home loan rate that you will have to pay. This happens because the amount of liquidity in the system is reduced with a high CRR.

Repo Rate

Repo Rate is the rate at which the RBI lends to the banks. The lesser the rate at which the RBI lends to the banks, the lesser will these banks lend to individuals. Thus, a lower repo rate equates to a lower interest rate for the end customer. The Reverse Repo rate is the rate at which the banks lend to RBI, so if this rate is high, the banks make a profit, which is passed on to the customer in terms of a lower home loan rate. 

The home loan rate is the insurance the lender has for the risk it is taking. But you can easily keep this risk rate at the lowest, keeping in mind the factors mentioned above that determine home loan rates.

Understanding EMIs and Pre – EMIs

Posted on by HomeCapital Team

Most buyers finance their new home through a home loan as it is the most affordable way of purchasing a property. A home loan repayment plan can be structured in many different ways. Finding a lender with a minimal interest rate is of utmost significance.

There are two vital options that one needs to understand also – choosing wisely between pre-EMIs and EMIs. These are ways of repaying the loan amount to help you manage your funds better while your dream home is being constructed. However, each of them can affect your repayment capacity differently. Let’s understand what both these options entail and which is more beneficial under what circumstance.

What is EMI?

Equated Monthly Instalments (EMIs) are the regular home loan repayment paid by you every month for a selected period of time. This includes both the interest and principal. In case you have taken the Pre-EMI option, the full-fledged EMI payment starts when the property is completed.

What is Pre-EMI?

Pre-EMIs are the monthly payments that a home buyer decides to make on the home loan’s interest component. This option is given when the property is under construction and is offered by the developer under Construction Linked Plan. It is essentially the reduced payment you make as it does not include the loan’s principal component. It is not taken to be a part of the home loan tenure but is designed to reduce the payment burden when the asset is under development.

Difference between Pre-EMI and EMI

  • Loan disbursal – If you go in for a full EMI, you can ask for complete disbursal of the loan amount, while in the case of Pre EMI, the loan amount is given partially. However, the interest is always calculated on the actual loan amount disbursed.
  • Loan repayment – The installment amount paid in the start is much lower in the case of Pre EMIs, while in the case of full EMI, it is a much more considerable amount.

When is EMI ideal?

  • If you are buying the property for long term investment.
  • In case you want to repay the debt on the property as soon as possible and reduce the long-term obligation of a home loan. It will save on the extra interest costs on the home loan.
  • If you want to reap tax benefits as soon as the repayment tenure beings.
  • If you see a delay in the construction period of the project because the pre-EMI continues to be paid until the project is complete. This means that you will end up paying a more considerable interest amount on the home loan.
  • If you do not have any other investments to make.

When is Pre-EMI ideal?

  • The pre-EMI option is ideal for homebuyers who are waiting for a change in income band or cannot afford to pay the entire EMI at present.
  • The borrower wants to have a reserve fund to meet emergency situations.
  • If the borrower wants to invest the difference between Pre-EMI and EMI further to get higher returns.
  • If the borrower is staying in a rented apartment and has a high amount to pay as rent.

Tax Benefits

Both options enjoy the same tax benefits since tax deduction is not applicable when the property is under construction. Only once the borrower gets the possession certificate, the amount of interest paid in both options is aggregated and considered for a tax deduction in five equal instalments.

EMIs and pre-EMIs are financial decisions that you, as a buyer, need to take, keeping in mind the existing market conditions, your income and expenditure, and the resale value of the project. Now with absolute clarity on pre-EMI and EMI, you can make an informed decision on how to repay the home loan when you buy your new home. Remember, invest smart and repay smarter!

How to improve your credit score?

Posted on by HomeCapital Team

A credit score determines your financial health. It depicts your creditworthiness based on your credit history. The score works as a measure for lenders such as banks and housing finance companies, to decide whether or not to offer a loan to the person. It also determines the terms of the offer. 

In India, there are four Credit Information Companies that can determine the creditworthiness of an individual. According to the mandate issued by the Reserve Bank of India on how the credit distribution has to be created, a credit score ranges between 300 and 900. A good score is above 750, and anything lower than that needs to be improved. It is easy to improve your credit score, but it takes a little effort and time. Here are some of the measures that you can take to improve your credit score.

1. Timely payment of dues

Making timely payments is the most significant contributing factor for higher credit scores- be it credit card payments or EMIs. Payment delays not only lead to paying of penalty but also reduce the credit score. So set reminders for all your credit card bill payments or better, still automate them for it to work seamlessly without any probability of a delay. For your loan EMI payments, you can use E – NACH such that the amount is auto-debited from your account every month.

2. Reducing debt

Use your debt prudently and avoid taking too much debt at one time. Apply for only one loan at once. Only after repaying one loan should you apply for more credit if required. For a bank, anybody applying for multiple loans simultaneously shows that you are in an unending cycle of loans with insufficient funds. This will reduce your credit score even more.

3. Maintain a healthy credit mix

Paying off a combination of loans is also a great way to improve your credit score as it shows that you do not have too much burden of a particular type of loan. Regular payment of an unsecured loan and planned credit card payments or a combination of credit card payments with EMIs on a secured loan instills confidence in the bank with regard to your ability to manage money. In fact, banks check the fixed obligation to income ratio to know your capacity to pay debts.

4. Check your credit report

Increasing your credit limit for particular credit cards does not mean you have more money to splurge now. On the other hand, it means that you have more credit at your disposal but show an increase in the credit limit in the credit report. If you maintain the same credit utilization as before and it would reflect positively in your credit report. This one way to enhance your creditworthiness.

5. Increase your credit limit but reduce the utilization

Increasing your credit limit for particular credit cards does not mean that you have more money to splurge now. On the other hand, it means that you have more credit at your disposal but just to show an increase in the credit limit in the credit report. If you maintain the same credit utilization as before and it would reflect positively in your credit report. This one way to enhance your creditworthiness.

6. Joint account and guarantors

If you have joint, co-signed, and guaranteed accounts, you are held liable even if your joint account holder falters in payment. It reflects in your credit report. This kind of negligence can affect your ability to get a loan when needed. Thus, it is best to avoid being a joint account holder or guarantor of loans.

7. Company credit cards

A company credit card is issued to an individual based on their credit score. In this case, since the credit card belongs to the company, it is essential to keep a tab that the credit card dues are paid in full before the due date by the company since it affects the credit score of the holder.

A higher credit score shows that you have disciplined spending habits and regular repayment capabilities. This makes the creditors more confident of repayment of the loan, which in turn gives a higher credit score on better terms. You can always connect with HomeCapital, the first home down payment assistance program in India, for the initial down payment requirements while purchasing your first house.

Stamp duty reduced in Maharashtra!

Posted on by HomeCapital Team

If you’re currently on the fence about buying your new home, there’s no better time than now to take the plunge. Especially if you’re in Maharashtra; because starting from 1st September, 2020 Maharashtra government has reduced the stamp duty on home buying everywhere in the state. While the government has made this move to counter the faltering stamp duty collection in the state, it will result in significant savings for new home buyers. But you will have to hurry if you want to take advantage of this temporary reprieve. Why you ask? Read on to find out everything you need to know about home-buying stamp duty reduction in Maharashtra.

Why is the home-buying stamp duty reduced?

Owing to the current pandemic, the government and residential real estate developers are making efforts to make home-buying attractive. The government wants to influence the buying decision of potential first time home buyers by reducing the cost of owning a home.

Stamp duty is one of the bigger expenses in the home buying process. Now that it has been reduced, albeit temporarily, it will mean significant savings for prospective home buyers. E.g., before this reduction, in Mumbai, it was 5% of the property value. Therefore, on a property worth ₹1 crore, a buyer had to pay a stamp duty of ₹ 5 lakhs. So how much has it been revised to now?

Understanding the reduction in stamp duty

Before this reduction, Mumbai paid a 5% stamp duty on residential property purchases. The other and other key cities like Nagpur and Nashik places in the state paid 6%.

This reduction will be rolled out in a phased manner all over the state. Between 1st September 2020 and 31st December 2020, it has been reduced by 3%. That means in Mumbai, the effective stamp duty is now down to 2%, while in other places, it is 3% of the property value.

From 1st January 2021 to 31st March 2021, the stamp duty on home-buying will be reduced by 2% of the previous rates. Thus, in Mumbai, the effective stamp duty will then be 3%, whereas, in other places, it will be 4%. Let us put these changes into perspective with the example we have seen previously.

Let us consider the same property worth ₹1 crore in Mumbai for an easier understanding.

Property worth ₹1 crore in MumbaiBefore 1st September 2020From 1st September to 31st December 2020From 1st January to 31st March 2021
Stamp Duty %5%2%3%
Amount Paid₹5 lakhs₹2 lakhs₹3 lakhs
Savings After Reduction–₹3 lakhs₹2 lakhs

If you look at the table above, you will see that a new home buyer will enjoy substantial savings on stamp duty after the reduction. When you combine this with the tax benefits on your home loan, the savings become even more substantial. So if you’re looking to buy a new home, this is the time to do it.

But wait! There’s a further twist in this tale of Maharashtra’s reduced stamp duty.

How about paying zero stamp duty!

Sounds too good to be true? But it is! At least until the end of October 2020. After the government announced the reduction in home-buying stamp duty, the property developers in Maharashtra have decided to absorb the stamp duty burden of first-time home buyers, relieving them from an additional cost. This has effectively reduced the stamp duty payable by the home buyer to 0%!

Maharashtra’s developers, who are a part of the National Real Estate Development Council (NAREDCO), will pay the stamp duty on behalf of their buyers until 31st October 2020. Now, this should definitely influence your buying decision if you’re in the market for your first home. This offer covers more than 1,000 housing development projects all over the state, affordable as well as luxury properties.

The after-effects of reducing stamp duty

These measures should spur prospective homebuyers into action and push them towards closing the deal as soon as they can. Sooner than 31st October, 2020 if you want to save on 100% stamp duty cost. If you’re a first-time homebuyer, this is the perfect time to take one step closer to your dream home. It will be easier if you become a part of India’s first home down payment assistance program – HomeCapital. Under the program, HomeCapital will assist you with up to 50% of your home’s down payment amount. You can repay this amount in 12 interest-free EMIs. So not only are you saving the full amount of stamp duty, but you are also closer to realising your dream of a new home.

The developers are also doing their part to make home-buying easier on your pocket. It is now up to you to take that final step and use these measures to your advantage. Do it now rather than later.

Home-buying: The best decision in current scenario

Posted on by HomeCapital Team

Having a home in one’s name has been the quintessential Indian Dream. The world is reeling under the aftermath of the Corona pandemic, and the lesser said about it, the better. But this dark cloud of uncertainty brings with it a bright silver lining for those wanting to realize the home buying dream. Let’s see why home buying in the current scenario is a great idea.

Why buy a house at all

Home became our “safe” place during the challenging times of Lock Downs and Quarantine. Apart from this undeniable truth, the reasons for home buying are innumerable.

Firstly, owning a physical asset gives an unmatched sense of security. It is also better than paying rent since the monthly payment you make towards rent goes down a black hole. On the other hand, a monthly instalment towards loan repayment goes towards building equity in your asset, which you can down to your next generation.

Tax benefits from home-buying provide you a further advantage since you pay EMI’s that attract tax exemptions, in effect reducing your financial burden.

Owning one’s own house also provides the freedom to live by your own tastes and modification flexibility.

Lucrative interest rates

The interest rates on housing loans have reached a 15-year low. Currently, the home loan interest rates for new borrowers start from as low as 6.7%.

The interest rates have come down by 40 basis points. To give you some perspective, an SBI home loan for up to 30 lakhs was given at 7.4 % ROI and would fall to 7 %. A loan of ₹ 30 – 75 lakhs attracting an interest of 7.65% would fall to 7.25% and so forth. A lower interest rate also means a higher eligibility for the borrower, possibly raising one’s aspirations.

Most first time home buyers can get home loans, but the initial down payment is a big challenge to meet. Down payment assistance programs like HomeCapital can help you buy your first home today by contributing up to 50% of the home down payment amount interest-free.

Plummeting real estate prices

Another good reason to buy your first home in current times is the availability of houses at reasonable prices. As per real estate and home loan experts like Deepak Parekh, chairman HDFC, the prices of houses are expected to see a considerable drop, maybe up to 20%, an all-time low. This makes home-buying even more lucrative.

Furthermore, there is a lot up for grabs for first time home buyers. These opportunities include flexible pricing, various types of schemes, and freebies like additional features and deferred payment options.

Favorable government policies for home-buying

The government is taking herculean measures to hasten the economic recovery from the crash. The reduction in repo rates has given a breather to the home-buying sector, with a reduced interest rate on home loans. In addition, the RBI has also instructed banks to extend the loan moratorium facility to the loan takers by a quarter to support them.

In the budget speech this year, the Finance Minister Nirmala Seetharaman extended the deadline to avail home loan for the affordable housing scheme from 31st March 2020 to 31st March 2021. A person purchasing a house up to ₹ 45 lakh can avail of this benefit. The interest deduction on a self-occupied house has gone up from ₹ 2 lakh to ₹ 3.5 lakh.

The recent Stamp Duty reduction in Maharashtra from 5% to 2% has significantly brought down the home buyer’s purchasing cost.

Home-buying – the best investment

As per a research and survey report by ANAROCK, the recent stock market volatility and financial turmoil changed people’s investment. The majority of participants consider real estate to be the best asset class for investment and ‘now’ to be an ideal time for home-buying. The real estate sector has emerged as the most lucrative investment option owing to its safety.

Financial advisors also feel that home-buying helps curb smaller, unnecessary purchases by tying up the liquidity into asset building.

In conclusion, home-buying has never been so lucrative in the past few decades. Be it for self-consumption or investment purposes, the time to buy a home is now. And who better to assist you in realizing this dream than HomeCapital.

A guide to property stamp duty in India

Posted on by HomeCapital Team

Buying a new property is an intricate, step-by-step process and involves many expenses that are not apparent upfront. Stamp duty is one such expenditure. If you have ever bought a property, commercial or residential, you will have paid stamp duty on the transaction. If not, you’ll at least have heard of it.

It is a part of the expenses that you will incur when you buy your new home. Any property-related financial transaction done in India includes this expense. So, what is it and how can it affect your home buying decision? Let us take a closer look and understand why you need to account for it whenever you buy a new property.

What is stamp duty?

Stamp duty is a tax levied by respective state governments on all property transactions within India under section 3 of the Indian Stamp Act, 1899. Just physical possession of a property is not considered as legal ownership. The property must be registered in your name to be considered legally yours.

It is the amount you pay while registering the property in your name. In India it varies between 2% – 7% of the property agreement depending on type of property and the state or union territory in which it is located. As a homebuyer you can claim tax benefit on stamp duty and registration charges up to ₹ 1.5 lakhs under Section 80C of the Income Tax Act, 1961.

How is it paid to the government?

Before digitization, it had to be paid in the sub-registrar’s office, following a long-winded, step-by-step process. Though this option is still available, it can now also be paid online. It is easy, convenient, and goes a long way in taking on counterfeiting. Currently, Stock Holding Corporation of India Limited (SHCIL) takes care of all online registrations all over India except Mumbai. In Mumbai, online stamp duty is to be paid through the Government Receipt Accounting System (GRAS) of the Maharashtra Government.

There are three ways in which you can pay the stamp duty on your new property purchase;

  1. e-Stamping: It is the easiest and the most convenient way to pay it online.
  2. Non-judicial Stamp Papers: One of the traditional ways to pay it which involves a visit to the nearest sub-registrar office.
  3. Franking: It is the process of impressing your sales deed with a red mark through government-authorized automated franking machines.

Due to the benefits and convenience of digitalization, we’ll look at how you can pay your stamp duty through e-stamping at SHCIL.

  1. Visit www.shcilestamp.com and register yourself if you’re a first-time user. Registration is mandatory.
  2. Enter the required details and create your user id and password.
  3. Activate your account through the link that you will receive in your email.
  4. Once you are logged in, select your state and the nearest SHCIL branch.
  5. Enter all the transaction details such as first party name, second-party name, article number, stamp duty paid by, and stamp duty amount
  6. After you submit the form, you will get an Online Reference Acknowledgement Number.
  7. Take a printout of the number and visit the nearest SHCIL branch to receive your final e-stamp certificate.

Stamp duty payment through GRAS for Mumbai is slightly different.

  1. Visit https://gras.mahakosh.gov.in/echallan/ and login if you are a registered user. If not, create a new account or click on ‘Pay without Registration’.
  2. Select ‘e-Payment’ as payment mode and ‘Inspector General of Registration’ as department.
  3. Select ‘Non-Judicial Stamp Duty Customer Payment and/or Registration Fees’ as the payment type.
  4. Enter the rest of the details such as scheme name, district, office name, amount, PAN, your name, address, pin code, and mobile number.
  5. Click on ‘Proceed for Payment’ and make the payment on the next screen.
  6. You can then download the final e-Challan that is generated.

When is it payable?

This is a question many people have. You will have to pay it before the execution of your property document, or on the next working day of execution at the most. By execution we mean signing the transfer of property document by the parties involved in the transaction.

Current rate

Here’s a look at the current rate of stamp duty that is applicable in the major cities across the country.

CityStamp Duty (% of Property Value)
Ahmedabad4.9%
Bengaluru, Mysore, Mangalore5% on properties above ₹ 35 lakhs
3% on properties between ₹ 21 to 35 lakhs
2% on properties below ₹ 21 lakhs
Chennai, Coimbatore7%
Gurgaon7% for male owners, within municipal limits
5% for female owners, within municipal limits
6% for joint ownership, within municipal limits
5% for male owners, outside municipal limits
3% for female owners, outside municipal limits
4% for joint ownership, outside municipal limits
Hyderabad4%
Kalyan, Mumbai2%
Kolkata7% for properties over ₹ 25 lakhs, within municipal area
6% for properties below ₹ 25 lakhs, within municipal area
6% for properties over ₹ 25 lakhs, outside municipal area
5% for properties below ₹ 25 lakhs, outside municipal area
Navi Mumbai, Pune, Thane2%
Stamp Duty rate across major cities

Determining Factors:

In addition to caring from city to city, stamp duty over a property depends on the following factors;

  1. Age of property: Older properties are less expensive and attract lower stamp duty.
  2. Age of property holder: Senior citizens have to pay lower stamp duty in some cities.
  3. Type of property: Apartments have a higher stamp duty than independent houses.
  4. Gender of the owner: Women pay a lower stamp duty than men in some cities.
  5. Location of the property: Properties in urban areas attract a higher stamp duty than rural areas.
  6. Amenities offered: A property with more amenities attracts higher stamp duty.
  7. Purpose of the property: A commercial property has higher stamp duty than a residential property.

How is stamp duty calculated?

It is a pre-set percentage of the property value that is different in each state. It is charged on the current ready reckoner rates or current market value or consideration value of a property, whichever is higher. Additionally, all the factors listed above also play a role in determining the stamp duty on a particular property.

It is worth noting that stamp duty and registration charges are not included in the home loan, but are to be borne by you. Make sure that you factor that in your home buying decision.

Know the difference between carpet area, built-up area, and super built-up area

Posted on by HomeCapital Team

Whenever a new property is advertised, its size is one of the most prominent features that is highlighted. The size of a property, or its ‘area’, is measured as square feet (sq. ft.).

So, a mid-sized apartment could be 600 sq. ft. while a 1,000 sq. ft. apartment would be considered large, regardless of the number of rooms. In the real estate industry, this measure is expressed in three different ways.

Different types of area

You would have heard the terms while you were out property hunting;

  • Carpet Area
  • Built-up Area
  • Super Built-up Area

A property’s area can be shown as either one of these three measures and all of them would be different, but correct. An unscrupulous developer could take undue advantage if you don’t know what the numbers mean. So, what exactly are these measures and how can they affect your home-buying decision? To understand that, it is essential to learn what these terms exactly mean. Let’s take a closer look at each one so that you can avoid costly mistakes while buying your new home.

Carpet Area

This is the smallest and most accurate measure of a property’s size among the three. Quite simply, it is the actual usable area of a property. The area can be covered with a wall-to-wall carpet, hence the term. So, this paints a more accurate picture of your prospective new home. If a developer charges you as per the property’s carpet area, you are getting the best value for your money.

The carpet area does not include the thickness of the interior and exterior walls, balconies, and terraces. If you measure the length and breadth of each room from wall to wall, you will get the carpet area of that room. Do these with all the rooms in the property, including bathrooms and passages, and add them all to get the carpet area of the entire property. While many developers highlight either built-up or super built-up areas, an average carpet area is around 70% of the built-up area. E.g. if a property has a built-up area of 1,000 sq. ft., its carpet area works out to be 700 sq. ft.

Built-up Area

This is the next level in measuring a property’s size. It takes a property’s carpet area and adds the thickness of the internal and external walls, and the area of balconies and terraces if any. So, while you’re being charged for the entire area of your apartment from one outside wall to the other, you cannot utilize the area fully. In short,

Built-up Area = Carpet Area + Area of the Walls + Balcony and Terrace

If you could walk around your apartment and measure the lengths of all the external walls, you can work out its built-up area. If the developer is charging you as per the built-up area you also pay for that part of your property which you cannot use. E.g. if the developer wants you to pay for 1,500 sq. ft. of built-up area, you can use only 70% of the space, which is around 1,050 sq. ft. You end up paying for 450 sq. ft. of space you cannot use.

Super Built-up Area

This last measure is the trickiest of them all. The super built-up area grossly inflates a property’s size on paper and generates the most profits for a developer. It takes an apartment’s built-up area and adds all the common areas like the lobby, staircase, elevator shafts, and even refuge areas in some cases. Sometimes amenities like clubhouse, swimming pool, and generator rooms are also included in the super built-up area. Super built-up area is also commonly known as ‘Saleable Area’.

Super Built-up Area = Built-up Area + Proportionate Share of Common Areas

Super built-up area includes a 1.25X ‘Loading Factor’ to an apartment’s built-up area. So, two apartments of different sizes on the same floor will have different amounts of the saleable area attached. Let’s say Apartment 1 is 1,000 sq. ft. and Apartment 2 is 1,200 sq. ft. The super built-up area of Apartment 1 would be 1,250 sq. ft. and that of Apartment 2 would be 1,500 sq. ft.

How do they affect you?

Based on the figures above, let us do simple math and calculate the price of a 700 sq. ft. apartment at the rate of ₹ 2,000 per sq. ft.

Carpet Area: 

700 sq. ft. x ₹ 2,000 = ₹ 14,00,000

Built-up Area: 

(700 sq. ft. + 300 sq. ft. = 1,000 sq. ft.) x ₹ 2,000 = ₹ 20,00,000

Super Built-up Area: 

(1,000 sq. ft. + 250 sq. ft. = 1,250 sq. ft.) x ₹ 2,000 = ₹ 25,00,000

Now that you have more clarity, you can ask the right questions when you buy your new home.

Which is best for an under-construction property, construction linked plan, or subvention scheme?

Posted on by HomeCapital Team

Watching your home take shape, brick by brick, is an immensely satisfying aspect of buying a new home. When you invest in an under-construction property you not only get to experience that satisfaction, but also get a number of other benefits that you won’t get with ready-to-move-in flats. For one, the prices of an under-construction project are appreciably lesser than that of a ready property. Consequently, you enjoy a better appreciation on your property by the time it is ready to move in. But perhaps the biggest advantage of investing in an under-construction property is the flexibility in payments.

Additionally, you also pay a lower initial down payment. And even that can be eased with down payment assistance. HomeCapital pays up to 50% of your home’s down payment which can then be repaid free of interest. HomeCapital is India’s first and the only home down payment assistance program that helps you realize your dream of owning your first home. Once your down payment is sorted, you have two payment options for your under-construction property;

  • Construction-Linked Plan
  • Subvention Scheme

Let us try to understand both these options in detail to find out which one suits your needs the best.

Construction-Linked Plan for an Under-Construction Property

A Construction-linked Plan (CLP) is a three-party agreement done between your bank, the developer, and yourself for an under-construction property. Under CLP, you pay the developer the pre-determined down payment, while the rest of the loan is disbursed by your bank to the builder. But the disbursement is linked to the progress of construction. For each section of the project completed or a new slab laid, the bank disburses the pre-decided amount to the builder.

Advantages of Construction-Linked Plan

  • The builder prioritizes the completion of the project within time to give you possession at the earliest.
  • You only have to repay the pre-EMI interest during the projected construction period.
  • Your home loan EMIs rise gradually in amount as the construction of your home progresses.
  • This gives you time to better prepare yourself and plan your finances for the timely repayment of your home loan.
  • Your full EMIs start once you get possession of the property

Limitations of Construction-Linked Plan

  • You have to bear the potential risk of the project not being completed on time and might have to make a financial provision for the eventuality.
  • You will be doubly burdened, with EMIs as well as home rent, if the builder delays the completion beyond the stipulated construction period.

Subvention Scheme for an Under-Construction Property

A Subvention Scheme is also a tripartite agreement between your bank, the developer, and yourself for an under-construction property. You make the initial down payment and the rest is disbursed by the bank to the builder. In the early version of the subvention scheme, the bank disbursed the entire loan amount to the builder up front. But it has now been upgraded to construction-linked disbursement for better consumer protection.

Advantages of Subvention Scheme

  • Here, the developer pays the pre-EMI to the bank during construction, until you get the possession.
  • Your full EMIs start only after you get the possession of your home.
  • It acts as a great motivator for the builder to finish the construction of your property on time.
  • This ensures that you are not doubly burdened with EMIs as well as any rent you might have to pay.

Limitations of Subvention Scheme

  • A home loan availed under subvention will be in your name, so if a builder defaults on the pre-EMI, it will adversely affect your credit or CIBIL score.
  • You must ensure that your under-construction property agreement states that the developer will pay the pre-EMIs until possession, and not for the projected construction period.

So, which one should you choose?

Now that you know that you have a couple of options for buying an under-construction property, the ultimate choice between the two boils down to you. Where a construction-linked plan safeguards your credit score, subvention scheme protects you better against unforeseen delays. But both of them ensure that the builder is accountable, and you get the possession of your home at the earliest.

If you do not have a pressing urgency, an under-construction property makes for the perfect home buying option that appreciates better over time.

With reduced home loan interest rates, it is a good time to buy a home

Posted on by HomeCapital Team

Your first home has a rather special significance attached to it. More than a home, it is the first real indicator of your independence in every sense, financial and otherwise. A home loan is probably the easiest way to achieve the dream of your own home. But a home loan is a long-term commitment that needs careful planning, not to mention the initial down payment that is a hurdle for most home buyers. There are a number of home loan options available from different banks and financial institutions, but all of them need you to make the initial down payment yourself.

If you’re finding it difficult to raise that initial down payment, you should opt for down payment assistance. HomeCapital is India’s only home down payment assistance program that puts up to 50% of your home’s down payment amount. And it can be repaid in easy, interest-free EMIs. And now that RBI has cut the repo rate, home loan interest rates have also come down. So, if you’re looking to buy a new home, this seems to be the perfect time to do it. Let us take a closer look at some of the factors that also make this a good time to buy a home.

Repo rate and home loans

Before we can understand how the repo rate affects home loan interest rates, let us understand what it is. Simply put, repo rate is the rate of interest at which our central bank, the Reserve Bank of India (RBI), lends money to commercial banks. In the May of this year, the RBI reduced the repo rate, bringing it down to 4% from 5.15% in 2019. With the repo rate lowered, most banks and financial institutions pass on the benefits to their customers. Which means lower interest rates on loans, including home loans. Now, not all banks are offering lower home loan interest rates, but there are a few of them that are.

The revised home loan interest rates

Home loan interest rates vary from bank to bank and can do so wildly. Then there’s the loan processing fee that also varies from one bank to the other. For simplification let us just consider the base interest rates charged. Here are the 10 lowest housing loan interest rates as of 26 June 2020 compared to the interest rates a year ago.

BankCurrent Home Loan RatesHome Loan Rates in 2019
Union Bank of India6.70%8.65%
Punjab National Bank6.80%8.60%
Bank of India6.85%N.A.
Central Bank of India6.85%N.A.
Bank of Baroda6.85%8.70%
UCO Bank6.90%8.55%
SBI6.95%8.55%
Canara Bank7.30%8.70%
Punjab & Sind Bank7.30%8.75%
IDFC Bank8.15%N.A.

The numbers speak loud and clear. Compared to last year, 2019, the interest rates on home loans have reduced appreciably. Let us consider a home loan of ₹ 1 crore with a tenure of 30 years from SBI.

Loan Details8.55% Interest Rate in 20196.95% Interest Rate in 2020
Loan Amount1,00,00,0001,00,00,000
Monthly EMI77,24666,195
Total Interest1,78,08,5531,38,30,125
Total Payment2,78,08,5532,38,30,125

In this case, you save ₹ 39,78,428 with the reduced home loan interest rates in the year 2020 for the same loan. Hence, the current home loan interest rates make this the perfect time to buy your dream home.

Some more benefits for you

Home loan repayments are also eligible for tax benefits. Under section 80C of the Income Tax Act, you can claim a deduction of up to ₹ 1,50,000 from the principal amount repaid every year. Under section 24, you can claim up to ₹ 2,00,000 from the interest that you repay per year. These deductions further add to your savings, effectively lowering the home loan interest rates even further.

Go for fixed interest rate

Floating interest rates are lower than fixed ones, but it fluctuates pretty regularly. The current home loan interest rates are some of the lowest ones, at least in the past decade. If you opt for a home loan with a fixed interest rate at current levels, you can be assured of the same throughout your loan’s tenure. You will enjoy substantial benefits with a fixed home loan at current rates.

Now’s a good time

A very recent ANAROCK survey had 48% of the respondents choose real estate over other asset classes due to its lower risks. This is a telling statistic. Even if you’re not buying a new home for staying yourself, you can always rent it out. Not only do you earn the rent, but also there’s no upper limit on the amount that you can claim as a deduction on the interest paid.

In essence, now that the home loan interest rates are down, it is a good time to buy yourself a new home.

6 things all first time home buyers should know about homeownership

Posted on by HomeCapital Team

First time home buyers may feel like it’s a long road to homeownership. But with some smart research, wise planning, and sound savings habits you can get there in time. The emphasis is on making sure you continue on your chosen path. We’ve got some tips on how you can stay on this road of homeownership:

1. Set the rewind button and start saving in advance

Planning ahead is key. While saving is important, what you are saving for is also very significant. For example, saving enough for a home down payment is wiser than paying a smaller down payment. This is because with a smaller down payment you will eventually end up paying more interest. This is because your home loan amount would increase, resulting in larger EMIs. So, try and make sure you have all your bases covered and are investing wisely in your future.

2. Find the right lender

Since there are so many options out there, finding the right lender can be a crucial step in your journey to homeownership. Choosing the right lender mainly depends on the rate of interest, the responsiveness of the lender to changes in the benchmark rates, eligibility criteria, and the amount of processing fee chargeable on the loan amount. Thus, making sure you have a suitable lender for your goals is important. It’s a working relationship that will affect how quickly you can make your dream of homeownership come true.

3. Your credit score matters

A credit score will give lenders an idea of your creditworthiness. It is calculated by the credit bureaus after taking into consideration factors like the number and types of accounts you have, your used credit versus your available credit, length of your credit history and your credit repayment history. It helps lenders understand how good you have been at paying back your debts. So keeping a good credit score is imperative. It is what lenders will base their decision to lend on. Make sure you do not default on loans and keep your debts low. Better credit scores also lead to lower interests for loans.

4. You don’t need to save 20% for a home down payment

While it is always better to save the most towards your home down payment, you don’t have to save 20%. Most first time home buyers think that they should save 20% of the home value for the down payment towards their house. However, depending on who your lender is, you can get a home loan for as low as 10% down payment. While it is wiser to pay more home down payment in one go, don’t lose sleep if 20% doesn’t seem like a figure you can commit to. It could also work in your favor to use a low home down payment to be able to get your home quicker. In this case, the rising rents could be something you won’t have to worry about. So there is an upside to everything.

5. Down payment programs exist in India 

One prevailing myth that many prospective first time home buyers labour under is that there aren’t home down payment programs in India. HomeCapital’s home down payment program can help you buy your first home right away. The HomeCapital Program contributes up to 50% of the home down payment amount interest-free. It reduces the waiting time for home buyers towards owning their first home by offering them interest-free credit, helping them to reduce the cost of capital. So, applying for the down payment assistance program will aid you in finding the tools that can help you be a homeowner faster.

6. Budget for closing costs

It is essential to consider closing costs before you can gain ownership of your home. Closing costs can vary from five to ten percent of the purchase price of the home. Some of the closing costs can be property taxes, insurance, and other assorted fees. Typically, a large percentage of home buyers overlook this element when they are budgeting their savings. Make sure that you take these costs into account so you don’t receive a shock when you’re on the brink of achieving your homeownership dream.

So you see when you make sure you’re following the guidelines and keep at it. Even if you’re going slowly and steadily, what matters is that you have done the research and drawn up a good plan. Sticking to it will mean you can become the owner of your dream home and live a more secure life.