ABSTRACT

A home loan is a type of loan provided by banks or other financial institutions to help
individuals purchase a house or a property. The loan is typically secured against the property
being purchased and is repaid over a period of time through regular instalments. Home loans
may have fixed or variable interest rates and may be offered for different tenures, depending
on the lender and the borrower's eligibility. In India, the home loan sector has a long history
and has been regulated by the National Housing Bank since 1988. The sector has undergone
significant growth and evolution over the years, with the introduction of various initiatives to
promote affordable housing and the recent impact of the COVID-19 pandemic leading to
changes in the sector.

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INTRODUCTION

Home is an integral part of a human being, who since his childhood, dreams to have living
space of his own. Once in a lifetime investment requires loan to do it and that is how the
home loan comes into scheme of things. Buying a home is dream for everyone. Due to the
rising price of properties, it has almost become impossible for an average earning person to
buy a home through lump sum payment. Therefore, the concept of home loan has come into
existence. There are plethora of housing finance institutions and banks both in public and
private sector which offer home loans. Choosing one institution and one offer for home loan
amidst the thousands available options have become a very complex task in our country.
Apart from this, there are intricate business jargons and technicalities that make this job more
tough and difficult. Through this study, I propose to identify the critical factors impacting the
growth and distinguishing the growth pattern in home loan portfolio particularly in public
sector banks in India.

A home loan, also known as a mortgage, is a type of loan offered by banks and other financial
institutions to help individuals purchase a home. The loan is secured by the property being
purchased, which means that the lender can take possession of the property if the borrower
fails to make the required payments.

Home loans typically have a long-term repayment period, usually spanning 15 to 30 years,
and come with an interest rate that can be fixed or variable. Fixed-rate home loans have a
fixed interest rate for the entire loan term, whereas variable-rate home loans have an interest
rate that can fluctuate over time.

When applying for a home loan, the borrower typically has to meet certain eligibility criteria,
such as having a stable income and a good credit score. The lender will also consider factors
such as the borrower's debt-to-income ratio, employment history, and the value of the
property being purchased.

Overall, a home loan can be a useful financial tool for individuals who are looking to
purchase a home but do not have the funds to do so outright. However,

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it's important to carefully consider the terms and conditions of the loan and ensure that the
borrower can make the required payments over the long term.

Retail banking has been popular segment to enter into for many banks. In the retail banking,
housing sector has been promising segment which is promising a comprehensive growth rate
about 30 per cent for the next five year. With the government keen on infrastructure
development and announcing various tax sops housing loan segment has been a tempted area
for many banks to enter into housing sector can be bifurcated into organized and unorganized
segments with the unorganized segment accounting for over 75 per cent of the housing units
constructed. During the past 4 – 5 years the housing sector helped by the growing housing
finance industry has witnessed significant development.

Housing in India The housing is one of the basic needs of the people as it ranks next to food
and clothing. A certain minimum standard of housing is essential for a healthy and civilized
living. Thus, the priority has to be given for the development of housing in a country. The
human settlements have a lot of impact on environment. It is a tool for modern economic
development. The census records of India exhibits that there was no deficit-housing problem
in India till the first half of the century. In 1901, there were 55.8 million houses for 54 million
households showing a surplus of 1.8 million houses. This surplus situation continued till
1941. It was only after 1951, the deficit trend has started and is continuing with an escalating
magnitude. In 1971, total number of households was 100.4 million and the number of houses
was 90.7 million, showing a deficit of 9.7 million.

The housing shortage in 1991 was about 31 million units. The housing shortage during 2001
was 41 million. The estimated housing stock requirement in the country by 2021 is about 77
million in urban areas and 63 million in rural areas. The increasing number of houses and a
rising trend in the size of the households has contributed to the shortage of housing stock in

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the urban areas. Only 20% of the Indian population lived in urban areas in 1970 (UNDP
1998). The urbanization is expected to increase still. This resulted in an estimation of 36% of
the population to live in urban areas by 2015. In India, there is a very widening gap between
the supply and demand for housing. There is an urgent need to modify the policy on one hand
and look for an innovative approach for construction of houses on the other to reduce the
deficit. The Government of India (GOI) had introduced schemes and projects for housing
problem in every five-year plans. The National housing Policy formulated by government of
India takes into account the developments on national and international scene on shelter
sector. The adoption of National Housing Policy by the Parliament in 1994 was a landmark
step in promoting housing development in the country

(1.1) HISTORY

Home loans have a long history in India, with the first housing finance company, the Housing
Development Finance Corporation (HDFC), established in 1977. At that time, home loans
were mainly provided by banks, but over the years, non-banking financial companies
(NBFCs) have also entered the market, making it more competitive.

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In the early years, the housing finance sector was largely unregulated, which led to some
issues such as high interest rates and predatory lending practices. To address these issues, the
National Housing Bank (NHB) was established in 1988 as a regulator for the sector. The
NHB introduced standardized policies and guidelines for housing finance companies and
helped to promote affordable housing.

In the 1990s, the Indian government launched several initiatives to boost the housing sector,
including tax incentives for homebuyers and the establishment of the HUDCO (Housing and
Urban Development Corporation) and the National Housing and Habitat Policy. These
measures helped to increase the availability of housing finance and promote the construction
of affordable housing.

In the early 2000s, the housing finance sector in India experienced rapid growth, driven by a
combination of factors such as increasing demand for housing, a growing middle class, and a
favourable regulatory environment. Banks and NBFCs started to offer a range of home loan
products, such as adjustable-rate loans, fixed-rate loans, and hybrid loans.

In recent years, the Indian government has launched several initiatives to promote affordable
housing, such as the Pradhan Mantri Awas Yojana (PMAY), which aims to provide affordable
housing for all by 2022. Under this scheme, eligible beneficiaries can avail of subsidies on
home loans.

The Reserve Bank of India (RBI) has also introduced several measures to regulate the
housing finance sector and protect consumers. For example, in 2019, the RBI mandated that
banks link their home loan interest rates to external benchmark rates, which would make
home loans more transparent and predictable for borrowers.

However, the COVID-19 pandemic has had a significant impact on the housing finance
sector in India, with many borrowers facing financial difficulties due to job losses and

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reduced income. To mitigate the impact of the pandemic, the RBI introduced several relief
measures, such as a moratorium on loan repayments and an extension of the loan repayment
period.

Overall, the history of home loans in India has been marked by growth and evolution, with
the sector playing an important role in the country's economy and development.

(1.2) PUBLIC BANK PORTFOLIOS

A public bank portfolio in India typically consists of various types of assets, including
government securities, corporate bonds, loans, and other financial instruments. These
portfolios are managed by the bank's investment team, which is responsible for making
investment decisions that align with the bank's investment objectives and risk tolerance.

The portfolio of a public bank in India can be further broken down into various categories:

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Government securities: These are debt securities issued by the Indian government to finance
its fiscal deficit. They are considered to be risk-free investments as they are backed by the full
faith and credit of the Indian government. The bank's portfolio may include various types of
government securities, including treasury bills, government bonds, and other debt
instruments.

Corporate bonds: These are debt securities issued by companies to finance their operations.
They offer higher returns than government securities but also carry higher credit risk. The
bank's portfolio may include corporate bonds issued by various companies across different
sectors.

Loans: Public banks in India offer various types of loans to individuals, businesses, and
government entities. These loans are typically secured by collateral, such as property or other
assets. The bank's loan portfolio may include retail loans (such as home loans, personal loans,
and car loans), as well as commercial loans (such as working capital loans and project
finance).

Other financial instruments: The bank's portfolio may also include other financial
instruments, such as mutual funds, exchange-traded funds (ETFs), and other securities. These
instruments offer diversification and potentially higher returns, but also carry higher risk.

(1.3) PRIVATE BANK PORTFOLIOS

A private bank portfolio in India typically includes a variety of investment options such as
equities, bonds, mutual funds, exchange-traded funds (ETFs), and other financial instruments.
Private banks in India cater to high-net-worth individuals and offer personalized investment
solutions to meet their unique needs and risk profiles.

The portfolio of a private bank in India can be further broken down into various categories:
Equities: Private banks in India invest in stocks of companies listed on the stock exchange to

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generate higher returns. They invest in a mix of large-cap, mid-cap, and small-cap companies
across different sectors based on their investment objectives.

Bonds: Private banks also invest in fixed-income securities such as government bonds,
corporate bonds, and debentures to generate regular income for their clients. These
instruments offer lower returns compared to equities but carry lower risk.

Mutual funds and ETFs: Private banks in India invest in mutual funds and ETFs to provide
diversification and flexibility to their clients. These funds invest in a basket of securities
across different sectors and asset classes.

Alternative investments: Private banks also offer alternative investments such as real estate,
private equity, and hedge funds to provide higher returns to their clients. These investments
carry higher risk but also offer the potential for higher returns.The allocation of assets within
a private bank's portfolio will depend on various factors, including the bank's investment
objectives, risk appetite, and market conditions. The bank's investment team will regularly
review and adjust the portfolio to ensure that it remains aligned with the bank's objectives and
risk tolerance. Private banks in India also offer customized investment solutions based on the
specific needs of their clients. They work closely with their clients to understand their
financial goals, risk appetite, and investment horizon, and create personalized investment
portfolios that align with their objectives.

(1.4) SBI POFILE

SBI (State Bank of India) Home Loan is a type of home loan provided by the State Bank of
India, which is the largest bank in India. SBI home loan offers a range of options to
borrowers, including loans for the purchase of a new house, construction of a new house, and
renovation of an existing house.

Eligibility criteria for SBI home loans include a minimum age of 18 years and a maximum
age of 70 years at the time of loan maturity. Borrowers must also have a stable income and a
good credit score. SBI offers home loans with both fixed and floating interest rates, and the
interest rates are based on the borrower's credit score and other factors.

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SBI home loans come with a variety of repayment options, including EMI (Equated Monthly
Instalments) based repayments, step-up or step-down repayments, and flexible loan
instalments. SBI also offers home loan balance transfer options for borrowers who wish to
transfer their existing home loan from another lender to SBI.

To apply for an SBI home loan, borrowers need to submit various documents, including proof
of identity, proof of address, income proof, property documents, and more. The loan
application process involves a detailed evaluation of the borrower's eligibility, credit score,
income, and property value.

Overall, SBI home loans are a popular choice for borrowers in India due to their competitive
interest rates, flexible repayment options, and the reputation of SBI as a reliable lender.

(1.5) ICICI PROFILE

ICICI Bank Home Loan is a type of home loan provided by ICICI Bank, which is one of the
largest private sector banks in India. ICICI home loan offers various types of home loans to
borrowers, including home loans for the purchase of a new house, construction of a new
house, and renovation of an existing house.

Eligibility criteria for ICICI home loans include a minimum age of 21 years and a maximum
age of 65 years at the time of loan maturity. Borrowers must also have a stable income and a
good credit score. ICICI offers home loans with both fixed and floating interest rates, and the
interest rates are based on the borrower's credit score and other factors.

ICICI home loans come with a variety of repayment options, including EMI (Equated
Monthly Instalments) based repayments, step-up or step-down repayments, and flexible loan
instalments. ICICI also offers home loan balance transfer options for borrowers who wish to
transfer their existing home loan from another lender to ICICI Bank.

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To apply for an ICICI home loan, borrowers need to submit various documents, including
proof of identity, proof of address, income proof, property documents, and more. The loan
application process involves a detailed evaluation of the borrower's eligibility, credit score,
income, and property value.

Overall, ICICI home loans are a popular choice for borrowers in India due to their
competitive interest rates, flexible repayment options, and the reputation of ICICI Bank as a
reliable lender.

(1.6) HOUSING FINANCE EVALUATION

Housing Development Finance Cooperation (HDFC) was the first housing finance company
to setup operation in India in 1977.

After the National Housing Bank Act, 1987, was passed NHB came into existence as a
Subsidiary of the Reserve Bank (RBI) to generate housing finance companies and provide
them with refinancing to supplement their fund requirements.

Public sector banks were allowed to provide housing loans directly to retail clients only in
1988. Home is one of the things that everyone one wants to own. Home is a dream of every
person that shows the quantity of efforts, sacrifices luxuries and above all gathering funds
little by little to afford one’s dream. Home is a shelter to person where he rests and feels
comfortable. The demand of home loans has increased dramatically. For fulfil this purpose
many banks are providing home loans whether commercial banks or financial institutions to

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the people who want to have a home. Part of the reason for this increase is because the
accessibility of loans has gotten bigger. Today, home loans are available in the market at very
low interest rates that meet the demands of many home buyers. A home
represents the largest asset that typically people have and this is why home loans have such a
huge impact in the loan market today. When a person purchases a home, he or she will be
investing a huge amount of cash. Many people can’t come up with the whole money to pay
out the house, while some others can’t even afford to invest money for the house they will
like to purchase. When getting a home loan, the individuals should consider taking care of
different aspects related to the home loan. The origin of western type commercial Banking in
India dates back to the 18th century. The story of banking starts from Bank of Hindustan
established in 1770 and it was first bank at Calcutta under European management. It was
liquidated in 1830-32. In 1786 General Bank of India was set up. The Bank of Calcutta
established in 1806 immediately became Bank of Bengal.

In 1921 these 3 banks merged with each other and Imperial Bank of India got birth. Imperial
Bank of India was later renamed in 1955 as the State Bank of India. Thus, State Bank of India
is the oldest Bank of India. After the independence, Reserve Bank of India (RBI) was
nationalized and given wide powers. The operations of all the banks in India are controlled by
the Reserve Bank of India. All the Indian banks are governed by the Reserve Bank of India
(RBI). After 1969, commercial banks are broadly classified into nationalized or public sector
banks and private sector banks.

The State Bank of India (S.B.I) and its associate banks along with another 21 banks are
public sector banks. The private sector banks include a small number of Indian scheduled
banks, which have not been nationalized, and branches of foreign exchange banks. After
1991, the banking scenario has been changed completely. The impact of globalization and
privatization has affected work culture of both, public sector and private sector banks.
Further, in India there are two types of banks. The Public Sector and Private Sector Banks,
which can be differentiated on the basis of the following points – A public sector bank is one
where more than fifty percentage of the stake is owned by the Government. All nationalized
banks are public sector banks.

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There are a total of 27 public sector banks in India [19 nationalized banks + 6 State bank
groups (S.B.I. + 5 associates) + 1 IDBI bank + 1 recent Bhartiya Mahila Bank]. In a private
sector banks majority of the stake belong to private shareholders. These banks are managed
and control by private promoters. The old private sector banks are those which existed before
the nationalization in 1969. The new private sector banks are those which that got their
banking license after the liberalization in 1990s. There are 29 private sector banks in India.

(1.7) TYPES OF HOME LOAN

There are different types of home loans available in the market to cater borrower’s different
needs.
 Home Purchase Loan
 Home Improvement Loan
 Home Extension Loan
 Home Conversion Loan
 Home Construction Loan
 Land Purchase Loan
 Bridge Loan

a) Home Purchase Loan

These are the basic home loans for the purchase of a new home. These loans are given for
purchase of a new or already built flat/bungalow/row-house.

b) Home Improvement Loan

These loans are given for implementing repair works and renovations in a home that has
already been purchased by the customer. It may be requested for external works like
structural repairs, waterproofing or internal works like tiling and flooring, plumbing,
electrical work, painting, etc.

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c) Home Construction Loan
These loans are available for the construction of a new home. The documents required by the
banks or bank for granting customer a home construction loans are slightly different from the
home purchase loans. Depending upon the fact that when customer bought the land, the
lending party would or would not include the land cost as a component, to value the total cost
of the property.

d) Home Extension Loan

Home Extension Loans are given for expanding or extending an existing home. For Example,
addition of an extra room, etc. For this kind of loan, customer needs to have requisite
approvals from the relevant municipal corporation
e) Home Conversion Loan
It is that loan wherein the borrower has already taken a home loan to finance his current
home, but now wants to move to another home. The Conversion Home Loan helps the
borrower to transfer the existing loan to the new home which requires extra funds, so the new
loan pays the previous loan and fulfils the money required for new home.

f) Land Purchase Loan

Land Purchase Loans are available for purchase of land for both home construction or
investment purposes. Therefore, customer can be granted this loan even if customer is not
planning to construct any building on it in the near future. However, customer has to
complete construction within tenure of three years on the same land.

g) Bridge Loan
Bridge Loans are designed for people who wish to sell the existing home and purchase
another. The bridge loan helps finance the new home, until a buyer is found for the old home.
h) Top up loans: Enchasing the investment in a house without having to dispose it off to fund
various needs related to Higher Education, Purchase of Furniture and Business Requirements.
The maximum term of the loan is 10 years. Top up loans can give after 1 to 2 years of the
final disbursement of the existing loan or upon possession/completion of the existing
financed property.

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(1.8) THE ELIGIBILITY CRITERIA

How much can you borrow?

ICICI Bank

Home Loans range from Rs.2lakh to Rs. 7Crore. Your repayment period can vary from | year
to 30
years depending upon your capacity to repay.

SBI Bank
Home Loans range from Rs.50000 to Rs. 50Crore. Your repayment period can vary from 1
year to 30
years depending upon your capacity to repay

ELIGIBILITY:

Age: - Min: You should be at least 21 years of age.

Max: At the time of loan maturity, you should not exceed 65 years or your retirement age,
whichever is earlier.
Individual:
You should have completed a minimum of 2 years of service (with a minimum of 1 year in
the current job)

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Businesspersons/Self-employed professionals:
You must have an established business or professional practice of not less than 3 years, with a
positive net worth and must have posted a net profit for the last 2 years.

Note: Minimum net take home salary of Rs. 6000/- p.m. for salaried employees or annual
income of not less than Rs. 1.20lakh for businesspersons/ self-employed professionals.
(Spouse/co-applicant's income can be included in the income computation).

1. Individuals who are salaried or self-employed, professionals, businessmen are eligible.

Proprietary concerns, HUF, partnership firms or limited companies are not eligible for this
loan, where partners at their individual capacity is free to avail this loan.

2. As a customer to enhance the loan eligibility, all HFIs lay down conditions to who be co
applicants, all co-owners to the property should necessarily be co-applicant. Income of the
co-owners can be clubbed

3.The minimum age for the applicant and the co applicant to become eligible for the
commencement oft eh loan is 23 years, and co applicant can be of |8 years of age if their
income is not clubbed to calculate the loan eligibility.

4. The maximum age at the time of loan maturity for applicant or co-applicant is 60 years or
the retirement age whichever is earlier.

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(1.9) DOCUMENTS INVOLVED IN EVALUATION OF HOME LOAN.

The documentation requirement for various categories of applicants depends on their status.
For this
purpose all HFIs segregate their employees in different categories. They are:

 Salaried
 Professional or Businessman

The criteria of evaluation changes according to their status. The general documents, which
remain same
for all the categories, are as follows:

I. Proof of Age
Any one of the following is considered for proof of age, they are:
Passport
Voter's ID card
PAN card
Ration card

2. Copy of bank statements for the last six months:

Bank statement for the last six months of all operating and salary accounts. Bank statements
for the
last six months of all current accounts, if self-employed. Any other photocopies of
investments held, if required by the HFIs.

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3. Copy of latest credit card statement.

1.Passport size photograph

2. Signature verification by your bankers.
3. Proof of residence:
Ration Card

PAN Card

Passport

Rent agreement if any, if you are currently staying on rent.

Allotment letter from your company if you are residing in company.

The documents required to be provided by the salaried class are as follows:

Salary slips for the last one month.

Appointment letter
Salary certificate
Proof of Employment:
The proof of employment is verified by the

 Identity card issued by the employer

 Visiting card.

Employer's details (in case of private limited companies):

The employer's details are to be provided in addition to the above documents for
documents for private sector employee, they are:

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 Name of promoters / Directors

Background of promoters / Directors

Number of employees

List of branches / factories

List of clients / Customers

Turnover of your employer

The documents required to be submitted by the businessmen as follows:

a. Last three years Profit & Loss Account Statement duly attested by a Charted Accountant
b. Last three years Balance Sheets duly attested by a Chartered Accountant
c. Last three years Income Tax Returns duly filed and certified by Income Tax authorities

Proof of Investments:

 Bank statements for the last six months of all current accounts.
 Any other photocopies of investments held, as required by the HF1.

The above are the various documents required by the businessman in addition to the
documents, which are common to the entire category.

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The businessman is also judged on the basis of the business conducted by him, if his business
profile is in the negative list, he will be thoroughly considered for his credibility before
dispersing loan, the organization and property location should not be in the negative list.

These are the additional documents which are required to be looked at before going on for
completing the pre sanction formalities with respect to dispersing of the home loans to the
business class.

(1.10) THE PARAMETERS INVOLVED IN HOUSING LOAN

EVALUATION

There are a number of parameters on which the housing loans are built:

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TENURE
The tenure of the home loan refers to the time limit for a customer to repay the loan.
Generally, the maximum tenure of home loans is 20 years, with a few lenders offering tenure
of 20
years or more (ICICI has recently launched 30 years loan). The longer the tenure, more a
customer pays in total interest, but monthly payments will be less.

So, depending on the earning potential and bank balance of the customer, an appropriate can
be chose.
An important requirement of most banks/ HFIs is that they pay up the entire loan before you
retire. The customer can always prepay the entire loan amount before it is due.

As long as the tenure goes up a customer pays more interest which is up to 0.25 — 0.5%,
generally above the home loan rates.

AMOUNT PAID BY THE FINANCER/ MARGIN REQUIREMENTS

The financer does not pay the entire amount of the loan, they request the customer to
maintain margin,
most banks go in for a 85% funding of the property value including the stamp duty and
charges, it however varies among various banks.

This is also treated as the margin money or own contribution required to be put by the
prospective loan
seeker as the contribution towards the purchase of the house. Most HFIs believe the amount
paid is upfront before they release any disbursement.

As a rule of thumb, depending upon the HFC, the prospective loan Secker has to cough up
15% - 20% of the loan amount as a down payment. For smaller amounts, this may not be
much, But for figures running into lacks, this could make loads of difference.

For example: An apartment costing Rs. 10lacss may get 85 per cent financing. So, customer
has to arrange for the remaining Rs 1.5lacs.

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Some banks however make way for the payment for 90% of financing and about 100%
financing for
some new projects, however they are subjected to a large number of factors and constrains.

INTEREST RATES

Without doubt the most important parameter to factor into home loan calculations. The
interest rates
may vary from institutions to institutions and generally range from about 7.25% - 7.75% to
around 9%
Repayment is in the form of EMIs (Equated Monthly instalments). The longer the tenure, the
more you

pay in interest, but your monthly payment will be less.

The two kinds of interest rates available to a customer are:

o Fixed interest rates

o Floating interest rates
Fixed interest rates remain fixed over the tenure of the loan.
Floating interest rates are affected by the rates in the market, they fluctuate according to the
rates issued or changed by the RBI from time to time.

The finance minister's diktat on home loans does not hold for private banks. Indias largest
home loan provider and second largest bank — ICICI Bank —on Tuesday hiked its home
loan by 1%. The bank has also increased its deposit rates.

As per the new rate structure, customer will have to pay 10.5% on the home loans with a
floating rate, while the fixed home loan will now invite an interest of 12.5%. With this
increase, the monthly instalment on an Rs. lakh loan for 20 years goes up by Rs70.

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Some public sector banks do so only once in 12 months while some private sector lenders do
it as frequently as a quarter. Though the current interest rate quote maybe lower, over the life
of the loan, a

customer will be able saved more in the case of a lender who resets your floating rate more
frequently.

The investors are also given the option of changing their option from fixed rate loan to a
floating rate loan, of course by paying a penalty.

MISCELLANEOUS CHARGES:
All banks charge certain amount of processing fee which cannot be ignored, it should be
understood that along with monthly payments, the customer should also ensure that he has to
pay these charges, so he should careful in choosing his HFC

Miscellaneous charges generally range around 2.5% to 3%.

A 1% administration fee and 0.8% processing fee on, say RS. 5, 00,000 loan, would amount
to RS 10.000. Other times, it could be just one fee (either administration or processing) but
could yet work out to be much more if it is considerably higher at, say, 2.5 per cent or 3 per
cent. The various other fees, which you are required to be paid along with the margin amount,
are:

Processing fee:

It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to
the loan or may also be a percentage of the loan amount. The loan amount received by
customer can be less than the processing fee. It is charged at the submission of the application
form and covers expenses incurred for processing the application form.

Prepayment Penalties:

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When a loan is paid back before the end of the agreed duration a penalty is charged by some
banks/companies, which is usually between 1% and 2% of the amount being pre-paid.

Administrative Fees:

An administrative fee is charged by the HFI on the loan amount sanctioned to customer. This
fee is normally payable at a time of accepting the offer letter. It is charged mainly to meet the
operating expenses of the loan amount of the entire tenure.

Others:

It is quite possible that some lenders may levy a documentation or consultant charge.
In case of ICICI Bank the processing, fee is 0.25% of the loan amount and the administrative
fee is approximately 0.50% of the loan amount.

(1.11) Benefits of Home Loan

There are several benefits of taking a home loan, which include:

 Home ownership: One of the most significant benefits of a home loan is that it allows
you to own a home. Rather than paying rent every month, you can use the loan to
purchase a property and pay back the loan in instalments over a period of time.

 Tax benefits: Home loan borrowers can avail of tax benefits on both the principal and
interest components of their home loan. Under section 80C of the Income Tax Act,
borrowers can claim a deduction of up to Rs. 1.5 lakh on the principal component of

pg. 23
 their home loan. Additionally, under section 24, borrowers can claim a deduction of
up to Rs. 2 lakhs on the interest component of their home loan.

 Low interest rates: Home loan interest rates are typically lower than other types of
loans, such as personal loans or credit cards. This is because home loans are secured
by the property, which reduces the risk for the lender.

 Flexible repayment options: Home loan borrowers can choose from several repayment
options, such as fixed or floating interest rates, EMI-based repayments, and flexible
loan instalments. This allows borrowers to choose the option that best suits their
financial situation.

 Long repayment tenure: Home loans typically have longer repayment tenures, ranging
from 5 to 30 years. This allows borrowers to pay back the loan over a longer period of
time, reducing the burden of large monthly payments.

 Appreciation in property value: Real estate is known to appreciate in value over time,
which means that the value of the property purchased with a home loan is likely to
increase over time. This can provide borrowers with a valuable asset that can be used
for investment or sold for a profit in the future.

 Overall, a home loan can be a smart financial decision for those looking to purchase a
home. It provides borrowers with a valuable asset and can offer several financial
benefits such as tax savings, low interest rates, and flexible repayment options.
However, it's important to carefully evaluate your financial situation and ensure that
you can comfortably afford the monthly payments before taking out a home loan.

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(1.12) How to Determine the Right Loan

Choosing the right home loan tenure is a significant aspect. Most banks will allow you to
select tenure of 5-20 years, depending on your age and income. It is best to opt for a tenure
that will ensure that the loan is paid off before your retirement. However, you must also
understand that while choosing a short tenure will make your EMI high, it will reduce the
total interest that you pay to your bank. One must find a balance and then opt for a tenure that
best suits your financial state. For example, if you take a loan of Rs 10,00,000 at the rate of
10.5% for 20 years, your EMI would be Rs 9,984 and the total amount that you would be
paying to your bank in these 20 years, including principal and interest would be Rs
23,96,112. If you take the same loan of Rs 10,00,000 at the rate of 10.5% for 15 years, then
your EMI would be Rs 11,054 and the total amount that you would be paying to your bank in
15 years, including principal and interest would be Rs 19,89,718. In the same way, if you take
the same loan amount at the same rate of interest for ten years, then your EMI would be Rs

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13,493, but you would be only paying Rs 16,19220 in ten years, that is considerably less than
what you pay when you choose tenure of 20 years. It is best that you opt for a long tenure
home loan that does not levy any penalty for prepayments

(1.13) What Happens When You Default on a Home Loan?

Contrary to the popular belief, a home loan default is not the end of the road; this is
especially true if you have maintained a clean credit history and record till date. If you are
unable to make regular payments towards your home loan because of an untowardly situation
such as loss of your job or an accident, then you must discuss your financial predicament
with your bank. Depending on your case and your relationship with the bank, your bank
might come up with some feasible solution for you. Depending on your case, your bank may
allow either debt rescheduling, deferring of payment, loan restructuring, onetime settlement
or a conversion of an unsecured loan into a secured one. In the case of debt rescheduling,
your bank might decide to increase the tenure of your loan, thus allowing you some more
time to repay your loan. Similarly, in the case of deferring the payment, your bank may allow
you temporary relief from payments for a few months; this is usually done when the bank
anticipates that the customer might have an increased cash flow in the future due to a job
change or similar circumstances. If none of the above suggested solutions work for you, then
the bank might initiate the process of repossession of the purchased property for recovery of
the outstanding dues. However, banks initiate the repossession process only as the last resort
to recover funds and they usually give a notice to the customer before they do so. In the case
of home loans, you are given 60 days’ notice to come forward and settle the account. It might
appear that defaulting on a home loan may not be that serious, after all? Wrong. Defaulting of

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a home loan can have serious repercussion on the financial stability of your family and your
credit history. So, as we urged earlier, please do ensure that you take adequate stock of your
financial health before taking a home loan.

(1.14) HOW TO COMPARE THE LOAN OFFERS OF VARIOUS BANKS?

Before you sign your home loan agreement, ask for home loan quotes and offer details from
as many banks and housing finance companies as possible. You must also take the time to ask
important home loan related questions to the loan officers of all the banks. To compare the
loan offers of various banks, you must make a detailed note of the interest rates, tenure, and
projected EMI, provided by all banks. You must also make a note of all additional charges
such as administrative charges, processing fees, and hidden costs. If any bank has offered to
waive any charges for you, then you must make a note of the same as well. Once you have all
these details in place, you will have a clear idea of the options that are cost-effective and
within your budget. The next step is to check the reputation of the bank on online forums or
similar platforms. Do not get lured by lesser-known banks with little or no reputation, as
zeroing on the home loan service of such banks will prove costlier in the long run. Remember
to compare all the important features of the home loans before you take the final call. (Note:
All the major banks and financial institutions have the details of the offered interest rates on
their respective websites.)

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(1.15) COMPARATIVE ANALYSIS BETWEEN SBI AND ICICI BANK
REGARDING HOME LOANS:

Interest Rates:
As mentioned earlier, SBI usually offers lower interest rates compared to ICICI Bank. The
interest rate on a home loan is a crucial factor as it determines the EMI amount and the
overall cost of the loan. The current interest rate for SBI's home loan starts at 6.70%, while
ICICI Bank's home loan interest rate starts at 7.15%. However, the interest rate may vary
based on various factors like the loan amount, credit score, and loan tenure.

Processing Fees:
The processing fee is the fee charged by the bank for processing the home loan application.
SBI charges a processing fee of up to 0.40% of the loan amount, while ICICI Bank charges a
processing fee of up to 1.50% of the loan amount. However, both banks offer processing fee
waivers and discounts from time to time.

Loan Amount:
SBI offers a higher maximum loan amount compared to ICICI Bank. SBI provides a home
loan of up to Rs. 7.50 crore, while ICICI Bank offers a home loan of up to Rs. 5 crore.
However, the loan amount may vary based on various factors such as income, credit score,
and repayment capacity.

Loan Tenure:
Both SBI and ICICI Bank offer a maximum loan tenure of up to 30 years. However, the loan
tenure may vary based on the borrower's age and other factors.

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Prepayment and Foreclosure:
SBI allows prepayment of the home loan without any penalty, while ICICI Bank charges a
penalty of up to 2% on the outstanding loan amount for prepayment. In terms of foreclosure,
SBI charges a penalty of 0.5% to 1% of the outstanding loan amount, while ICICI Bank
charges a penalty of up to 2% of the outstanding loan amount.

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