Case study on Housing Loan Today is 28th Feb 2010.

You are working as a Branch Manager of Uco Bank , VilleParle, Mumbai . One Mr. Srinath approached you for a housing loan. After talking to him you have ascertained the following details. Mr. Srinath is an MBA, working as a wealth advisor in Akshay lifestyle designer services Mumbai. He is aged 25 years. Mr. Ramseshu , father of Mr. Srinath is an engineer in AP State Govt , Irrigation department and aged 53 years and residing in his own house at Hyderabad , which is approx worth Rs. 50 lac. Since he is a govt. employee he is eligible for pension, till his life and afterwards his wife can draw family pension. Mr. Srinaths pre tax income for the year 2008-09 was Rs. 6.00 lac (Fixed) and also an incentive of Rs. 9.00 lac. He is newly wedded to Ms. Srestha (22) , a Bsc (Home science) graduate and running a Nutrition Club started by her 3 years ago. Last year her annual income was Rs. 6.00 lac (Pre tax). Mr. Srinath is proposing to buy a house (apartment) at Kukatpalli, Hyderabad, which is an upcoming, high-tech area , where normal rent for a three bed room apartment is Rs. 50000 pm. The proposed house is 2500 sq.ft , 3 bed room , 1 st floor. Cost per sq.ft as quoted by the builder is Rs. 3000. Registration charges are 5% of the cost of the apartment. Stamp duty payable is 5% of the apartment cost. The building will be delivered within 12 months from the date of starting the construction. He is also proposing to spend interiors and top ups worth Rs. 20 lac. Your bank has recently release loan policy guidelines with regard to housing loans and the details are as below.
This housing finance scheme brings to you an excellent opportunity to have your own house or flat. The scheme has been carefully tailored to suit your requirements and match your capacity. The reasonable rate of interest that you pay will be calculated on reducing balance, i.e. you do not have to pay interest on the loan installments actually repaid from the date of such repayment. Eligibility

The applicants are eligible for singly, or jointly as husband-wife/ parent-son / parentdaughter, if you are Indian resident having regular source of income. Minimum 21 years of age and Maximum 65 years of age inclusive of repayment period and maximum 75 years of age for Senior Citizens availing finance to secure Shelter in Old age Home against full coverage by Banks own Term Deposit. Purpose Purchase of new independent house /ready built flat for residential purpose. Construction of independent house on the site already owned by the applicant or site proposed to be purchased from own sources. Purchase of old house/flat not more than 30 years old, free from tenancy and constructed as per approved plan.

Extension / Repair / Renovation of existing house/flat not more than 50 years old is also permitted for sanction of a loan Takeover of home loans availed from other banks/FIs subject to certain terms. Furnishing of house to be constructed /acquired with your bank loan. Loan for more than one purpose is allowed The borrowers are allowed to avail personal loan also under certain conditions. Purchase of plot of land for housing purpose under certain conditions.

Quantum of loan The quantum of loan will be decided as per loan entitlement subject to a maximum of 85% of the total project cost of construction / purchase price of house / flat. Required margin of 15% may be by way of cost of land , normally cost per sq.ft is followed as per the municipal approved rates and at present the approved rate in Hyderabad is Rs. 2200 per sq.ft. Quantum of loan for furnishing will be 75% of cost of such furnishing subject to a ceiling of 20% of loan eligible for construction/acquisition of house/flat. The area-specific maximum limits for construction/purchase are as under: Rural Areas: Rs.25 Lac Semi-urban/Urban/Metro Areas: Rs.100.00 Lac Maximum limits for Repair/Extension/Renovation are Rs.7.50 lac in rural areas and Rs.25.00 lac in Metro/Urban/Semi-Urban areas. Purchase of Land financing the cost of land in deserving cases upto 50% of cost of land purchased from Urban Development Authorities/Govt. Bodies subject to the ceiling of 30% of the project cost (i.e. Cost of land + Construction Cost). Loan Entitlement Within the above limits, loan entitlement will depend on the following income criteria: Monthly income should be equal to/more than EMI + Rs.4,000/- in case of a family with up to four members Salaried/Non-salaried and agriculturist and banks own staff are entitled for loan With increase in number of members, monthly income requirement goes up progressively by Rs.1,000/- for each additional member. Income of spouse & major children may be considered for enhancing the loan entitlement on their agreeing to stand as guarantor/ co-obligant Loan limit can be enhanced if additional liquid security is offered.

Second Loan- Allowed for repair/renovation/extension of existing house after one year of first loan with minimum margin requirement of 25% Processing Fee 0.5% of the loan amount minimum Rs.1000.00. Only 0.25% payable on issuance of in-principle sanction. Balance amount payable on final sanction. Rate of Interest
Repayment Period Up to and inclusive of 5 years Above 5 & up to and inclusive of 10 years Above 10 years (Max. 20 years) Rate of Interest 10.50 (BMPLR-2.75) 10.75 (BMPLR-2.50) 11.00 (BMPLR-2.25)

Repayment The maximum period of repayment is 25 years inclusive of moratorium. However, the monthly interest charged during the moratorium period will have to be paid. The entire loan will have to be adjusted before retirement or 65 years of age, whichever is earlier. Repayment may be made by deduction from monthly salary or by means of post dated cheques. Flexibility in repayment is permissible through stepped up EMIs and in case of farmer borrower, repayment is linked to crop cycles. Both in case of Salaried and non salaried person, repayment period may be enhanced to certain period over and above the prescribed period depending upon repaying capacity of the co-applicant. Prepayment charge 2% of the prepaid amount, if the loan is prepaid within 3 years. No prepayment charges thereafter. However, no pre-payment charges are to be levied if loan is prepaid from own source. Tax Benefits Tax relief on principal and interest components of this loan would be available as per provisions prevailing under Income Tax Act. Insurance Insurance cover on property under UIICO Griha Raksha Yojna Scheme and personal accident benefit to the borrower is available on death only to cover the outstanding

balance under UII CO Griha Lakshmi Yojana Scheme (UCOGLYS). Group insurance cover to home loan borrowers is available against any type of death from Rs.50000/- to Rs.100.00 lac under UCOGLYS..

Activity : 1. Arrive at Housing loan Eligibility and Margin amount to be brought by the applicant 2. Fix the Repayment Period and EMI 3. Prepare a sanction letter duly incorporating all the terms and conditions