Home Loan

ALL ABOUT HOME LOAN

A.    Home Loan:

Home is an integral aspect of emotional fulfilment and shelter. It is imperative for individuals to have a place they can call their own. And Home Loan plays a major role in today’s age when one steps into buying their home. Home loan is amount of money hat an individual borrows from a bank or money lending company at a certain rate of interest to be paid with the EMI every month. The property is taken as a security by the money lending company for the Home Loan. The property can either be commercial or personal in nature. Lack of funds is not the only reason why people take a home loan. This financing facility comes with a number of benefits to lure aspiring home owners. A home loan is one of the cheapest borrowing tools which come with a low rate of interest.

 

A home / housing loan, also known as a mortgage, is an amount of money borrowed by an individual, usually from banks and companies that lend money. The borrower has to pay back the loan amount with interest in Easy Monthly Instalments or EMI's over a period of time that can vary between 10-25 years depending on the nature of the loan.

 

B.    Purpose:

Home loan is a financial tool which facilitates the individuals to:

-  Apartment purchase;

-  House purchase;

-  Own construction;

-  House renovation;

-  Commercial space purchase;

 

C.    Benefits:

-  Tax benefit;

-  Low interest rate;

-  Capital appreciation;

-  Sense of accomplishment;

-  Flexible enjoyable tenue;

-  High repayment tenue;

-  Quick processing time;

-  Compulsory way of saving;

-  No additional collateral required;

-  Low processing fees & charges;

-  Saving benefit from paying rent;

-  Due diligence of property by FI’s;

-  Minimum documentation;

 

D.    Some Basic & Common Features of Home Loan:

Now a days, various Bank and NBFI’s are offering most attractive features for the consumers, who wants to avail the home loan facilities. Following are some basic and common features of home loan offered by most of the Bank and NBFI, that need to be kept in mind:

 

       (a)   Who can avail?

              Any Bangladeshi earning individual with stable source of income.

 

       (b)   Age Limit

              Most of the Bank and NBFI’s are referring following age limits for the consumers.

              -  Minimum Age     :  21 Years;

              -  Maximum Age    :  65 Years (at the end of loan tenure);

 

       (c)   Professional Experience

Required professional experiences are varies based on consumer profession. Most of the Bank and NBFI’s are referring following professional experience limits for the consumers.

              -  Salaried             :  Confirmed employee having minimum 1 years of work experience with current employer;

              -  Professional       :  Having 2 years of professional experience;

              -  Businessman     :  Minimum 2 years of business experience in same business;

 

       (d)   Minimum Monthly Income

Required minimum monthly income level are varies based on consumer profession or source of income. Most of the Bank and NBFI’s are referring following minimum monthly income level for the consumers.

              -  Salaried             : BDT 30,000

              -  Professional       : BDT 40,000

              -  Businessman     : BDT 50,000

              -  Landlord             : BDT 50,000

              -  Others               : BDT 60,000

 

       (e)   Interest Rates

All Banks are currently offering 9.00% or below interest rate for home loan product. NBFI’s also offering home loan product against little bit higher interest rates with additional key features.

 

       (f)    Fees and Charges Related to Home Loan

Apart from interest charges, some additional charges may also be applicable to a home loan. Some of the most common charges & fees that should be kept in mind are as follows:

              -  Processing fee;

              -  Stamp duty;

              -  Late payment fee;

              -  Early settlement fee;

              -  Partial payment fee;

              -  Overdue charges;

              -  Penal charges;

              -  Insurance premium;

              -  CIB & CPV charges;

              -  Document retrieval charges;

              -  Vetting & valuation charges;

              -  Other fees & charges;

 

       (g)   Loan Tenure

              Most of the Bank and NBFI’s are offering following loan tenure for the consumers.

              -  Minimum       :  1 Year

              -  Maximum      :  25 Years

 

       (h)   Loan Limit

              Most of the Bank and NBFI’s are offering following loan limits for the consumers.

              -  Minimum       :  BDT 03 Lac

              -  Maximum      :  BDT 200 Lacs

 

       (i)    Grace Period

Most of the Bank and NBFI’s are allowing following grace period based on property type.

              -  Minimum       :  BDT 06 Months

              -  Maximum      :  BDT 18 Months

 

       (j)    Disbursal Time

Most of the Bank and NBFI’s are completing the total procedure within 15 working days.

 

       (k)   Collateral

Purchased property is considered as collateral. No other collateral required.

 

       (l)    Repayment Mode

Flexible repayment polity through Equal Monthly Installments (EMIs) over a period of 1 year to 25 years.

 

E.    Home Loan Interest Rate and Calculating Method:

Interest rate refers to the rate at which interest is applicable on any amount borrowed from a Bank or NBFI. Home loan interest rate is one of the most important factors that determine selection of a loan offer. Thus, one should always compare interest rates from multiple lenders before settling on a loan offer.

 

(a)   Interest Rates

In our country, home loan interest rate set on fixed rate basis. In this case, the rate of interest remains constant throughout the loan tenure. Consequently, monthly EMI amount also remains fixed throughout the loan repayment period. This may help you plan your monthly expenditure in the long term.

 

(b)   Calculating Method (Monthly EMI)

In our country, home loan interest calculation follows reducing balance method. In this method, as you pay off your monthly EMIs, parts of the loan amount and the interest component are paid off. Thus, the principal loan amount keeps on decreasing with time. In this method, interest is calculated on this decreasing loan amount and not the total amount initially borrowed.

 

F.    Factors Affecting on Home Loan Eligibility:

Home loan eligibility depends on many more factors. Most of the Bank and NBFI’s are considering following eligibility factors before approving any home loan application.

Age;

Property type;

Property value;

Property location;

Monthly net income level;

Current profession category;

Employment status (if salaried);

Professional experience;

Monthly expenses;

Other loan burden (if any);

Banking relationship;

 

G.    Things to Consider before Applying for a Home Loan:

Before applying for a home loan, consumers should consider following things.

Interest rate;

Loan limit;

Loan tenure;

Down payment;

Processing time;

Fees & charges;

Repayment affordability;

Required documents;

Compare all financers rates & features;

 

H.    How to Improve Your Chances of Availing a Home Loan:

Many loan applications get rejected as the borrower do not fulfil the basic set of rules of lenders for approval of the home loan. Hence, the borrower works on improving his or her chances of availing a home loan using some simple tips.

Maintain professional stability;

Maintain stable income source,

Maintain clean past loan records;

Identify options for bad credit loans;

Identify the right lender for you;

Ensure higher down payment;

Avoid multiple credit cards;

Select longer repayment tenure;

Include all your sources of income;

Be honest and provide accurate information;

Avoid multiple loan applications simultaneously;

Provide all required documents as of lenders requirement;

Apply for a loan amount based on your repayment capacity;

Try to keep a gap of minimum 6 months between two loan applications;

 

G.    Required Documents:

To apply for home loan there are various types of documents are required. Proper documentation the only possible way to avail the loan facilities. Most of the Banks and NBFI’s are considering similar guidelines in respect to the documents required for home loans. A generic list of such documents has been provided below:

Complete application;

Proof of age;

Proof of identity;

Proof of income;

Proof of address;

Proof of nationality;

Proof of banking transaction;

Salary certificate (if salaried)

Certificate and profession proof (if professional);

Certificate and business existence proof (if businessman);

Land / building documents (if landlord);

All required documents related to the asking property;