White House to announce housing aid: sources

The White House plans to announce on Friday that it will require lenders to lower the mortgage payments of some unemployed workers and encourage lenders to eliminate some principal debt of homeowners who owe more than their home is worth, sources familiar with the plan said on Thursday.

The plan comes as President Barack Obama is under increasing political pressure to change his strategy for helping struggling homeowners and stem the tide of rising foreclosures and is the second major housing initiative announced in as many months.

Delinquencies on U.S. mortgages rose to nearly 14 percent in late 2009, led by a sharp increase in seriously overdue home loans held by the most credit-worthy borrowers, U.S. banking regulators said earlier on Thursday.

Obama's $75 billion homeowner assistance program announced last year has been widely criticized as ineffective by both Democrats and Republicans on Capitol Hill.

Representative Jackie Speier, a California Democrat who backs Obama on most issues, told a top administration official responsible for housing policy on Thursday that White House efforts so far have "failed miserably."

The new efforts include at least three and at most six months of temporary assistance for jobless workers and incentives for mortgage servicers to write down part of the principal balance, sources said.

The plan also aims to increase the Federal Housing Administration efforts to keep people in their homes as the cause for delinquencies has shifted from sub-prime borrowers to the unemployed and "underwater" borrowers: people who owe more than their house is worth.

Recognizing the difficulties for so-called loan servicers to modify loans for unemployed workers, the administration's plan aims for lenders to cut payments on existing loans to 31 percent of a borrowers income.

Howard Glaser, a mortgage industry analyst in Washington called the decision to focus on jobless and underwater borrowers a significant and welcome shift in the administration's strategy to stabilize housing market.

"They have recognized that the complexion of the mortgage crisis has changed. This is no longer about risky subprime loans -- its about home value declines that have made default a rational economic choice for homeowners," Glaser said in a note to clients.

It would use up to $14 billion of what remains of the $700 billion bailout to let borrowers refinance up to 115 percent of the value of the homes they live in.

The FHA plan is aimed at getting servicers to write down some or all of the so-called piggyback loans that have been a major sticking point for modifications thus far.

John Courson, chief executive officer of the Mortgage Bankers Association, welcomed the administration's efforts to expand its homeowner assistance.

"As the causes of the ongoing foreclosure crisis have shifted, we need to keep looking for new ways to help delinquent and underwater borrowers," Courson said in a prepared statement.

The principal reduction plan would be administered under the existing Home Affordable Modification Plan and is modeled after a principal reduction plan announced this week by Bank of America.

Under pressure from Massachusetts Attorney General Martha Coakley, Bank of America Corp said on Wednesday it would offer what could be up to $3 billion in loan forgiveness to about 45,000 troubled homeowners.

Bank of America pledged to offer an "earned principal forgiveness" of up to 30 percent for homeowners nationwide who owe more than 120 percent of the value of their home.

Bryan Whalen, a managing director at money manager TCW, which manages more than $115 billion, including mortgage-backed securities, cautioned that this could be aimed more at public opinion than the mortgage market.

"If this program is anything like Bank of America's -- in terms of scale -- I expect the market to not react to it," Whalen said.

"The BofA program involves 45,000 loans -- it doesn't move the needle one bit. The market will take a 'show me' approach to the White House announcement," Whalen said.

The plan comes just a few days after Treasury Secretary Timothy Geithner launched what could be a years-long process of overhauling the government's role in helping Americans buy homes.

Geithner told lawmakers the government should continue to play some role in any new system of housing finance Congress develops, although he said mortgage finance giants Fannie Mae and Freddie Mac should not be nationalized.

"As long as the administration continues to sidestep the larger issues such as job creation and how they intend to deal with Fannie and Freddie, subsequent misadventures (by the government) into the mortgage market will continue to be an exercise in futility," said Representative Darrell Issa of California, one of the hardest hit states.

article source: .reuters

Student loan reform will provide relief to college students

The health care reform passed in the House of Representatives last Sunday won't only provide health care for the citizens of the United States, but will also provide some help for college students.

The reform was piggybacked on the back of health care reform.

The new student loan reform is aiming to eliminate the private sector from the process and have all loans come straight from the government.

According to the Congressional Budget Office, this would create a $62 billion net savings through 2020.

The $62 billion that's being saved would go back into financial aid.

SRU increased tuition by 3.5 percent before this school year, but the raise was below the rate of inflation for four straight years.

State schools are struggling to keep up in the current economy.

Students also bear the brunt of the burden because they're forced to pay higher tuition rates whenever the economy goes south.

SRU is still one of the cheapest schools in the state.

But with a $9 million deficit, how long will it be able to keep tuition costs so low?

Democrats trimmed their original spending plan by dropping the amount from $87 billion to $61 billion.

They increased the maximum number of dollars that could be spent on a Pell Grant from $5,300 to $5,900.

Besides increasing Pell Grants, the bill provides $1.5 billion to help students repay their loans. And beginning in 2014, borrowers won't be allowed to devote more than 10 percent of their monthly income to repay student loans.

The idea of there being more money toward financial aid is exciting for many students, and a majority of our staff is in favor of the program.

Any additional financial aid that could be provided for students would be beneficial.

Can you imagine, if we have children one day, what the cost of colleges will be?

Increasing tuition every year is going to hurt every aspect of academia.

The first victim of these increases would be lower-income students.

It's hard enough for students to pay as it as, let alone without any help for financial aid. These kids are trying to better their lives and may need an extra push to get there.

Students will also enjoy this new system because they'll have to spend less time worrying about making money to go to school.

Working will still be important, but with extra grant money coming in, they could put more focus on education.

Some of our staff members do have problems with the nature of how the bill was passed.

This is a practice that's gone on in the United States forever, but it's a reprehensible way to push a bill through.

Healthcare was on the front page of most major newspapers, while student loan reform was on page seven.

Also, cutting out the private sector will eliminate nearly 32,000 jobs.

The banks in the private sector used to be responsible for processing the loans once they were approved.

That isn't helping an economy rife with unemployment.

Also, increasing the Pell Grant by $600 is kind of insignificant, considering tuition at the Rock went up by $181 last year.

So in five years, the $600 extra wouldn't matter in four years.

We're all in favor of more money and hope this new program will benefit students sooner rather than later.

article source: theonlinerocket

Obama readies steps to fight foreclosures, particularly for unemployed

The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.

Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower's income, which would typically be the amount of unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.

The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more-recent defaults reflect the country's economic downturn and the inability of jobless borrowers to keep paying.

The administration's new push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, offering financial incentives for the first time to lenders to cut the loan balances of such distressed homeowners. Those who are still current on their mortgages could get the chance to refinance on better terms into loans backed by the Federal Housing Administration.

The problem of "underwater" borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.

Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.

The measures have been in the works for weeks, but President Obama is finally to release the details days after his watershed victory on health-care legislation. Following that bruising battle on Capitol Hill, his administration is now welcoming a chance to change the subject and turn its attention to the economy and, in particular, the plight of the unemployed -- concerns that are paramount for many Americans.

The administration has been facing increasing pressure from lawmakers and housing advocates to overhaul its foreclosure prevention efforts. So far, fewer than 200,000 borrowers have received permanent loan modifications under its $75 billion marquee program, known as Making Home Affordable. In the meantime, there is a growing backlog of distressed borrowers awaiting help from their lenders, which threatens to undercut efforts to stabilize the housing market.

Challenges unmet

Assistant Treasury Secretary Herbert M. Allison Jr. told a House panel Thursday that "we did not fully envision the challenges that we would encounter" when the earlier program was launched.

The efforts have been hampered by the difficulty of helping unemployed homeowners, who struggled to qualify for the government's mortgage relief plan. In requiring temporary relief for jobless borrowers, known as forbearance, officials are hoping to give them time to find a new job. Some will still need more assistance after the six-month period while others will ultimately lose their homes, administration officials said.

"We certainly support a forbearance opportunity for unemployed borrowers," said John A. Courson, chief executive of the Mortgage Bankers Association. He said he had not seen full details of the program.

Four measures

In addition to mortgage relief for unemployed borrowers, the program features four other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth, according to officials who spoke on the condition of anonymity because the official announcement had not been made. Underwater borrowers now make up about a quarter of all homeowners, according to First American CoreLogic. Economists consider these homeowners at higher risk of default because they cannot sell or refinance their home when they run into financial troubles.

The first key element is that the government will provide financial incentives to lenders that cut the balance of a borrower's mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.

Until recently, administration officials had been reluctant to encourage lenders to cut the principal balance, worrying that this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.

"We would prefer to see a required principal forgiveness program. But this is helpful," said David Berenbaum, chief program officer for the National Community Reinvestment Coalition, a nonprofit housing group. "This is another tool that will help consumers weather the crisis."

Second, the government will double the amount it pays to lenders that help modify second mortgages, such as piggyback loans, which enabled home buyers to put little or no money down, and home equity lines of credit.

These second mortgages are an added burden on struggling homeowners, especially when their total debt, as a result, is greater than their home value.

Federal officials have estimated that about half of all troubled homeowners have a second mortgage and last year launched a program to encourage lenders to restructure them. That effort has struggled to get off the ground.

Third, the new effort also increases the incentives paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can't qualify for mortgage relief. For example, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in what is known as a short sale.

Fourth, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. The aim is to help these borrowers refinance into a more affordable loan. The FHA will offer incentives to lenders that reduce the amount borrowers owe on their primary mortgages by at least 10 percent.

For those borrowers who have more than one mortgage on their house, the FHA will allow refinancing of the first loan only. The new loan and any second mortgage could not exceed 15 percent of the home's value. This approach is meant to benefit not only borrowers but also lenders by allowing them to offload mortgages that might otherwise fail.

Only homeowners who are refinancing their main residence, have a credit score above 500 and can document their income are eligible.

Administration official say this refinancing program should not strain the FHA's already weakened finances because the effort will be financed with up to $14 billion out of the federal bailout program.

article source: washingtonpost

Half of U.S. Home Loan Modifications Default Again

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

Modifications are “clearly not working well and it’s not a surprise,” said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.”

The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.

article source: democraticunderground

Reverse Mortgage For Senior Citizens Can Pay Off Home Loan

Senior citizens that qualify for a reverse mortgage may be able to pay off their home loan and rid themselves of mortgage debt. A reverse mortgage is only available to senior citizens, so if money is needed later in life, a reverse mortgage is a great way to use the equity in your home to make payments, home improvements, or simply have access to cash.

A reverse mortgage must first be put toward the balance of a home loan. If you owe money on your home and get a reverse mortgage than any or all of the reverse mortgage funds must go toward paying off the mortgage balance.

Obviously, if you have no mortgage balance you keep the money, but using the money to pay off your home loan is a great way to alleviate the financial strain associated with a mortgage payment. If the money you get from a reverse mortgage is less than what you owe on the home, you can still use your own funds to pay off your mortgage, but in such a case as that, you’ll have to look closely at your personal financial situation to see if a reverse mortgage is right for you.

If you have more equity in your home and can get enough from a reverse mortgage to pay off your home loan, then it could benefit you financially. A reverse mortgage never has to be paid back as long as the borrower is alive or remains in the home. Again, if you are interested in a reverse mortgage, you will want to look at your personal financial situation, make sure you understand what a reverse mortgage requires, then decide if it is the right choice for you.

This entry was posted on 03/25/2010 at 7:00 am and is filed under Banking/Finance, Loan Modification, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed.

article source: rwbpress

How to Refinance your Home - Loans Guide

Home Refinancing Basics

In recent years, millions of homeowners have taken advantage of low rates and refinanced their mortgages. This article describes the advantages and possible pitfalls associated with a "refi."

Before You Start

• Remember that refinancing to reduce debt can be a smart move, but refinancing in order to borrow more for consumer purchases (car, vacation, etc.) could set you back significantly.
• Read the fine print on your current mortgage to learn whether you'll be assessed penalties or fees for "getting out" of that loan early.
• Make sure you know whether you have a fixed or variable interest rate and what the terms are.

1.Home Refinancing Basics

In recent years, Americans seeking to take advantage of low interest rates have lined up to refinance their mortgages. In fact, refinancings hit an all-time high in 2003, and remained high in both 2004 and 2005, according to the Mortgage Bankers Association of America.
But while it's true that refinancing has the potential to help you reduce the costs associated with borrowing money to own a home, it is not necessarily a strategy that makes sense for every individual in every situation. So before you make a commitment to refinance your mortgage, its important to do your homework and determine whether such a move is the right one for you.

2. To Refinance or Not

The old and arbitrary rule of thumb said that a refi only makes sense if you can lower your interest rate by at least two percentage points for example, from 9% to 7%. But what really matters is how long it will take you to break even and whether you plan to stay in your home that long. In other words, make sure you understand -- and are comfortable with -- the amount of time it will take for your overall savings to compensate for the cost of the refinancing.
Consider this: If you had a $200,000 30-year mortgage with an 8% interest rate, your monthly payment would be $1,468. If you refinanced at 6%, your new monthly payment would be $1,199, a savings of $269 per month. Assuming that your new closing costs amounted to $2,000, it would take eight months to break even. ($269 x 8 = $2,152). If you planned to stay in your home for at least eight more months, then a refi would be appropriate under these conditions. If you planned to sell the house before then, you might not want to bother refinancing. (See below for additional examples.)

3. Remember -- All Mortgages Are Not Created Equal

Don't make the mistake of choosing a mortgage based only on its stated annual percentage rate (APR), because there are a variety of other important variables to consider, such as:
The term of the mortgage -- This describes the amount of time it will take you to pay off the loan's principal and interest. Although short-term mortgages typically offer lower interest rates than long-term mortgages, they usually involve higher monthly payments. On the other hand, they can result in significantly reduced interest costs over time.
The variability of the interest rate -- There are two basic types of mortgages: those with "fixed" (i.e., unchanging) interest rates and those with variable rates, which can change after a predetermined amount of time has passed, such as one year or five years. While an adjustable-rate mortgage (ARM) usually offers a lower introductory rate than a fixed-rate mortgage with a comparable term, the ARM's rate could jump in the future if interest rates rise. If you plan to stay in your home for a long time, it may make sense to opt for the predictability and security of a fixed rate, whereas an ARM might make sense if you plan to sell before its rate is allowed to go up. Also keep in mind that interest rates hovered near historical lows in recent years and are more likely to increase than decrease over time.
Points -- Points (also known as "origination fees" or "discount fees") are fees that you pay to a lender or broker when you close the deal. While a "no-cost" or "zero points" mortgage does not carry this up-front cost, it could prove to be more expensive if the lender charges a higher interest rate instead. So you'll need to determine whether the savings from a lower rate justify the added costs of paying points. (One point is equal to one percent of the loan's value.)

How Much Would You Save?
A homeowner with a 30-year, $200,000 mortgage charging 8% interest would pay $1,468 each month. The table below illustrates the potential monthly savings and the various break-even periods that would result from refinancing at different rates.
Rate After Refinancing	New Monthly Payment	Monthly Savings	Months to Break Even*
7.5%	$1,398	$70	29
7.0%	$1,331	$137	15
6.5%	$1,264	$204	10
6.0%	$1,199	$269	8
5.5%	$1,136	$332	7
5.0%	$1,074	$394	6
*Assumes $2,000 closing costs. Rounded up to the next highest month.

A Closer Look at Mortgage Fees

Using data collected during 2003, researchers at Bankrate.com determined the average fees charged to consumers who borrow money to buy a home. Based on a loan of $180,000, the fees broke down as follows: Average Lender/Broker Fees Administration fee: $336 Application fee: $205 Commitment fee: $498 Document preparation: $194 Funding fee: $228 Mortgage broker fee: $839 Processing: $320 Tax service: $73 Underwriting: $269 Wire transfer: $31 Third-Party Fees Appraisal: $327 Attorney or settlement fees: $445 Credit report: $29 Flood certification: $17 Pest & other inspection: $68 Postage/courier: $45 Survey: $174 Title insurance: $605 Title work: $200 Government Fees Recording fee: $76 Various taxes: $1,339

4. Stick With What You Know?

Finally, keep in mind that your current lender may make it easier and cheaper to refinance than another lender would. That's because your current lender is likely to have all of your important financial information on hand already, which reduces the time and resources necessary to process your application. But don't let that be your only consideration. To make a well-informed, confident decision you'll need to shop around, crunch the numbers, and ask plenty of questions.

Summary

• The decision to refinance should only be made if the long-term savings outweigh the initial expenses. To calculate your break-even point, divide the cost of the refi by your monthly savings. The resulting figure represents the number of months you will need to stay in the home to make the strategy work.
• Don't select a new mortgage based only on its annual percentage rate.
• Also evaluate the term of the loan, whether the interest rate is fixed or variable, and the relative merits of paying up-front fees in exchange for a lower rate.
• Your current lender already knows you and has your financial information on file, so you may be able to get a better deal that way, instead of going to a new lender.
• To get the best possible refinancing deal, you'll need to shop around, crunch some numbers, and ask a lot of questions.

Checklist

• Shop around and conduct a detailed cost assessment (with a financial professional, if necessary) to identify which mortgage offers the greatest financial benefits.
• Read the entire contract before signing. Don't let anyone pressure you or rush you to make a hasty decision.
• If refinancing results in lower monthly payments, use those savings to pursue other important goals, such as preparing for retirement and college costs.

NRI home loans on the upswing

BankBazaar.com

Most NRIs give a lot of thinking before investing in property in India and most of the time put off the plan due to effort, research and planning involved and in some instances if they do not have enough funds for the same. For such individuals there is always the NRI home loan.

RBI defines NRI as "An Indian citizen who holds a valid Indian passport and who stays abroad for employment or for carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a NRI."

The NRI loans are made available for the following purposes:

Purpose of the NRI Home Loan

Self-construction of a property on a plot of land.

Finance the purchase of a plot of land allotted by a society/development authority.

Renovate/improve an existing property in India.

Purchase of a house either under construction or on a resale.

Non-resident Indians are also permitted to purchase an existing house or flat. The RBI has not prohibited banks from providing financing to NRIs for the purchase of a second house, but the loan on the house is for the self-occupation of the NRI upon their return to India. Loans are also offered to NRIs against NRE deposits. These loans can be repaid out of NRE funds but the interest would be charged at a commercial rate. Loans to Non-Resident Indians are also provided against FCNR deposits. 

Difference between a normal & NRI Loan  

NRI home loans can be availed by any NRI with as much ease and convince as any resident would avail a home loan. However some difference between the two kinds of loans exists in terms of tenure, documents, repayment etc.

Interest rate is little costlier for NRI than Indian residents, it is 0.25% to 0.50% more for NRIs. The NRI gets the only 85% cost of the property as a loan amount.

The tenure of loan is also short ranging from 7 years to 15 years. The size of the loan depends upon the borrower's repayment capacity.

Up to 36 times of the gross monthly earnings of the applicant may be issued as loan. However, there is a maximum limit. Calculation of eligibility is same as that of Indians living in the country.

Difference between a normal & NRI Loan  

The re-payment can be made as equated monthly Installments (EMI) through Non - Resident Ordinary (NRO) account or the Non Resident External (NRE) Account.

For security, most banks insist that the first mortgage of the property should be in their name. If the property is under construction then adequate additional security is required such as guarantee of third party (either resident or non-resident).

Tax benefits

NRIs cannot claim tax benefits on home loans in India as they have to pay tax in the nation where they work and earn. However, they need to file tax returns to become eligible for home loans. However, if they pay tax in India for income earned in India, they can claim tax rebate for the home loan. 

The current scenario

An estimated 25 million NRIs living in 130 countries have remitted US$52 billion so far this year (December 2009). In fact India topped the list of countries in remittance flow followed by China and Mexico, according to World Bank report on Migration and Development Brief.

The impact of global slowdown, job losses and unviable job offers has necessitated a section of NRIs to return to Indian shores.

According to housing finance companies and banks disbursing home loans to NRIs/PIOs in Dubai, there has been a sudden surge in demand for residential property across Indian cities and particularly for Tier II cities in the wake of the economic slowdown in the emirate.

Southern cities in particular Bangalore, Chennai and Hyderabad are driving the demand though minimal level demand exists for other cities as well. Most of the NRIs keen to invest in real estate back home are looking for home loans as they are unable to get loans locally due to the current tight liquidity situation across US.

What experts say?

Experts agree that despite turbulence in mature markets, the "emotional appeal" of buying a property in India may be stronger now. However, this in turn has created a price increase in the last six months.

Popular property portals claim that the number of queries from NRIs has surged nearly 15-20 per cent over the last two-three months. However, just how many of these 'queries' translate into actual sales remains to be seen, say people behind the business.

The focus on NRIs for these portals is stronger now as many are looking to come back to India apart from those who wish to invest in properties. Another factor that seems to favour NRIS is the FDI Policy that permits FDI up to 100% from foreign/NRI investor under the automatic route has boosted NRI confidence. Banks have attractive NRI housing schemes to accommodate the housing needs of NRIs.

From the stables of HFCs, NRI housing finance plans with suitable repayment options are available. The easy interest rates on housing finance and the improved lifestyle that developers have created has enabled NRIs to acquire property not only for investment, but also for personal use.

Access to NRI loans - at the door step

The response to the real estate market has been so encouraging from the overseas community that it has prompted housing finance companies (HFCs) to set up branches in countries where there is a high NRI concentration, as in the case of ICICI Bank.

The bank has representative offices in Dubai, New York, Bahrain, Singapore and the UK to tap potential property investors there.

ICICI Bank, Sundaram Home Finance Limited, LIC Housing Finance, HDFC, CanFin Homes, Citibank and a host of other scheduled banks are vying for lending opportunities to NRIs.

However the final decision on whether the time is right to buy a house, whether to use one's own funds or to take a loan, whether to go for an independent house or an apartment, and which home loan provider to use must be made by the NRI himself/herself after careful analysis.

What this means for the realty market

Builders are looking to make up for the huge losses in the past year or so.

With growing NRI interest in Indian properties, reports suggest that the realty prices have rebounded to 2007-2008 levels, which however cannot be good news for people scouting for homes with toned down prices.

This is again an example of how a reaction in one corner of the globe can affect another.

Sometime back the same scenario happened with rentals, which shot up with a lot of NRIs returning home to take up jobs in India.

Source: BankBazaar.com - An online marketplace for your personal loan and home loan needs.

Bank of India to offer home loans at 8 per cent

MUMBAI: Public-sector lender, Bank of India (BoI) has joined the club of other banking majors like State Bank of India and ICICI Bank, to offer cheaper housing loans to borrowers.

The bank would offer 8 per cent fixed rate for home loans upto Rs 30 lakhs and 8.25 per cent for loans above Rs 30-lakh, for first two years, a BoI press release said here today.

The scheme--Star Own Your Home--is applicable for all new loans availed between January 1-February 28, 2010. After the two-year offer period, the lender will charge interest rate based on the prevailing floating rates.

BoI has also waived all processing charges to attract borrowers and has fixed the maximum amount that can be availed under the scheme as Rs 1.5 crore.

Other banks that have come with similar schemes include Kotak Mahindra Bank, IDBI Bank and home loan financier, Housing Development Finance Corporation.

IDBI Bank, which announced its special home loan scheme recently, is offering 8.25 per cent fixed rate for all its new loans till March 2012.

The bank had made this offer applicable for all new home-loan customers applying on or before March 31, 2010, and taking a part or full disbursement during the offer period.

Cushion of credit line may work to your advantage

Close on the heels of its peers introducing hybrid housing loan schemes, Citibank has jumped on to the bandwagon by launching CitiHome One, a mortgage product that is a combination of a conventional term loan and a credit line. The facility allows borrowers to determine the amount they wish to take as credit line, and the balance will be structured as a simple term loan. However, the credit line will be subject to an overall limit of 30% of the total facility, or Rs 1 crore, whichever is lower.

Let’s take an example of an individual who is buying a house worth Rs 50 lakh. He puts in Rs 10 lakh and applies for a home loan of Rs 40 lakh. In an ordinary loan, he would have to pay an EMI of around Rs 36,000 from the first month onwards (assuming an interest rate of 9% for 20 years). Here, he will have the flexibility to structure his home loan — up to a maximum of 30% — as a credit line where he needs to pay monthly interest. If he avails of a loan of Rs 40 lakh, structured as a credit line of Rs 12 lakh and a term loan of Rs 28 lakh, he pays an EMI of nearly Rs 25,000 (assuming similar interest rate and tenure) on the term portion of the loan and a monthly interest of Rs 9,500 on the credit line. Later, he can deposit any surplus funds into the credit line to save on interest (and pre-payment charges) and has the flexibility to withdraw this money in the future. For instance, if he deposits Rs 2 lakh in the credit line, he saves an interest of Rs 1,600 every month.

A maximum of Rs 5 crore is allowed to be borrowed under the loan facility. The loan will be subject to a variable interest rate linked to the Citibank Mortgage Prime Lending Rate, which currently stands at 13.5% per annum. The loan tenure of the term loan component can go up to 20 years while the credit line is subject to a maximum tenure of 10 years, post which, the borrowers have the option of either making a one-time repayment, or converting the credit line into a term loan and paying back the amount in EMIs.

In addition, upon availing of this scheme, the borrowers will be enrolled into the bank’s ‘feature-rich’ current account. This will serve as an umbrella account and will allow borrowers to consolidate all their banking requirements into a single CitiHome One Account. However, the cushion of credit line may not be a great idea for those who find it difficult to resist the temptation of utilising credit that is easily available for a 10-year period. Besides, the loan is offered under a floating rate structure, and considering that interest rates are expected to harden in the coming months, it acts as a drawback, particularly when compared to some other banks that are competing to offer fixed interest rate as low as 8-8.25% in the initial years.

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Smart Home Features & Benefits

Save up to 50% on interest payments

With every Smart Home, you get a current account. All you need to do is put your usual savings, from other accounts, into the Smart Home Account. Depending on the savings you put into the Smart Home Account, you can reduce the quantum of interest paid by up to 50%.

Here's how Smart Home works to save you money

Your home loan interest is calculated, on the principal outstanding minus the savings deposited in your Smart Home Account every month, over and above your EMI. Calculate your savings:

The example below shows how much interest is reduced, with a monthly saving of just Rs. 6,000, over and above your EMI.

	Standard Home Loan	HSBC's Smart Home
Home Loan Amount (Rs.)	25 lakhs	25 lakhs
Interest Rate	8.50% p.a.*	9.00% p.a.*
Original Tenor	20 years	20 years
Actual EMI's	240	143 (40% less)
Total Interest (Rs.)	27,06,939	16,11,087
Saving in Interest (Rs.)		10,95,852 (40%)
Savings in Tenor (months)		97 (40%)

* Interest rates are merely indicative which can change from time to time depending on market conditions.

The shortened loan tenor and savings require monthly payments and the accumulation of monthly savings of Rs. 6,000 in the Smart Home account.

The interest rate on your Smart Home is linked to HSBC's Retail Lending Rate (RLR) and any revision in the RLR would impact your interest rate. The RLR is 13.75% effective from July 03, 2009.

Tax benefits

Smart Home customers are eligible for certain tax benefits on principal and interest components of a housing loan under the Income Tax Act, 1961*.

* Please consult your tax advisor/C.A. for specific details.

Exclusive Smart Home banking privileges for you

• You can even use the Smart Home Account as your main bank account for depositing and withdrawing money
• Along with your Smart Home, get access to an HSBC PowerVantage Account, with the following benefits:
  
  Free access to 15,000 VISA ATMs across India, with your PowerVantage debit card ⁺
  Free cheque payable at par facility
  Dedicated service desks and counters at branches
  Financial planning services to help you plan your financial goals

⁺ Not Applicable to NRO accounts.

Check with CIBIL if loan rejected dued to credit history

VN Kulkarni, chief counsellor, Abhay Credit Counselling Centre Guides in matters relating to banking and finance.

Last month, I had applied for an education loan with a private bank. My application was turned down citing ‘unfavourable’ credit history. I found out that this was due to a disputed credit card transaction with another bank, for which I paid a part of the amount under a compromise settlement with the bank nearly seven months ago. What is the recourse available? M Sandeep

It is clear from what you have stated that you have paid the credit card dues through settlement. This means that you are no longer a defaulter. You need to check with CIBIL whether your credit report has been updated by your credit card issuer or not.

If not, you may take up the matter with a credit card issuer, if need be by quoting the relevant paragraph from the code of commitment to customers, according to which the credit card issuer/banker is supposed to update the records maintained by the credit bureau.

The relevant code reads as under: “If your loan account has been in default, and thereafter regularised, we will take steps to update this information with the CRA (credit reference agency) in the next monthly report.”

You may also bring this to the notice of the banker who is to grant the education loan stating that the disputed matter now stands settled. If need be, you may furnish a copy of the letter issued by credit card issuer who must have stated that the amount to be paid by you is towards full and final settlement of the amount due to them.

I have switched jobs twice in the last three years and hence, have three salary accounts with three banks. Of these, I don’t use two, but I haven’t closed these accounts yet. There is no balance in these accounts. Should I close the accounts? What are the implications of not doing so? Prasad Batra

Since you are not operating the other two accounts, it is better to close them. Else, you may end up paying certain charges unnecessarily.

Although salary accounts are generally zero-balance accounts, if the bank comes to know that you are no longer an employee of the company, your account could be converted into a usual savings account and applicable charges will be automatically debited.

Here are a few examples of charges being levied by some banks: Charges for non-maintenance of minimum quarterly average balance; cash transactions at branch in the event of non-maintenance of QAB-nil for the first specified number of transactions per quarter and thereafter, and penal charges per transaction; cheque books in the event of non-maintenance of QAB-specified amount per cheque leaf and debit card fees for the first account holder as well as joint account holder separately as specified by the bank per annum.