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How banks disburse home loans

October 08, 2009 14:09 IST
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I am buying a Rs 25-lakh flat. For a 20-year loan, most banks are willing to lend me around Rs 20 lakh. My annual income is Rs 5 lakh. But I need more money as there is stamp duty and registration charges to be taken care of. Also, the seller has asked for some cash. Is there anyway I can get higher loan? Can my investments (mutual fund, fixed deposits and insurance) come handy here? Also, I want to know if all banks include stamp duty and registration costs while disbursing loans?

Banks typically fund about 70 per cent to 80 per cent of the cost of a property. The cost of property includes stamp duty, registration charges, car parking, etc, which are a part of the registered agreement. Going by this definition, cash component cannot be a part of the property cost and cannot be funded.

Normally, banks determine the eligibility based on the income of a loan seeker. You can increase your eligibility by considering the income of your spouse (in case he/ she has a stable income source) or by adding other income such as rental income, etc.

Investments are considered for ascertaining the financial stability and normally not considered for increasing the loan eligibility, though the decision is taken on case-to-case basis. It is advisable to check with the representative of the bank you are dealing with on this issue.

You can liquidate a part of your existing investments such as (mutual fund, fixed deposits and insurance) and use those funds as your own contribution for buying the property.

Most of the banks include stamp duty and registration costs while disbursing loans.

I have Rs 4 lakh in fixed deposit with my bank. I want to take an overdraft against this. I am not sure if I will use the entire amount. Also, I will not be using all the money at once. Do banks have products wherein if I take an overdraft, I will be charged interest only on the money that I withdraw?

An overdraft given against a fixed deposit enables the customer to utilise amounts up to the sanctioned limit. Interest is charged only on the amount withdrawn (for the time period of utilisation) and not on the entire overdraft limit.

My daughter needs around Rs 12 lakh education loan for studying abroad. Are there banks who give special discounts/ concessions for girls' higher education? What is the quantum of discount/ concession? This loan will be jointly taken by me and my daughter. Will the income tax deduction depend on the actual amount I repay or the proportion of loan?

Generally, banks charge standard rates for education loans. However, the rates vary from bank to bank and some of the banks do offer concessions for girls' higher education.

You can claim a deduction under Section 80E of the Income-Tax Act for the interest paid on the loan. The entire amount of interest paid is eligible for deduction from your taxable income. However, there is no tax benefit available on the repayment of the principal amount.

My bank has sent me a letter that qualifies me for a pre-approved personal loan of Rs 5 lakh. Does this mean that I will necessarily get the mentioned amount or can the bank lower it after I accept this offer? Do banks check the credit bureau report before sanctioning such pre-approved loans?

Banks offer pre-approved loans on a very selective basis after doing a credit bureau check. Once a pre-approved offer has been made for a specific amount, the recipient can avail of the offer in its entirety. However, terms and conditions of the offer may vary from bank to bank.

Vijay Chandok is senior general manager of  ICICI Bank.

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