Loan Zone

S.C. Dhall

Q.What is home loan  conversion? Kindly advise how can I avail this from the bank?  — Promod Uppal

A.A home conversion loan is a scheme for those who have already taken housing loan from a bank or a housing finance company. He/she   can avail of a home conversion loan from a financier if  he/she has a house that you purchased with a home loan from them, and want to move to another home for which  he/she  need a few extra bucks.

How does it work

The home conversion loan simply transfers  an existing loan to the new home, along with the extra amount required. No more worries about pre-payment of the previous loan. What’s more,  the person doesn’t have to go through the tedious process of applying for a new loan.

Interest rate and repayment terms

The specific terms and conditions will depend on the home loan scheme opted for. Like most other home loans in India, home conversion loans are open to NRIs. Some banks actively advertises its Home Conversion Loans to enable you to upgrade your homes with changing lifestyle needs – just as you would with a car.

Before deciding whether you should take a home conversion loan or simply sell off the old house to finance the new one, here’s are some questions that you should ask yourself:

• What do the real estate rates suggest?
• How much remains to be paid on the previous house?
• What is the extra cost you will incur on the new house?
• Above all, how much cash do you have to fund this upgrade? 

Once you have all the answers, your decision will be as easy as choosing heads or tails!

Q.Do banks categorise customers based on credit history? — Sunita Kumari

A.Yes. Banks categorise home loan applicants based on eligibility, credit history /worthiness, including an applicant’s Cibil report. Banks are required to do so. Applicants can then be classified as prime, sub prime etc.

Also, in categories like low, medium and high risk.

The banks, however, do not give any information regarding a customer’s category.

Q.How does loan tenure effect home loan cost ? — Sunita Kumari

A.Home loan tenure effects your EMI outgo. Shorter duration loan tenure have higher EMI and vice versa. Increasing home loan tenure in advisable during cash crunch Or other financial problems.

Note: Longer loan tenure means paying more in form of interest on loan. With longer loan tenure, your monthly burden will be less, but, you will end up paying back more to the Bank.

Q.What is monthly reducing balances method ? — K. C Arora

A.Borrowers benefit more from a loan that’s calculated on a monthly reducing basis than the one on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.

Q.What is a step-up home loan? — Kulwant Singh Jhujjar

A.Some banks offer rebate in form of ‘step-up loan’, in which the EMI is low initially and increase gradually. This is also called ‘Balloon’ repayment. For young people starting out in their career, step-up loan might make sense. In this you will be pay more initially and less as loan tenure matures. This is a good use case for any one making good money at present Or approaching retirement.

Grace period : If you have temporary financial troubles in paying EMI, approach your bank manager and ask in written to give some months off on EMI repayments. After a certain grace period, EMIs will start again.

Top up loan facility is being given to only  existing  home loan  cutomers at the terms of home loan with good repayment track record.