Excerpts from a Q&A with Kamlesh Rao, Head, Home and Personal Loan Division, Kotak Mahindra Bank.

 

Are banks cautious while giving loans?

No. Neither has my risk profile changed, nor are banks cautious about giving loans. If there is demand, banks are still meeting the requirement for home loans, just as before. However, there are changes in the eligibility criteria for loans due to the hike in interest rates.

 

Are banks still giving discounts on loans?

If a customer has a good track record and has been repaying the bank on time, he/she gets 0.25% discount on lending rates. The only difference is that earlier it was on 8%. Now, the same discount is available on 12%.

 

Do banks consider the present or projected salary at the time of allotting a loan?

We don't take into account the future salary. You are eligible for a home loan for which the EMI is 60% of the total net salary. For personal loans, the EMI should amount to 40-45% of the monthly salary.

 

I had taken a loan of Rs 2 lakh in 2004. Now my EMI and loan tenure have increased. Can you suggest a solution, as I don't have funds to repay the loan?

Amit Shahi, Amritsar

If you give your bank part prepayment, your EMI can be maintained. If you can make a prepayment of Rs 30,000 to Rs 40,000, your EMI can come down to earlier level. Some banks have a scheme wherein they waive off pre-payment charges if you are paying less than 25% of the loan amount at a given time. Normally, you can pre-pay after one year.

 

Are banks considering extending loan tenure beyond 25 years?

If a bank has already issued a loan for 25 years, it will have to consider if it wants to extend the loan tenure or not. However, banks also have to take into account the risk factor. For example, if you are 28 and have a loan for 25 years, it means you will be paying loan till 53 years of age!

 

The tenure of your loan should not continue after retirement age. If a loan subscriber is 35-40 years old and the loan tenure is to be increased, the banks also look at making a young family member a co-borrower.

 

I am planning to buy another house. I am getting a loan of Rs 25 lakhs at an interest rate of 11.5% for 20 years. Would it be wise to buy a house at this point in time?

Shiv Kumar, Bangalore

Given that you have a house and no loan is pending against you, and you are now interested in investing in a new house; first ensure that you have surplus income. If you are taking a loan of Rs 25 lakh for 20 years, you end up paying Rs 40 lakh over the next 15 years at an interest rate of 11.5%.

 

If you are creating an investment, you should be of the view that the price of the property being bought should be worth Rs 40 lakh after 15 years. But should you rent the flat during this tenure, you will get rental income. It is important to generate income from the asset and not to keep it idle.

 

But it's alright if you get Rs 7,000- 8,000 as a monthly rental and pay EMI partly from rental income and partly from your cash flow.

 

Also, it is always better to keep loan tenure shorter as you pay a lower interest rate that way. Interest keeps on increasing with tenure.

 

Will interest rates fall in the coming days? Should I wait? Or is this a good time to buy a house as the interest rates and land prices are quite high?

Sukesh Kumar, Delhi

If you are buying your first house, don't look at short-term losses. However, do be careful if you are planning to invest. Interest rates have gone up only in the past one and a half years. As a home loan is for about 10-15 years, interest rates generally balance out.

 

It can't stay high for 10 years. In the past ten years for example, interest rates were 13%. Then they came down to 7% and are again up at 11.5%. If you are buying a house, take a floating loan for about 10 years. Taking a floating loan is beneficial right now as you get the benefit when interest rates fall.

 

What should I increase - the EMI of home loan or loan tenure?

Anjali Bajpai, Kanpur

If your cash flow permits you to increase the EMI, the first thing you should do is to increase the EMI. You pay more when the tenure of the loan is higher. Say for a Rs 20 lakh loan, you end up paying 40 lakh in 15 years.

 

What will be the impact of interest rate hikes on tax benefits?

When interest rates go up, interest components also goes up. And if the person has not crossed the slab for tax deduction on interest, he/she gets an incremental deduction.

 

International Opportunity Funds

 

If you are interested in investing in foreign equity markets, then you go in for mutual funds that invest not only in India but also in equity markets abroad. Fidelity International Fund has launched Fidelity International Opportunity Fund. In this fund, 35% is invested in foreign equity and the rest in the Indian share market.

 

Given that India has just 0.5% of world market capitalisation, one is missing a lot, says Ashu Suyash, Country Head, MD, Fidelity Fund Management. The minimum amount to be invested is Rs 5,000, while you can invest Rs 500 through systematic investment plan. You pay an entry load of 2.25% on investment and exit loan of 1% if you withdraw within six months of making the investment.

 

Franklin Templeton and Principal PNB mutual fundsalso offer International Opportunity Funds. Franklin Equity Income fund has given equity returns of 20.2% in the past one year, while Principal Global Opportunities Fund has given 16.3% returns.

 

Source: Aapka Paisa