INTRODUCTION

A loan advanced to a person to assist in buying a house or flat. India has a well developed

banking system. Most of the banks in India were founded by Indian entrepreneurs and

visionaries in the pre-independence era to provide financial assistance to traders,

agriculturists and budding Indian industrialists. Indian banks have played a significant role in

the development of Indian economy by inculcating the habit of saving in Indians and by

lending finance to Indian industry.

NEED FOR THE STUDY

• To make comparative study of Disbursement of home loans by Commercial banks.

• To know the ideas of customers about home loan products and services.

The following are the objective of the present study:

• The main objective of doing this project is to study the corporate culture
• To analyze Indian home loan market and its growing trends
• To analyze various methods of operating a home loan
• To gain knowledge about various home loan products
• To know various rates available while providing home loan.
•

SCOPE OF THE STUDY

This study is considered the Indian housing finance industry has grown by leaps and bound in

few years. Total home loans disbursements by banks has risen which witnesses phenomenal

growth from last 5 years. There is greater number of borrowers oh home loans. So by this

study we can find out satisfaction level of customers and problems faced by them in

obtaining home.
OBJECTIVES OF THE STUDY

• To study the satisfaction level of customers about home loans

• To study the problems faced by customers in obtaining the home loans

RESEARCH METHODOLOGY

Research methodology is a way to systematically shows the research problem. It may be

understood as a science of studying how research is done scientifically. It is necessary for the

researcher to know not only the research method but also the methodology.

Primary Source

In survey approach we had selected a questionnaire method for taking a customer view

because it is feasible from the point of view of our subject and survey purpose.

Secondary Source

It was collected from internal sources. The secondary data was collected on the basis of

organizational file, official records, news papers, magazines, management books, preserved

information in the company’s database and website of the company..

 Data and Methodology:

For the purpose of the present study both primary and

Secondary data were used.

Primary data collected from bank visits, interviewing with

staff etc. secondary data collected from books, websites and newspaper.
LIMITATIONS OF STUDY

 There was limitation of time to conduct such a big survey in limited available time.

 Lack of data was also the other limitation of the study as some of banks do not have

proper data on topic.

 To access such a large number of customers was difficult because of non-cooperative

attitude of respondents

The present study has got all the limitations of case study method of data collection.
 CHAPTER 2

REVIEW OF LITERATURE
REVIEW OF LITERATURE

Housing finance all over the world are undergoing tremendous changes and have acquired
great significance in the present day context of liberalization, globalization and
modernization of the society. A good number of research works have been undertaken by
individual researchers and institutions invariably dealing with different aspects of housing
finance. A brief review of the major studies which are particularly pertinent for the present
study is attempted here.

In order to undertake the review of literature, detailed review was done in the following
manner: Review of year wise, author wise work done on Customer Satisfaction. Various

 definitions on customer satisfactions were also studied and the ones suiting this research
were taken up in this paper. Review of Studies undertaken on Customer Satisfaction in
general and Service.

Keith and John (1980) brought out a new picture of housing problems. They said that public
housing policy of one sort or another is obviously of great importance in advanced capitalist
systems.

Muthuram,P (1999) opined that housing finance, particularly retail housing finance is
acquiring great importance because of government’s incentives and stability in prices.
Housing finance offers safe, secured, profitable and diversified asset portfolio.

Krishna, R.R and V.V.Ganesh Murthy (1998) observed the views that there is a vast scope
for housing promotion in India and the banks and housing finance companies can play a vital
role in the promotion of housing. They suggested that reduction in the housing loan interest
and simplified procedure for sanctioning housing loan will boost the construction of houses.

Leelamma Kuruvilla (1999) throws light on National Housing Policy and new initiatives in
housing finance. She suggested that the change in the legal frame-work, simplifying the
procedure for housing finance and the active involvements of the Government in the housing
sector will definitely mitigate the housing problem.

 Sector in particular. International studies were also reviewed to understand the work done
so far. After having done this, research studies done on Customer Satisfaction in
 Telecommunication were review at three stages: a) International, b) National and c)
Specific to Assam and North East in India. Review of Regulatory guidelines and survey and
audit done by TRAI was also

 studied for Assam and North East from Customer Satisfaction perspective. (Agarwal, Jain,
2013)

Parimal.H.Vyas and Sandip.K.Bhat (1999) who analyse the major housing finance
institutions, critical issues of housing finance, interest rates and the repayment techniques
observed that the restructuring of housing finance institutions by developing appropriate
marketing orientation programmes are necessary to face the challenges in the present day
world of liberalisation and globalisation.

Mohinder Singh (1999) states the magnitude of the housing problem in the country and
various national housing policies of the Government. He reviewed the detailed statistical data
and suggested the following: a) sufficient loan amount free from corruption and a low rate of
interest, b) a country-wide survey to find out the real housing storage, c) standardization for
low cost housing and d) regular monitoring and follow-up action.

Nair,K.N.S and S.G. Jayachandra Raj (1994) observed that Kerala stands unique in the realm
of growth and development. But, even in the wake of state’s rapid expansion in the social
sector, it is to be observed that Kerala projects a dichotomy picture of development
comprising of feeble economic structure along with developed social culture.

Mathurn (1993) opined that the financial burden of investment in housing is generally very
heavy when the owner does not have sufficient funds available to pay for the site and the
entire cost of construction. Hence, he must make arrangements to obtain funds from some
other sources.

Usha Patel (1996) explained that at present housing through bank finance was a part of
bank’s priority sector lending. Besides, every nationalized bank is expected to allocate every
year a specified percentage of deposits and plan for its deployment for financing direct as
well as indirect housing programmes.

Parekh (1988) reported that the future of housing finance is to enhance the loan origination
process for housing throughout the country to develop an institutional network that would
facilitate the origination process, to identify the potential resource base for the system as a
whole and to simplify the legal system with respect to risk management of housing finance
institutions.

Customer Satisfaction Definition Oliver (1980) defines that “Customer satisfaction is a

summary psychological state when the emotions surrounding disconfirmed expectations are
coupled with the consumer‟s prior feelings about consumption experience”. According to
Churchill and Surprenant (1982), “Customer satisfaction is an output, resulting from the
customer‟s pre-purchase comparison of expected performance with perceived actual
performance and incurred cost”. (Agarwal, Singhal, 2013) Parasuraman et al. (1994) have put
further put forward the simple and clear definition for satisfaction. They suggest that
satisfaction is influenced by service quality, product 3 quality and price. They researched
satisfaction on a transaction level, implying that the overall satisfaction is a function of
transactions. Yi (1991) opines that the customer satisfaction operates in two different ways:
transaction-specific and general overall. The transaction-specific concept concerns customer
satisfaction as the assessment made after a specific purchase. Overall satisfaction refers to the
customer‟s rating of the brand, based on all encounters and experiences (Johnson and
Fornell, 1991). Customer satisfaction is an important tool that can increase profits by
preventing customers from defecting (Reichheld and Sasser, 1990). Linking to Telecom
Sector; Bei and Chiao (2001) concluded that customer satisfaction has got a positive effect on
customer retention. Fornell (1992) concluded that customer satisfaction heightens customer
loyalty and prevents customer churn (a very important aspect for Telecom Service Providers),
lowers the customers‟ price sensitivity, reduces the costs of failed marketing and of new
customer creation, reduces operating costs due to the increase in the number of customers,
improves the effectiveness of advertising and enhances business reputation. (Agarwal, Jain,
2013)

Deepak.Razdam (1990) reported that the sources of informal savings are seen to be cash and
bank deposits, assets like jewellery, loans from friends and relatives and to a small portion of
funds from money lenders. The Government plan to bring about appropriate changes in the
16 approaches of the existing financial institutions so as to make them more responsible and
accessible to households.

Kurana, M.L (1998) analysed the magnitude of the housing problem, housing finance
companies, legal aspects of housing cooperatives and procedural simplification of housing
loans. He suggested the necessity for education and training for the members of the housing
co-operatives and also the legal aspects including the adoption of model law formed by the
Central Government.

Customer Satisfaction Studies- Overall Customer satisfaction has been a popular topic in
marketing practice and academic research since Cardozo's (1965) initial study of customer
effort, expectations and satisfaction. Customer satisfaction is typically defined as a post
consumption evaluative judgment concerning a specific product or service (Gundersen, Heide
and Olsson, 1996). It is the result of an evaluative process that contrasts pre-purchase
expectations with perceptions of performance during and after the consumption experience
(Oliver, 1980). The most widely accepted conceptualization of the customer satisfaction
concept is the expectancy disconfirmation theory (McQuitty, Finn and Wiley, 2000). The
theory was developed by Oliver, who proposed that satisfaction level is a result of the
difference between expected and perceived performance.

A study conducted by Akan (1995) showed that the main determinants of hotel guest
satisfaction are the behavior of employees, cleanliness and timeliness. Choi and Chu (2001)
concluded that staff quality, room qualities and value are the top three hotel factors that
determine traveler‟s satisfaction. Customer service is a system of activities that comprises
customer support systems, complaint processing, speed of complaint processing, ease of
reporting complaint and friendliness when reporting complaint (Kim, Park and Jeong, 2004).
Customer services 5 are the opportunities for telecom service providers that are added to
mobile network other than voice services in which contents are either self produced by
service provider or provided through strategic compliance with service provider (Kuo, Wu
and Deng, 2009).

Berry et al., (1990) are of the view that the sole judge of service quality is the customer and
to get a positive feedback from him; the service companies should implement the five
imperatives of service quality viz. Reliability, Assurance, Tangibles, Empathy and
Responsiveness in their services. The authors have advocated knowing the expectations of
the customers on the said fronts and further measuring their actual perception. It becomes
imperative for service companies to improve themselves on whichever front expectations of
the customers outscores their perception.

Reichheld and Sasser (1990) have suggested “Zero Defection of Profitable Customers” as an
ideal approach to attain higher profitability in service sector. Their assertion is based on the
fact that it is less costly and hence more profitable for the service firms to retain existing
profitable customers than to attract new customers. The profitable customers not only add to
the profits of the companies but also bring new customers in their kitty by spreading positive
word of mouth.

Pyanne and Ballantyne (1991) have observed that satisfied banking customers initially
become friends of the bank, then they become supporters and finally advocates. Thus, the
starting point of any relationship marketing endeavour of any bank should be to leave no
stone unturned in satisfying customers to a desired extent. This, in turn, is possible if and
only if the bank is keeping a ‘service quality’ focus.

Rust and Zoharik (1993) have developed a mathematical model for assessing the value that
any bank could attach to different elements of customer satisfaction. They have suggested
that banks may adopt their model to get the best result of their endeavour leading to customer
satisfaction.

Keavency (1995) has noticed that factors such as core service failure, service encounter
failure and inappropriate pricing as most important factors contributing to ‘Customer Switch’
in banking industry. The author has recommended following ways to avoid customer churn:

Designing the service in the right earnest.

Ensuring that employees stick to the designed service while interacting with customers.

Involving customers while setting the price in banking industry so that the same may be
customer centric.

Herbig et al., (1996) have found that service quality in banks is better in developed countries
in comparison to developing and under-developed countries. The authors are of the view that
banks in underdeveloped and developing countries are still undermining the importance of
service quality in retaining customers on sustained basis. This may not, however, continue for
a long period as customers in such countries have started becoming more demanding on
account of intensifying competition in the banking industry of these countries.

Buttle (1996) has viewed that since its launch in 1985, SERVQUAL has become a widely
adopted technique for measuring service quality. However, there is a need to deliberate upon
the ‘expectations’ aspect of the model as the same is reflected in perception itself. The author
has opined that low perception score itself convey high customer expectations while high
perception score signify that expectations are met to a desired extent. Moreover, expectations
of modern day customers are always sky high and comparing it with perception does not
make too much of a sense.

Yavas et al., (1997) in their study have revealed a positive relationship between customers’
satisfaction through service quality and their long term commitment to the bank. Further, the
relationship between service quality and complaint behaviour of the customers, was found to
be negative. Better the quality, lower will be the number of complaints received from the
customers and vice-versa.

Sarkar and Das (1997) have compared the productivity of public, private and foreign banks
operating in Indian and have observed that public sector banks are lagging way behind the
other banks on this front. The prominent reasons behind poor performance of public sector
banks have been found to be:

 Overstaffing.
 Perusal of social banking.
 Undue interference of Government in their working.

Storbacka et al., (1994) had worked on Managing Customer Relationships for Profit: The
Dynamics of Relationship Quality. They observed customer-relationship economic issues,
more specifically the link between service quality and profitability from a relationship
marketing and management perspective. In this perspective the task of marketing is not only
to establish customer relationships, but also to maintain and enhance them in order to
improve customer profitability. Customer relationship economics and customer profitability.
The said linkages are the links between:

 Service quality and customer satisfaction.

 Customer satisfaction and relationship strength.
 Relationship strength and relationship longitivity; and
 Relationship longitivity and profitability.

Russell and Russell (1999) worked on Relationship marketing in private banking in South
Africa .This study establish which criteria people use in the selection of a private bank. It
aimed to establish whether relationship marketing was an appropriate framework within the
private banking environment. Price prevails as the most important criteria in the selection of a
private bank. This is moderated by trust, service quality and the bank being available at a
time of crisis. The results show that relationships are important criteria in the selection of a
private bank. It also shows that the Beatty et al. (1996) model, originally developed for the
retail industry, can be applied to the private banking environment. Relationship marketing is
working well in private banks because this study shows that clients are more likely to be
retained by the bank when they have a personal banker or consultant. Consistency of the bank
service, and trust the client has in the bank, need to be enhanced to ensure the relationship
develops to a level where there is friendship and confidence.

Parsuraman (2000) has concluded that conventional marketing will merely become a ticket to
enter in the competitive service industry. To stay and prosper, the service providers would
require a genuine commitment to serve customers well. This demands a through change in
their existing outlook. They need to come out with everything that can enhance the
satisfaction level of their customers.

Jamal and Naser (2002) they worked on Customer satisfaction and retail banking: an
assessment of some of the key antecedents of customer satisfaction in retail banking they
explained how Understanding of the antecedents to and outcomes of customer satisfaction is
a critical issue for both academics and bank marketers. Previous research has identified
service quality, expectations, disconfirmation, performance, desires, affect and equity as
important antecedents of customer satisfaction. The impact of service quality dimensions and
customer expertise on satisfaction.

Nakan and Weintraub (2005) have observed that privatization of some public banks in Brazil
has resulted in improving their productivity. Such banks have come out of the shackles of
Government control and on account of less bureaucratic hurdles; they are spreading their
wings in right direction.

Agarwal (2007) has concluded that productivity of commercial banks in India including
nationalized banks has improved substantially in the post reforms period. Advent of
competition, perhaps, has been a motivating force for them to change their thinking and
working. Indian banks have the potential to be world leaders provided they enjoy the freedom
and willingness to grow.

Walsh et al,. (2008) had worked on investigating the customer satisfaction-loyalty Link
Research on the relationship between customer satisfaction and customer loyalty has
advanced to a stage that requires a more thorough examination of moderator variables.
Limited research shows how moderators influence the relationship between customer
satisfaction and customer loyalty in a service context; this article aims to present empirical
evidence of the conditions in which the satisfaction-loyalty relationship becomes stronger or
weaker. The empirical results suggest that not all of the moderators considered influence the
satisfaction-loyalty link. Specifically, critical incidents and income are important moderators
of the relationship between customer satisfaction and customer loyalty.

Sharma (2008 and 2009), highlighted the role of technology and computerization in the
growth and development of Indian banks. Their prominent use in last few years has brought
Indian banks at par with best in the world. The way Indian banking industry has grown leaps
and bounds in last few years has something to do with technological advances in the same.

 Kirubaharan (2009) has found HSBC Bank wanting on following counts:

 Providing services to all groups of customers.
 Inadequate branches in India.
 Lack of coverage of Indian market.

HSBC Bank can improve its image provided it takes care of above factors.

Kumar et al., (2009) while evaluating the relative importance of different dimensions of
service quality in the mind of the customers of Indian commercial banks, came to the
conclusion that reliability is most sought by them while tangibility has least preference of
theirs.
Housing is a primary human need next in importance only to food and clothing. A first
priority for a youngster who begins life is therefore to plan for a house. This takes precedence
over other household expenditure and creature needs. Housing, however, is a major
expenditure and cannot be funded out of a family's normal monthly income or savings. The
prospective homeowner must look for a loan substantial in size and so structured that he can
repay it over a longer period of time, in many cases almost one's entire working life.

Loan is offered to a borrower to purchase or build a new house on the basis of his/her
eligibility and the bank's lending rules. One of the important basic human needs is shelter.
House is the ultimate dream of every middle class family. Government gave encouragement
for house finance subsidiaries by offering number of tax concessions to individuals. With the
overall encouragement given to this sector, a number of players entered in housing finance.

One of the most important benefits of taking a home loan is the interest rate that is allowed
on the home loan. Fixed and variable interest rate options are also available for home loans.
Many financiers also offer home improvement loans at the same interest rate as they offer the
home loans.

HOME LOAN

The section 5 (b) of the Banking Regulation Act 1949 defines Banking as," Accepting for
the purpose of lending or investment of deposits of money from the public, repayable on
demand or otherwise and withdrawable by cheque, draft or otherwise."

A "home loan" is a credit to a consumer for the purchase or transformation of the

private immovable property he owns or aims to acquire secured either by a mortgage on
immovable property or by a surety commonly used in a Member State for that purpose."

A home loan requires you to pledge your home as the lender's security for repayment of
your loan. The lender agrees to hold the title or deed to your property until you have paid
back your loan plus interest. In simple words a home loan is a fund or the loan which the
buyer has taken from any financial institution or bank to purchase a new home at an
agreed rate of interest specified during the contract.
 Home loan is the finance borrowed from a bank or financial institution to buy or modify
a residential real estate property. Any Resident or Non-resident individual who is
planning to buy a house in India can apply for a Home loan. If you have decided

to buy a property in the near future you can even apply for a loan before you select your
property.

SCHEMES OF HOME LOANS:

1) Home loans for construction of new house / flat, purchase of old house/ flat, etc:

Initially, lenders approved a home loan for family/own residence only. After gaining
experience and more importantly to be competitive, lenders now approve loans even
when the applicant has more than one house or flat/apartment. Today there is no general
restriction on the number of houses owned by an individual. The only stipulation is that
the home loan funds should not be used for commercial purposes.

2) Home extension loan:

These loans are given for expanding or extending an existing home. These are some of
the instances for which you could take an Extension Loan.

• To construct an additional room or floor by getting additional FSI granted.

i. Using grills or sliding windows to enclose the balcony.
• Construction of a garden or garage in the building vicinity.
• Home improvement loan:
Home improvement loans for repairs /renovation including waterproof, plumbing,
compound wall, digging of well/tube-well, flooring/tiling, additions like built-in
cupboards /shelves, internal repairs including replacing doors/windows, etc. A loan for
purchase of household furniture including space-saving furniture (kitchen racks,
cupboards, etc) may also be sanctioned as a home improvement loan.
 Home loan for purchase of housing site:
Here again, initially many banks did not approve such loans. However, market forces
have now made this a universal feature of the home loan market. However, care has been
taken in structuring the schemes for avoiding financing for purchase of land for
speculative lation purposes.

• Home equity loans:

A home equity loan (sometimes abbreviated HEL) is a type of loan in which the borrower
uses the equity in their home as collateral. These loans are sometimes useful to help
finance major home repairs, medical bills or college education. A home equity loan
creates a lien against the borrower's house, and reduces actual home equity.

Home loans
for
construction
of new house
/ flat

Home
Home equity
extension
loans
loan
SCHEMES
OF HOME
LOAN

Home loan
Home
for purchase
improvement
of housing
loan
site
 Rate of Interest:

The lender decides the rate of interest chargeable on the home loan, taking the following
into consideration:

1. Cost of funds:
The cost of funds is different for each lender, depending upon the mix of liabilities,
liability-raising costs (based on the image of the bank in the market) and with different
costs in different maturity buckets.

2. Tenor of the loan:

Generally, banks have borrowed funds with maturities up to 5 years, and some capital
fund surpluses, which may be available for allocation to home loan assets.

3. Capital allocation costs:

Banks are required to allocate capital based on the risk weight of each class of asset taken
on to the balance sheet.

4. Costs of administering the specific scheme.

5. Swap costs, other funding costs
6. Profit margin
7. Tenure of the loan is an important factor in pricing the loan
8. Special considerations like group lending, which may bring down the
administration or monitoring costs.
9. Competition:
The lender may have to levy interest at market rates, even if his cost plus margin is
higher than competition.
SECURITY:

 A simple registered mortgage or equitable mortgage on the property acquired out of

the loan is taken as security. This is the primary security for the loan.
2) In case of flats of a group housing society, triparilite agreement shall be entered into.
3) In case of jointly owned properties, it should be ensured that all the co-owners and co -
Applicants execute the documents.
STEPS INVOLVED IN GETTING HOME LOAN:

STEP 1:

Submit an Application form along with relevant documents:

The finance company will process customer’s application to check the loan eligibility
based on the persons income and personal profile. Usually an up front (non –refundable
fee) of about 0.5-1% of the loan amount must be paid before processing begins.

STEP 2:

Verification of the property and supporting documents:

(Usually takes 5-7 working days after Step1)

A company representative may visit the property as well as the residence to vary
information submitted in the persons application form. Further, a property valuation
maybe carried out by the company to determine the maximum amount they are willing to
lend you. Any references submitted by the person in the Application Form may also be
contacted. The person may be personally interviewed and any further clarifications in the
documents submitted maybe sought.
STEP 3:

Sanction of the loan:

(Usually on the 7th working days after Step 1

A sanction letter is issued which the customer will have to sign. This letter will contain
the amount and the terms of the loan. Some companies specify the period for which the
loan sanction is valid. The person will have to pay a Commitment fee (normally 1% of
the unutilized loan amount) if you do not draw on the entire sanctioned amount before
that period.

STEP 4:

Submission of the original Property documents and signing the loan

Agreement

(Usually on the 8-10th working days after Step 1)

The customer will be required to leave the title deed of the property with the company as
a security for the loan. He will be required to go to the company’s office to execute the
legal loan papers.

STEP 5:

Disbursal of the Loan Cheque

(Usually on the 10 –15 working days after Step 1)

The person can draw the loan in parts depending on the stage of construction of the
building. Until such time that the entire sanctioned amount is NOT drawn, you will pay a
simple interest on the Actual Amount drawn (without any principal repayments). The
EMI payments will commence only after the entire Sanctioned Loan Amount is drawn.
EQUATED MONTHLY INSTALLMENTS (EMI):

The monthly repayment by the applicant is related to his cash flow. There is an element
of interest and of principal in the monthly payments. The interest payable over the period
of the loan is calculated and added to the loan amount to arrive at the total payable
amount .this amount, divide by the total number of monthly installments is called equated
monthly installment (EMI).

CHARGES IN HOME LOAN:

Acquiring a Home Loan doesn’t only involve the cost of home loan interest rates but it
also includes other charges & fee accompanying at various stages of taking the Home
loan. You must consider all these charges while comparing the cost structure across
banks. Following is the detailed fee structure incurred by banks at different loan stages:

• Processing Charge:

It is a fee payable at the time of submitting the loan application to the bank which is
normally non-refundable. The fee ranges between 0.5 per cent and 1 per cent of the loan
amount.

• Administrative Fee:

It is a fee incurred by banks at the time of loan sanction; there are few banks who have
removed this fee so you must check it with all the banks.

• Prepayment Penalties:

When the borrower pre-pays the loan before the loan tenure, banks charge a penalty
which usually varies between 1 per cent and 2 per cent of the pre-paid amount.

• Legal Charges:

Banks also incur some charges from the customer for legal and technical verification of
the property.
• Delayed payment Charges:

When there is a delay in the payment of your EMI, banks charge a late payment fee from
the borrower which normally ranges from 2% to 3% of the EMI.

• Cheque bounce charges:

Banks charge between Rs. 250 and Rs. 500 for every bounced cheque towards the loan
payment because of lack of funds in your account.

POINTS CONSIDERED BY BANK WHILE GRANTING HOME LOAN:

The borrower’s eligibility of getting a home loan depend upon his/her repayment capacity
& the banks establish this repayment capacity by considering various factors such
income, spouse's income, age, number of dependants qualifications , assets, liabilities,
stability and continuity of occupation and savings history.

IMPORTANT POINTERS IN HOME LOAN:

• Increase your Loan eligibility

• Credit History:

Your chances of getting a home loan are increased if you have a good credit history
which is known by banks by checking the borrower’s Cibil score. Now it is very hard to
get a loan from another bank when you already have a bad debt with one bank.

• Clubbing of income:

Your eligibility to take a home loan will augment when you club your income with your
spouse’s income, bank in this case will calculate your eligibility on the basis of the
clubbed income of both the applicants. You can club incomes of spouse, children &
parents staying with you and having regular income.
• Enhance your loan tenure:

Longer is the loan tenure, lower will be the EMIs which further increases the repayment
capacity of the borrower & in turn enhances the loan eligibility.

• Step-up Loan:

In this type of loan EMI's remain low in the beginning & increase gradually as and when
the borrower’s spending power increases. Therefore lower EMI's in the initial years
enhances the borrower’s ability to pay & further increases the loan eligibility

• Increase the down payment:

You must know that in a home loan bank finances only 85 to 90% for the property & the
rest amount has to be funded by the borrower. You should increase the down payment if
you have more than required amount which will mitigate your debt considerably.

TAX BENEFITS IN HOME LOAN:

Past record:

The home loan borrower enjoys Tax Benefits on both Interest paid & the Principal re-
paid. Under Section 24(d) of Income Tax, the deduction of interest payable on the home
loan is up to a maximum of Rs. 1, 50,000.

Under Section 80(c) of Income Tax, Principal amount for the repayment of loan along
with other savings & investments is eligible for tax deduction up to a

Maximum limit of Rs. 1, 00,000.

Recent changes:

According to the new policy changes of the direct tax code bill introduced in the
parliament in the month of august 2010 only upto Rs 1.5 lakh deduction is allowed on the
interest paid on the housing loan and there is no deduction available on the principal
amount. So if your equated monthly installment is Rs 1.50 lakh, comprising interest and
principal outgo of RS 75000 each, you can avail deduction of only the interest.