People at the beginning of their careers, are generally not in a position to spare huge money for servicing a home loan, which they have to invariably take in order to finance the purchase of their house. One of the factors, which affects your home loan amount eligibility, is your income at the time of making the application. Similarly, availing of a large loan, may also be difficult for people who are only left with a few years of their careers. In such cases, one option to enhance the home loan eligibility, is to add a close relative like a spouse, parents or children, to join as co-borrowers to the home loan.
As this may not be possible for everyone, another options is to find a lender who offers a longer home loan tenure, than what is normally available in the market. Normally, home loans are granted for a period of 20 years, subject to the last instalment of the home loan not extending beyond the retirement date or earning career. Oriental Bank of Commerce, however, has launched a home loan product, to address this problem of lower home loan eligibility.
Oriental Bank of Commerce home loan, with tenure of 40 years
The home loan product offered by Oriental Bank of Commerce (the 480 EMI home loan scheme) has a tenure of 40 years, which is almost double of the tenure offered presently by the lender in the market.
With this extended home loan tenure, your EMI will be lower than what it would have been for a regular tenure and thus, it also offers a higher home loan eligibility, in terms of amount. For example, the EMI for a home loan at an interest rate of 8.35 per cent for 20 years, would be Rs 42,918, for a home loan of Rs 50 lakhs. However, if the home loan tenure is extended to 40 years, the EMI would come down to Rs 36,085. With lower home loan EMI, your home loan eligibility goes up by 16 per cent. So, instead of Rs 50 lakhs, you would be eligible for a home loan of Rs 58 lakhs, with the same amount of annual income.
Extended age for the home loan to be fully repaid
Home loan lenders normally give you a home loan tenure that does not extend beyond the age of your retirement. For salaried people, this is normally 60 years and for self-employed people, it is 65 years. The home loan product from Oriental Bank of Commerce is especially beneficial for people at the start of their careers. For example, a 25-year-old self-employed person can avail of the home loan, which is repayable till he turns 65 years of age. Moreover, it allows a person of higher age to avail the benefit of extended tenure.
The 40-year home loan product allows the tenure to extend beyond the age of retirement, for people who are entitled for pension, till 75 years of age. Likewise, a self-employed person is also eligible to get the period of home loan extended till 75 years of age. For salaried people who are not entitled to any pension, the home loan tenure can be extended till 65 years of age.
Other features of the 480 EMI home loan scheme
The bank does not charge any prepayment penalty on the home loan. So, the extended period gives you the ability to avail of a home loan of higher amount, with the option to prepay it partly or fully before completion of the tenure, without incurring any penalty for such prepayments.
Oriental Bank has also waived off the processing fee, on such home loan applications, till March 31, 2018, which is otherwise normally around 0.5 per cent, subject to a maximum of Rs 20,000 and applicable GST.
Rate of interest
The interest rate on the 480 EMI scheme, is based on the MCLR (marginal cost of funds-based lending rate) and the rate applicable, will depend on the amount of the loan and the margin provided by you. Higher your contribution, lower will be the rate applicable to you, as the risk for the bank comes down to that extent.
For home loans up to Rs 30 lakhs, where banks can lend only up to 90 per cent of the value of the property, the applicable lending rate will be one year MCLR plus 0.10 per cent but if the margin contributed by you is 20 per cent or more, the bank will lend to you at its one year MCLR. For loans between Rs 30 lakhs and Rs 75 lakhs, where banks cannot finance more than 80 per cent of the cost of the property, the applicable lending rate is one year MCLR plus 0.10 per cent. However, with own contribution beyond 25 per cent, the bank will only charge one year MCLR. For loans over Rs 75 lakhs, where the banks cannot finance more than 75 per cent of the cost of the property, the applicable rate will be one year MCLR, even if you contribute more than 25 per cent.
Interest subsidy under the Pradhan Mantri Awas Yojana
For home loans granted under the 480 EMI scheme, you will be able to avail of the interest subsidy benefits, if you otherwise fulfil the criteria for the scheme. In such case, you will be able to get a maximum of Rs 2.67 lakhs as interest subsidy, under the PMAY scheme.
(The author is a taxation and home finance expert, with 35 years’ experience)