To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A will appear every other Monday.
I was sanctioned a home loan of Rs20 lakh in May 2007 at 11.25% floating interest rate for an under construction property in which disbursement is being made in phases. Till now, I have taken disbursement of Rs4 lakh. I would like to know whether the reduction in the prime lending rate would be applicable to my loan as well.
Housing finance companies benchmark their floating rate home loans against a set retail prime lending rate (RPLR) which, in turn, is dependent on the company’s cost of borrowings. What this means is that whenever there is a change in the company’s cost of funds (be it an upward or downward revision), RPLR is adjusted accordingly.
Recently, several housing finance companies have reduced their RPLR. This reduction will surely be effective on your loan as well.
That is, if there is a cut of 25 basis points on RPLR, there will be an equal amount of cut on your interest rate as well (one basis point is one-hundredth of a percentage point).
If I insure my home loan, will I get the money back at the end of the term?
Generally, home loan insurance plans are pure risk cover plans which help the family repay the home loan in case of the premature demise of the insured home loan borrower. The premium is the amount you pay to the insurer only for underwriting the risk.
I have had a home loan with Housing Development Finance Corp. (HDFC) for the past five years. I want to prepay part of my loan. Please tell me if it will go towards clearing the interest or the principal amount?
Any payment you make towards your loan, which is over and above your regular equated monthly instalment, or EMI, is adjusted against your outstanding principal loan amount. The effect of such prepayment translates into the reduction of the outstanding loan term or the EMI or partly both, depending on the borrower’s request. You may like to speak with your local HDFC branch for further assistance.
Renu Sud Karnad is joint managing director, HDFC.
Readers may write in with their queries and comments to firstname.lastname@example.org