Mumbai: Ashish Wagh, a senior executive with a foreign investment bank, recently approached his mortgage lender for a lifeline after his company started cutting jobs and trimming salaries.
Wagh had taken an Rs80 lakh home loan earlier this year to buy an apartment in Bandra, a Mumbai suburb, repayable over 20 years at an annual floating interest rate of 11.75%.
Wagh is now considering selling his ancestral property in Pune so that he can immediately repay nearly half the loan amount and avail a two-year moratorium—a legal authorization to delay payments.
Rising charges: An apartment complex. Interest rates on home loans have increased from 7.50% in 2003 to 11.75% in August, putting pressure on borrowers who had taken loans at floating interest rates. Ramesh Pathania / Mint
He declined to name the mortgage firm because he said that could hurt his negotiations with it.
As interest rates surged earlier this year and companies started laying off staff and tightening employee costs, recovery teams of banks and housing finance firms have, in the past few months, been busy offering at least half a dozen easy repayment solutions to a growing number of borrowers who have been hurt by the slowdown.
Lenders are open to offering easier terms to existing borrowers because they want to prevent an increase in the proportion of non-performing assets (NPAs) on their books and the worth of their collateral—the houses—has declined sharply this year with falling real estate prices.
Banks have extended home loans worth about Rs2.69 trillion as on 29 August, but growth in home loans between 1 September 2007 and 31 August slowed to 13.9% at Rs32,792 crore, from 17% in the previous year, according to the Reserve Bank of India.
Interest rates on home loans have increased from 7.50% in 2003 to 11.75% in August, putting pressure on borrowers who had taken loans at floating interest rates.
For instance, if a person had taken a Rs20 lakh home loan repayable over 20 years, his monthly repayment would have increased from Rs16,418 in November 2004, when the interest rate was 7.75%, to Rs21,674 now.
Housing Development Finance Corp. Ltd, or HDFC, the oldest mortgage lender in the country, is offering its existing borrowers the more common options of stretching the term of the loan without raising the interest rate, or increasing the equated monthly instalments after closing other debts such as personal or auto loans.
“In case a customer is servicing multiple loans such as a housing loan, vehicle loan, personal loan, and has to make the choice to repay, it is advisable that the customer evaluates the loans and decide to repay the loan based on its cost and impact on cash flows,’’ said HDFC’s joint managing director Renu Sud Karnad.
For additional collateral, some lenders are willing to allow borrowers to “balloon” the loan to the end of the tenure or make a large payment towards the end.
Borrowers can also choose to make large payments, or so-called bullet payments, every year so that the term of the loan is trimmed.
Depending on an individual’s future cash flow, Axis Bank Ltd is even allowing borrowers to pledge savings instruments in return for easier repayment terms.
“Depending on the customer’s need we take a three-pronged approach, which includes increasing the tenure of the home loan, keeping the interest rate constant for a limited time frame, and balloning up the loan towards the end of the tenure,” said a senior official at ICICI Bank Ltd, India’s second-largest lender.
“(But) we do not encourage customers to opt for the option of deferring the payment towards the end of the tenure of the loan as it increases the debt burden on the customer. The chances of default also increases,” he added, asking not to be identified because he isn’t the bank’s official spokesman.
Another reason for borrowers seeking a restructuring of their home loans is delays by builders for various reasons.
“Some builders are finding it difficult to complete the housing project on time (and are) hence delaying the possession of the flat. In such cases, banks have seen many customers come to them and ask for a reschedulement of the loan,” said a senior official with Axis Bank.
“All the major real estate developers are seeing a time overflow, hence this is a very common request we are getting from customers,” added this official who wished not to be identified.
Terms on offer
Options to ease home loan repayments:
* Increase tenure of the loan
* Increase monthly payments after closing other loans
* Make lumpsum payments
* Keep interest rate constant for limited period
* Balloon up and pay towards the end of the loan tenure
* Pledge future cash flows to the bank