The home loan market in India is not what it used to be. Over 4-5 decades ago, the home loan market was being considered as rather unproductive sector. Reason being that not everyone was comfortable with the idea of taking a loan.
However, with the advent of private sector banking things began changing as these banks started offering various products to entice home buyers to opt for home loans. That’s not all. The public sector banks soon followed suit and created a huge ripple.
This was just the beginning. Home loan are now being curated in a manner that is more beneficial to the borrower. Here are some the trends that can be seen in the home loan segment:
Determination of loan amount
In the initial stages, RBI mandated some limits on lending as well as disallowed funding registration and stamp duty charges on property purchases. As competition ensued lenders began tweaking the terms and conditions of home loans to make it attractive for borrowers and allowed all costs associated with the property purchase to be included for calculating the eligible loan amount, including registration and stamp duty charges.
Calculation of interest
Starting with interest calculation on yearly periods, lenders now have moved to daily periods as this move helps the borrowers to pay lesser amount of interest than they would pay if interest were to be calculated on monthly or longer rests. You can now check your interest before you avail a home loan.
Traditionally, EMI is calculated over the tenure of the loan and includes a principal repayment component and an interest payment component. The feature of EMI is that during the initial months of the tenure the interest payment component is high, and the principal repayment is proportionately very low. Towards the end of the tenure, the reverse is true with the interest payment component being very low and the principal repayment proportionately very high. On longer tenures, borrowers would be stuck with a constant EMI without any flexibility to adjust for volatility in their incomes. Therefore, lenders began offering flexi-EMI options where, as a part of the original loan, borrowers could opt for a step-up flexi EMI plan, step-down flexi EMI plan or a standard EMI plan.
If borrowers expect to earn more income during the later years they could opt for the step-up flexi EMI plan commensurate with the income earned. You can read more about flexi EMI Plans here.
Modernization of systems
With the advent of technology, several systems and processes have seen major changes.
Gone are the days when you would have to wait for a representative to explain the home loan process and the documentation. Now, all the information you would need on your home loan eligibility, documentation and process is available online. You can even calculate your EMI online with an EMI calculator before you avail a home loan.
Not just that, the application process has become simple and effortless. And you can apply for home loans online as well.
Updating records is all done through computers and transmitted electronically. Credit bureaus have helped both borrowers and lenders to ensure as much transparency as possible. The government and the RBI too evolved with the times and played a balancing role to protect the interests of both the lenders and borrowers. They allowed lenders to blacklist defaulters and auction their mortgaged properties to recover their dues.
Better customer experience
The home loan industry launched many innovations that included involving builders and developers in the home loan process. Lenders began providing one-stop resources for home loans tying up with builders, promoters and other stakeholders. They increased the use of technology to provide a better experience to borrowers.
Pradhan Mantri Awas Yojana (PMAY)
The need for housing has been felt quite starkly so much so that the government has declared a mission to provide housing for all by the year 2022. This is one trend that means a lot to the home loan industry as the government has announced various incentives for the weaker sections to help them to acquire a roof over their heads through its PMAY promising up to Rs 2,67,000 per home as interest subsidy under the credit linked subsidy scheme (CLSS). Want to know more about affordable housing loan?
The future is bright
While these are the recent trends in the home loan industry, the segment will go through additional changes as well. For starters, there have been some important legislations and policy initiatives that have affected the home loan industry such as demonetization and introduction of RERA. These measures ring in major changes in the way real estate is perceived as opposed to what ensued in the earlier times
Trends that can be witnessed could include
• Further reduction of home loan interest rates
• Pre-approved home loans could be offered
• Governments would look at offering more incentives for home buying – second and third homes may get tax concessions, tax concessions could increase, interest subsidies could increase
• Banks could determine home loan interest rates by switching to an external benchmark
• New technology and analytics could help in managing portfolios, reducing costs, repayments, increasing efficiency, bringing accountability to various stakeholders, improving quality of homes and reducing risks
• Improving the quality of authenticating documentation through technology
All in all, the home loan industry is undergoing metamorphosis from a disorganized state to a more organized and transparent state. This augurs well for the home buyers as well as home loan providers.