I have taken a composite loan (plot plus construction). I received the loan amount for a plot with the undertaking that I start the construction of the house in two years. I have now moved to the US which I did not plan at the time of loan disbursement. I cannot start construction till I move back to India and at this point I am not sure when I will go back. Someone from the bank had called my dad saying they will charge 15% interest till the actual construction begins. My question is, can I close the loan by making a full payment? If not, can I get an extension for house construction? Can I park surplus money in OD and save 15% interest rate?
—Anand Iyer Yes, you can definitely foreclose your loan and since RBI has issued a notification banning levy of penalty on foreclosure of all floating rate loans taken from the banks, you won’t have to worry about the penalty on the prepay- ment of loan. Please note that before you opt to prepay your home loan, it is always advisable to pay off all other debts on which you are paying higher interest because the rate of interest on such borrowings is normally higher than home loans. Also ensure that some funds are available to meet any financial contingency.
Secondly, getting an extension of time for construction seems a bit unlikely.
The most ideal option is to put your surplus money in your linked account, which is as good as prepayment. It will allow you to use both your temporary and permanent cash surpluses to reduce your interest liability on your home loan and at the same time retain the flexibility of withdrawing the surpluses for other uses as and when you may require.
I would like to take a mortgage loan against a property that is in my father’s name but the problem is that I have a low Cibil score of 595. Will I get a mortgage loan of R34 lakh for a property that is worth R60 lakh?
— Rekha Dadlani A Cibil score below 650 is not considered good. Your score of 595 could be because of recent and relatively lower value credit history or it could be because of some default in the past.
If this is the case, then you can jointly apply for a loan with your father since he is the owner of the property. Typically, you can get up to 50% to 60% of the value of the property or twice your annual income (whichever is lower) as a loan against property. It is available generally for a period ranging between 5 years to 15 years. Most lenders get the property valued independently and they will provide the loan based on the value indicated by their valuer rather than the market value as perceived by you. Generally, the valuation as determined by the lender’s valuer is lower than the market value as perceived by you, hence the loan amount gets reduced.
If your score is low because of a default shown, it will be difficult to get a loan. But you can rebuild your credit history by taking a secured credit card (secured against FD) or loan against tangible movable security such as FD/jewelry / shares /units of mutual funds/life insurance policy with high surrender value etc.
Harsh Roongta is CEO, Apna Paisa. He can be reached at firstname.lastname@example.org