What is adjustable rate in a home loan?

Do you have questions regarding banking? Outlook Money helps you with the answers.

Do banks accept insurance policies as collateral? If yes, then how is the loan amount set?

-- Sailesh Bhupathi

Insurance policies that have an element of saving in them, apart from pure insurance cover, can be used as collateral for loans. Banks will examine the features of the policy, before accepting it as collateral.

The surrender value of the policy will be taken as the basic value and after allowing for a margin, the rest of the value of the policy will be used as collateral. The loan will not be based on the insured value of the policy because the bank would not know if you are likely to pay your premiums regularly. Loans are not made against the insured value of the policy.

Can an NRI be nominated to a bank savings account? Can the savings be transferred in his name?

-- Sukhwinder Singh, Baroda

Yes, a non-resident Indian can be nominated to receive the proceeds of a bank account. However, exchange control regulations do not allow repatriation of rupees. Therefore, if your account is a rupee account and the nominee is an NRI, the proceeds will be transferred only into a non-resident (ordinary) account, which is a rupee account.

The NRI will not be able to take the money out of the country, until the rupee becomes completely convertible. He will only be able to repatriate what has been brought in as dollars. In this case, since the account is a savings account, which is a rupee account, the proceeds cannot be repatriated by an NRI nominee.

I am the power of attorney-holder for my brother, who is an NRI. He has certain equity shares in the physical form and wants to gift them to me. What is the procedure?

-- Soni Vimal Kishore, Hyderabad

The rights of the power of attorney holder are defined in the agreement, and may not include the right to be able to transfer the holdings to himself or get nominated to receive the proceeds of the accounts he is operating.

The PoA should, however, enable you to open and operate a demat account. If not, get a new PoA to include this. You can then open a demat account in your brothers' name and get the physical shares converted to the demat form.

After this, your brother can transfer the shares to you using his signatures, because the original holder can operate the account overriding the PoA. Enable a facility called SPEED that National Securities Depository Ltd (NSDL) provides, which allows NRIs to operate their demat accounts from remote locations using the Internet. You can show the proceeds in your account as a gift from your brother and that you have not paid any consideration for the shares transferred.

I have taken a three-year car loan from a bank. Now, I want to take a home loan. How do I exit the car loan?

-- Shruti Mahant, Vizag

There is nothing that prevents you from having a car loan and a home loan together, as long as you can pay the EMI for both. If you think that it would be difficult for you to service the car loan, the only option available is for you to repay the car loan, or return the car to the bank citing your inability to pay the EMI.

Recently, when salary was credited to my bank account, I received an SMS. But the amount mentioned was Rs 60 less than my salary figure. I was not able to check with the bank immediately. Now, I have lost the SMS also. How can I clarify with the bank?

-- Anurag Singh, email

You can use your ATM card to print out the latest list of transactions on your account. You can also call the bank's customer service centre to check your account's balance, debits and credits. You can also give in a request for account information to be mailed to you, which the bank would do, to enable you to verify the transactions in your account.

What is adjustable rate in a home loan?

-- Pallavi Jain

Adjustable rate or the floating rate in a home loan gets adjusted or changed with changes in the interest rates in the economy. The floating interest rates are determined by fixing a premium to the prime-lending rate (PLR), the rate at which the bank gives loans to its most credit-worthy borrowers.

Different housing finance companies might have a different adjustable rate. Choosing between a fixed rate and an adjustable rate loan depends on your future views of the interest rate. This means that if you think the  interest rate is going to increase in the near future and remain there for quite some time, a fixed rate loan makes more sense. Otherwise, choosing an adjustable rate would help.

I took a home loan worth Rs 800,000 four years back from a nationalised bank. Now, I want to prepay the remaining amount. How much loss will I have to bear?

-- Smita Neelakanthan, email

Repaying the entire loan before the maturity may mean that you have to pay a penalty of two per cent of the outstanding amount, depending on the housing finance company. Check with your banker if you can pre-pay an amount lesser than the entire outstanding as this might not call for any penalty. This way your loan will continue, although the outstanding balance will be very small and hence the burden can be considerably reduced.

Can I make my brother a co-applicant in my home loan?

-- Sonam Singh, email

According to the co-applicant eligibility criteria followed by banks this is not allowed. However, you can make your spouse, parents or children your co-applicant for the home loan and the banks would include their income to enhance your loan amount.

Recently, I read the a home loan offer document from a bank. The bank is offering a home loan with an insurance option. What does this mean? Is it better to take a simple home loan?

-- Srikant Sahay, email

Insuring a home loan is a must and should not be avoided. In case of death of the loan buyer, the family will have the support of the insurance cover to pay for the outstanding home loan, without being burdened by the loan EMIs. Insurance cover given by some banks for home loans is an optional group life insurance scheme for all the loan buyers of that bank.

This cover is available along with your housing loan at specially discounted insurance premium rates. This is an added cost that will add to the final cost of purchase of the property. Choose the regular premium option over the single premium option, as any prepayment done in later years would result in loss.

My salary is Rs 4 lakh per annum. I can make a down payment of Rs 2 lakh. What is the amount of loan that I can get?

-- Qazi Ahmad Murtaza, email

The loan amount varies from bank to bank and does not not depend on the down payment amount. The loan amount is determined based on various factors like income, age, number of dependants, qualifications, assets and liabilities, stability or continuity of your employment or business.

All these are taken into account when assessing your repayment capacity. Usually the loan amount is 48 to 60 times your net monthly income or four to five times your annual income. 

The bank is charging some EMI before the starting of actual EMI? Is it right for the bank to charge that amount?

-- Samali Pal, email

Pending the final disbursement, you pay interest on the portion of the loan disbursed. This is called the pre-EMI interest. It is paid each month from the date of each disbursement up to the date of commencement of EMI.