What is the maximum
amount one can borrow?
The
lending institutions have their own maximum loan limits. Many institutions have
a maximum limit of Rs One Crore. However, the eligibility is based on the
market value of the property and monthly repaying capacity of the applicant.
The repaying capacity is linked to the income of the individual, which is
generally 25 to 40% of the income. Therefore, the amount of loan varies from
individual to individual. The lending institution considers the take home
salary of individual minus his monthly expenditure. The surplus that is after
deducting the expenses is the repaying capacity. Any other income/incomes ofthe co-applicant are also added, after deducting the expenses.
In case of self-employed persons, the
net annual profit as disclosed in the income tax returns plus some portion of
depreciation is the surplus that is available for repayment. As the loans are
repayable by way of Equated Monthly Incomes, the annual income is divided by 12
to arrive at the monthly EMI the applicant can afford. Apart from these
components, the balance service period of the applicant is also a determining
factor.
What is Term
Insurance?
In
Term Insurance, the risk is covered for some certain period on payment of one
time premium. The Insurance Companies will repay the amount insured in case of
death of the insured. If the insured person survives the insured period, the
policy lapses after the agreed period. The insured person will not get any
amount nor refund of his premium. It is purely a risk policy, where as many
other policies are risk/savings policies, where the insured gets back some
amount, if one survives the insured period. Money lending institutions insist
on term policies so that loan gets repaid in case of any mishap.
To be more clear, Mr.’A’ purchases a
term policy for 20 years due on 01/12/2024 for Rs.Ten Lakhs on payment of one
time premium of Rs.15,000/-. If Mr.’A’
dies during the tenure of the policy, the insurance company pays Rs.Ten Lakhs
to his legal heirs, nominee or lender. If he survives, the period 01/12/2004,
the policy lapses, and he will not get back any amount even the premium.
What is property insurance?
Apart from term insurance, which covers life risk of the
individual, the properties, which are offered as security to the loan, have to
be insured. The risks covered are fire, strike, riot, civil commotion, flood,
earthquake etc. The insurance had to be in force for the entire period of loan,
which is until the loan is repaid. The lending institution will be beneficiary.
The premium is payable every year. The properties have to be insured for full
value of the properties and not to the extent of loan amount. In case of loss
or damage to the property, on account, fire, flood, earthquake etc. the
insurance company will reimburse the amount to the extent of loss.
What are commitment
charges?
Commitment charges are fees that are
levied on undrawn portion of loan amount. If the borrower has drawn only Rupees
Five lakhs out of Rs. Ten lakhs granted to him, the undrawn portion of Rs. Five
lakhs attracts commitment charges. The commitment charges are levied after date
from which the entire loan have been drawn until the full amount is drawn.
More,
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