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Daily reducing balance is better since you will end up paying less. Under the monthly reducing balance scheme,the principal on which interest is calculated,reduces at the end of every month with paid instalments. In the case of daily reducing balance,the principal reduces every day. Thus,in monthly reducing balance scheme,you will end up paying interest on a part of the principal,which you have already paid. This means the EMI for the daily reducing scheme is more cost-effective than the monthly reducing scheme.

Is foreclosure of home loan advisable?

Partha,Kolkata

It purely depends on the interest rate versus the foreclosure charges. If the foreclosure charges are low and the interest rates are very high,then it is advisable to get a foreclosure done. Also factor how you plan to utilise the surplus money,if you choose not to pre-pay your loan. Additionally,you also need to consider the foreclosures charges,along with your estimated interest outgo for the reminder of the loan tenure against the estimated earnings if you opt for investments. Also,calculate the tax benefit you would be getting against the payment of your home loan. If your calculation results in savings,you should opt for foreclosures.

Can banks increase the tenure of home loan without informing the customer about it?

Shanmuganathan,Mumbai

Banks cannot increase the tenure of home loan for any reason. Tenures can only be increased at your request under re-structuring option,if you are not able to pay the EMIs. However,banks typically do not increase the loan tenure beyond 60 years of age for salaried people and 65 years for self-employed.

Can I get a house financed 100 per cent through home loan?

Unnikrishnan,New Delhi

No,you cannot get 100 per cent bank finance to buy a house as borrowers need to bring in 15-20 per cent money,known as margins. Further,as per RBI directives in December last year,banks can provide loans only up to 80 per cent of the cost of property,in case of large loans worth R 75 lakh or more. The move has been brought in to curb excessive outflow of bank funds to the real estate sector,leading to speculation bubble in the sector. But for small value housing loans up to R 20 lakh,banks can provide loans up to 90 per cent of the cost of property. Such small loans are part of priority sector advances. For instance,SBI currently provides home loan up to 90 per cent cost for homes worth not more than R 20 lakh.

The expert is Business Head,rupeetalk.com
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