Mortgage lenders stretch tenure to 30 years

CHENNAI: With regulators now extending benefits to lenders promoting affordable housing, home loan providers are working at ways to make houses more accessible to young first time borrowers who typically avail such loans. Long-term loans of up to 30 years are helping them bring down EMIs by 16% and at the same time increase loan eligibility.
On a one lakh home loan, the EMI on a 15 years tenure at 11% works out to Rs 1,136.But if the tenure for the same loan is doubled to 30 years, the EMI would drop to Rs 952.
After the Union Budget in July, Reserve Bank of India said that home loans for affordable housing would qualify as infrastructure loans for which reserve requirements have been relaxed. The central bank also raised the limit for home loans for affordable housing.
Sometime back, mortgage major HDFC unveiled a 30 year home loan product. "A home loan tenure up to 30 years is meant for customers with a particular profile. Age of the customer is one of the most important criteria apart from the creditworthiness. Our young customers who have put in some years of work experience and have a dream to own a house will feel more comfortable as the tenure of loan repayment is longer and hence finances can be managed better over a long tenure." a spokesperson from the company said.
HDFC's average loan size is currently Rs 22.7 lakh and interest rates (floating) are currently 10.15% per annum for an amount upto Rs 75 lakh and 10.50 % per annum for loans above Rs 75 lakh. Industry observers have welcomed the move. With changing demographics, a younger workforce (early twenties) and with working life extending beyond 60, the home loan product is also going in for some makeover. "First of all the customer has more options in terms of choosing a 20 or a 30 year product. Also, loan eligibility will rise in case a customer opts for a 30 year home loan. With the result, he or she can opt for a bigger and better home," Adhil Shetty, chief executive officer of BankBazaar said.
In the aftermath of the 8% teaser rate home loan scheme by SBI (State Bank of India) in 2009, many banks and home finance companies launched similar schemes with an eye on the takeover business. The 8% resulted in lowering of EMI (equated monthly installment) or extension of tenure to 25 from 20 years earlier. But after that, interest rates on home loans have been on an upward spiral. "In the last five years, interest rates on home loans have moved up by 2%. Plus, continued inflation and rise in property prices have put additional burden on customers. Customers want to buy good properties with better loan service terms," Rakesh Makkar, president and chief distribution officer, DHFL said. The company also recently unveiled a 30 year home loan offering.
But some companies are treading cautiously when it comes to extending home loan tenures to 30 years. For instance, Sundaram BNP Paribas Home Finance considers 30 year repayment only in exceptional cases. "Indians are generally averse to longer tenure. Even when they take loan for 20-year tenure, very few loans run that long. There are foreclosures after 10-12 years," Srinivas Acharya, managing director, Sundaram BNP Paribas Home Finance said.
Another south based Repco Home Finance is not mulling a 30 year home loan offering at the moment. "We believe costs outweigh benefits in case of 30 year loans and that 15-20 year loans are better. Home finance companies also stand to benefit if they lend for 15 to 20 years," V Raghu, executive director, Repco Home Finance said.