All You Need To Know About Home Loan Disbursement
After you have given all the required documents to the lender, followed by a close scrutiny, the time has come to get the cheque. And, the journey has not been a smooth ride because you had to cross the necessary legal and technical viability procedures and the credit appraisal process.
Not all loans are of the same kind. It all depends upon the nature of the loan and the kind of property being bought. For instance, in case of resale or ready-to-move-in property, the full and final disbursement of the loan is made in one go. While for under-construction properties, only partial loan disbursement is made, which means that money would be released in stages.
Makaan IQ tells you how each loan option has a different disbursement mechanism.
Partial loan disbursement
Let us understand this with an example. Suppose the bank has sanctioned Rs 10 lakh loan for the under-construction property you have bought. The lender will not release the said amount in one go, it will release a partial amount, say Rs 2 lakh and the remaining Rs 8 lakh will be disbursed as the construction progresses. You will be charged interest on the disbursed amount at a given point in time. This interest component on the disbursed amount is called the Pre- Equal Monthly Instalment (Pre-EMI). The process will continue until the final disbursement takes place.
Under the partial disbursement method, banks mostly take 4-6 post-dated cheques on account of Pre-EMI.
You need to know that Equated Monthly Instalments (EMIs) do not start immediately or banks do not break up the instalments into the principal and the interest component' until the full disbursement is made.
Full and final disbursement
In case of ready-to-move-in properties, the bank releases the entire loan amount in favour of the developer or the seller, as the case may be. The EMI starts as soon as the full disbursement of loan is done. The final disbursement of loan does not mean that you will not have to set your foot in the bank ever because from the lender's perspective, it is just the beginning. The ritual of post-disbursement documents, pre-payment, loan pre-closure, income-tax certificate, repayment procedures etc. would spring up occasionally and would have to be attended to.
All banks charge interest on the loan amount disbursed, from the day the cheque/ pay order is made and not from the day you receive the cheque. Therefore, avoid extra payment of interest on the amount disbursed by accepting the cheque on the same day when it is signed.
The broader picture
A bank's book size is primarily determined by the amount of loan disbursed and not by the number of loans sanctioned. The Reserve Bank of India's (RBI) interest rate cut by 0.25 per cent for 2016-17 fiscal implies a possible rise in the home loan disbursement by the public sector banks, that have reach to the remotest parts of the country.
It is striking that the State Bank of India, which accounts for a majority of the housing loans disbursed by the public sector banks, is the first bank that introduced the Marginal Cost Fund Based Lending Rate (MCLR). The bank has reduced the home loan rate by 10 basis points. The bank's home loan constitutes nearly 60 per cent of the total retail loans.
Many public sector banks witnessed a decline in their loan disbursement during the third quarter in 2015-16, though the considerable drop was not uniform across all the banks. The panorama seems to improve with RBI's 25 basis point reduction in the repo.