Banks and financial institutions in Nepal provide loans to buy or build houses, to buy land for building houses, to expand houses. Banks provide home loans for 50 to 70 percent of your collateral valuation. This loan is available up to a maximum of Rs 15 million. We give you detailed information about home loans. If you are taking out a home loan for the first time, you need to know the basics.
Which banks offer home loans?
In Nepal, banks and financial institutions provide loans under the title of home loan. Not only to buy or build a house but also for the purpose of building a house in the future, the bank has been providing loans under the title of home loan.
There are four types of financial institutions in Nepal: Commercial Bank, Development Bank, Finance Company, and Microfinance Company. Nepal Rastra Bank has classified these financial institutions into ‘A’, ‘B’, ‘C’, and ‘D’ categories respectively. Apart from this, the city dwellers are also disbursing loans under various headings.
According to NRB, commercial, development, and finance companies can provide home loans in Nepal. Microfinance companies are not allowed to give home loans. Cooperatives in Nepal are also investing in home loans. The regulation of cooperatives does not fall under the purview of NRB. Cooperatives fall under the Ministry of Agriculture Development.
Which bank’s Home Loan is cheaper?
There are three categories of banks in Nepal that provide home loans. Interest rates vary according to the class of financial institutions. The interest rate on home loans of commercial banks is lower than that of development banks and finance companies. Interest rates vary by 1-2 percent in the case of development banks and 3-4 percent in the case of finance companies.
Even among the same class of banks, interest rates are different. It all depends on the cost of funds and the base rate of the banks. As the bank’s ‘cost of funds’ decreases, so does the base rate. As the base rate decreases, so do the interest rate.
Government-level Rastriya Banijya Bank, Nepal Bank’s ‘cost of funds’ is lower than that of private banks. As the cost of funds of these banks decreased, so did the base rate. As the base rate decreases, the interest rate of these banks also decreases.
Interest rates also vary between private banks. The cost of funds and base rates of private banks are different. So we see that they have come up with different interest rate schemes. Banks that operate low cost of deposits also have lower interest rates.
Interest rates of Rastriya Banijya Bank, Nepal Bank, Krishi Vikas Bank, Everest Bank, Nepal SBI Bank, and Standard Chartered Bank are comparatively lower. They can offer home loans at low rates.
The interest rates of medium type banks are slightly higher. Emerging banks have the highest interest rates.
How much can you borrow?
Commercial banks, development banks, and finance companies in Nepal provide loans to buy real estate. Before you begin the process of taking out a home loan, consider, ‘How much do I earn and how much can a bank lend based on my earnings?’
How much the bank will lend to you also depends on your ability to pay the EMI. You can only borrow 50 percent of your monthly income by paying EMI. For example, if your income is Rs 1 lakh, you get a loan of Rs 5 lakh by paying EMI. If you are taking out a home loan for the first time, you can borrow up to 60 percent of your income by paying EMI.
Banks first check to see if you can repay the bank loan on time. The higher your income, the more likely you are to get a loan. But for this, the property you have to pledge should be equally valuable. Otherwise, banks will lend based on your income and collateral, whichever is less.
The term of the home loan and the interest rate also determine how much loan you can get. Apart from this, the age and service period of the debtor is also determined.
Nepal Rastra Bank has made it mandatory to submit an annual tax payment certificate of income while taking a home loan. However, first time home loan customers are not required to pay a tax certificate. It is enough for First Home Buyer to submit the tax voucher.
Which applicant is required to get a home loan?
Um, of course, yes, I know this, why it’s something known in advance. If the property is in the name of two persons, then in that case only two persons are required to participate in the home loan. If you own property, any member of your family can be an applicant.
- Documents to be submitted along with the loan application
- Citizenship of the borrower,
- Passport size photo,
- Details of the source of income, including the borrower and the personal guarantor,
- Certificate of payment of annual income tax
- Income source documents (salary, business audit report, rent),
- Business registration certificate
- Four strongholds of collateral for a loan from a bank.
- Documents paving the way for a property,
- Details of the source of income, including the borrower and the personal guarantor,
- Property Tax Receipt (Available at Ward Office)
- Blueprint of the land, trace
- If you have a home on a mortgaged property, a building permit,
- Permanent map of the house passed and certificate of completion completed
- If there are employees or salaried persons working in legally registered organizations, their salary-related
- documents, rent agreement in case of those earning through house rent, and certificate of redemption of a rented house.
- In case of earning from foreign employment, passport proof of visa, salary document, bank statement of salary to be paid abroad, and document of remittance to Nepal from abroad.
Other documents as per bank policy
- Documents to be submitted by the guarantor
- Details of personal property and liabilities
- Citizenship or passport
- Proof of residence
- Address and details of the place of work of the person holding bail
- Tax payment certificate
- Bank statement
What is a home loan Approved?
Banks decide whether or not to give you a home loan based on the documents you submit. The home loan also depends on this document.
If the bank accepts your application and decides to give you a home loan, it will give you an offer letter. The offer letter has various conditions including the amount, term, and interest rate of the home loan. The offer letter should be signed only after reading these conditions thoroughly and fully agreeing.
From the day you receive the money, you start adding interest.
Documents to be signed when taking a Home Loan
Banks and financial institutions issue offer letters as soon as the loan is approved. The offer letter has different conditions. You only need to read those terms carefully and sign them.
After signing the offer letter, the loan process begins.
Then the collateral has to be kept. You have to go to the landlord to get the pledge. The signature and thumbprint should also be affixed while pledging the deposit.
Once the collateral is mortgaged, the bank seals the loan. Even then, signatures and fingerprints must be affixed. There is another pledge, that is, a paper with a promise that I will repay the loan. That too must be signed.
Another personal guarantee. When taking a home loan from a bank, family members should have a guarantee in the bank. Most banks have a personal guarantee for the member who contributes to the family income. There, a personal guarantor must also sign and thumbprint.
How do you get the Loan Money?
Banks can also give home loans in a lump sum or in installments. It can have a maximum of 5 installments. When it comes to building a house, they pay the installment based on the progress of the construction. They pay a lump sum when buying land. A lump sum is also available at the ‘Ready to Move’ accommodation.
Fees Charged by the Bank for taking a Home Loan
It is not enough to pay interest only when taking a loan from a bank or financial institution. After completing the loan process, many titles are already charged. It is good to know this in advance.
When you go to the bank to get a loan, you have to pay the loan information fee at the beginning. Banks charge customers as much as the Credit Information Center charges. According to the Credit Information Center, such fees vary according to the history of the loan.
If the customer has also taken a loan from another bank, there will be a long notice. And, the charge also seems a bit high. Otherwise, it will usually cost five hundred rupees. The more information is added to it, the more the fee is added.
Fees must also be paid when valuing the pledged property. That is not to pay the bank, but to pay the engineer appointed by the bank. The collateral engineer has an agreement with the bank. They charge according to the same agreement. They charge according to the fair market value of the property.
The main charge taken by the bank is the service charge. That is usually 1 percent. Some banks charge 0.30 percent to 2 percent. Development banks and finance companies charge a little more. The service fee is initially charged by the bank.
There is also an insurance charge for mortgaging your home. You have to ensure the mortgaged house. Apart from that, you have to pay a mortgage fee. Landlords also charge a fixed fee when it comes to mortgaging. There is one charge for a valuation of up to Rs 10 million and another charge above Rs 10 million.
How long to take out a Home loan?
Banks and financial institutions in Nepal usually provide home loans for a period of 5 to 25 years. But NIC Asia Bank has come up with a scheme to provide loans for up to 30 years.
If you take out a home loan with a longer-term, the monthly installment (EMI) will come down. Paying a small amount of money in a month and paying interest will not be a problem in your daily life. However, in doing so, you will have to pay more than the principal amount as interest. However, if you take out a short-term loan, you will have to pay a large monthly installment, but since the loan will be repaid quickly, you will not have to pay much interest. .
For example, if you took a loan of Rs 3 million from a bank. The interest rate is 11 percent and the term is 15 years. Its monthly installment EMI is 34 thousand 97 rupees. But after repaying this loan, you only have to pay Rs 3.1 million in interest. Here it seems that you have to pay more interest than the principal.
If this period is reduced to 10 years, your monthly installment will increase to Rs 41,000. When you repay the loan, you pay 1.95 million interest. Reducing the five-year period reduces the overall interest amount by about 1.2 million. The size of EMI has gone up from 34,000 to 41,000.
You can set the period yourself by keeping the period short so that it is comfortable to pay more monthly installment or by keeping the period longer it is comfortable to pay a less monthly installment. When determining the period, your monthly income must be justified. Your monthly income should be high when taking a short term loan.
The longer the term, the higher the overall interest amount to be paid. The bank is not normally informing the customer about this. When you take a loan, it is better to take a loan for the shortest period by making the highest down payment as much as possible. If you have a good income, take out a short-term loan. Doing so will reduce the overall interest amount even if the EMI is higher.
What is EMI?
After taking a loan, the bank has to pay monthly installments. Both interest and principal are added to the installment. This is called the Equated Monthly Installment (EMI).
When to submit EMI?
Are you taking out a loan to build a house or to buy land? The conditions for paying EMI vary depending on the purpose.
If you have taken a loan to buy land, you will have to repay the EMI regularly from the 10th of the next month. If you have taken a loan to build a house, you can ask the bank for a grace period to repay the loan. That is the concession period. The grace period is up to a maximum of 1 year.
You spend a lot of money to build a house. Because the bank has not given 100% loan to build the house. In this case, your income may not be enough to pay the EMI. The bank gives a grace period of 6 to 1 year as per its policy. During this period you only have to pay the loan interest, you do not have to pay EMI. When the period specified by the bank expires, the EMI must be paid to the bank by the 10th of every month. It is only a matter of building a house with this facility.
What happens if EMI is not paid regularly?
If you are buying a new home, you have to pay the regular installments from the 10th of the next month. If even one installment defaults, the bank will start notifying you. If you do not pay EMI up to 3 installments, the bank has the right to recover the loan by issuing a 35-day notice and auctioning the collateral as per its recovery manual.
Paying EMI can be up and down for 1-2 months. It doesn’t make much difference. However, it is better to pay regular installments. Because, in this case, the debtor will not have to bear the additional burden of interest. Banks do not auction collateral all at once. Give you enough time.
If you are not coming to repay the loan. He did not want to come in contact with the bank. The bank will go into the process of auctioning the collateral only if there is no option left. The bank keeps sending various letters of warning as soon as the installment defaults. There is a lot of follow-ups
How to reduce Home loan?
You have to pay EMI every month. Interest and principal are added to that installment. In the initial installment, the share of interest is more and the share of capital is more. Later, the interest rate decreases, and the interest rate increases. The amount of interest and principal is increasing every month. However, the size of the EMI does not change until the loan is repaid.
Can I repay the loan in Advance?
The loan taken from the bank can be repaid in advance. This facility is available if the customer has cash from somewhere and wants to reduce the loan. Repaying the loan in advance reduces the debt and interest burden.
According to Nepal Rastra Bank, customers (borrowers) do not have to pay an extra fee for loans below Rs 5 million when making advance payments. But for loans above Rs 5 million, banks have been charging an additional fee of up to 2 percent of the pre-payment amount. If you pay in advance gradually, you can also reduce the EMI and pay the installment. Or, you can pay the previous EMI. But there is no difference in interest rates.