What is home loan?
A loan that is provided for purchasing a property is called a home loan. It is a fully secured loan which is issued keeping the property as a mortgage. Home loan is the most important thing which has made housing affordable for the mass scale. Finabile provides the best Home Loan Software for all financial institutions irrespective of size. Automates the loan workflow from origination to collection in a single platform using home loan software. Purchasing a property means shelling out a massive sum of money all at once. In most cases, this is out of reach for people.
In case of a home loan, a bank or an NBFC pays out this large sum of money keeping the property as a mortgage. This is done in lieu of an interest payment on the loan amount. In return, the borrower pays a monthly installment which consists of the principal and the interest.
What is the process involved?
Banks and NBFCs understood that there is tremendous business potential in the housing sector where a gap existed between the prices of properties and the purchasing power of common people. They decided to make use of this potential and earn interest out of the opportunity.
Several aspects exist in a home loan. Below, we have covered a few:
The property which is being purchased with the loan amount is used as the collateral in case of a home loan. Generally, in India, banks and NBFCs are allowed to finance up to 80% of the property value as a loan amount. The rest of the 20% has to be financed by the property purchaser.
Over and above the property price, there are some other costs involved in purchasing a property as well. This includes registration cost, stamp duty which can range somewhere between 3-11% of the property cost. Whether this cost will be financed or not depends solely on the discretion of the lending entity. In most cases, if the loan is being taken from an NBFC, this is financed.
Previously, RBI used to issue a base rate below which no financial entity could issue a loan. Banks and NBFCs were free to issue at any rate above that rate. However, since April 1, 2016, this has changed and the calculations are different for banks and NBFCs.
In the case of banks, currently, home loans are linked to the Marginal Cost of Spending (MCLR). It is a benchmark upon which banks charge an interest spread. NBFCs and HFCs (Housing Finance Corporations) however, use the Prime Lending Rate (PLR) which is outside the purview of RBI. While banks cannot lend below the MCLR, the same is not the case with PLR. Each NBFC and HFCs can set their own PLR and lend accordingly. Hence, NBFCs and HFCs have a greater freedom in this case.
Repayment of loan:
A home loan is paid back in equated monthly installments, as is the case with other loans. Each EMI consists of a principal and an interest portion calculated on a reducing balance basis. If an EMI is not paid, reminders are sent. After 90 days, the loan becomes a non-performing asset. Then the NBFC or the bank takes action as per their NPA policy.
The home loan can either be taken as a traditional loan or be taken as an overdraft. While in both cases, the fund has to be used for the purchase of property and EMI has to be paid in both, in the case of an OD facility, the repayment system is different. The OD is linked to the customer’s account.
In case the customer has any extra amount, they can park the same in the OD account. The excess over the EMI amount is considered as a prepayment of the home loan. However, this facility can only be provided by the banks, not the NBFCs.
What are the challenges faced by Financial Institutions?
As specified earlier, Home loan is one of the most complex loan products offered by financial isnstitutions. It is prone to a great deal of paperwork, verification and regulatory measures which makes the overall process even more complicated. The following are some of the most common challenges faced by financial institutions.
Home loan applications rather seem to be a multi-paged booklet which comprises of all essential documents that are mandatory. Every step of the home loan process from the processing to closing is plagued with paperwork.
This arduous paperwork slows down the workflow considerably., while the process of collecting and managing the bulk paper load opens the door for more manual intervention leading to increased errors.
Many companies tend to juggle with multiple software instead of trying to find a one-stop solution which would address all their need. These cases make an organization vulnerable to the risk of generating errors and paves the way for the loss of data.
In most cases, each given piece of software exists on a single terminal assigned to a specific employee, during a hardware failure happens, a vital piece of business information is prone to damage. When the person in charge of that specific process leaves the organization, what they leave behind is nothing short of a pandora box which no one quite seems to understand how to operate.
Home loan is one of the highly regulated loan products loaded with so many compliance hurdles. Identifying potential compliance issues in the early stages of the loan process, well before the underwriting is crucial. Financial Institutions tend to tackle the compliance beast with the help of multiple third-party scoring and rating agencies.
These third-party agencies tend to offer them a different documentation system which would remain detached from the normal documentation system causing employees to navigate back and forth between these applications every time they want to retrieve a particular information.
Why Finabile for Home Loan Software?
Home loan software can make easy and affordable way to track and managed all the activities of home loan. Here is a list of reasons why finabile is the best home Loan Software which would meet the needs of every financial institution:
- Finabile can completely transform the workflow of your home loan product with its easy-to-use, a document-driven module that eliminates manual paperwork entirely with its electronically driven, paperless, environment-friendly aspect and the home loan software will automate the loan process.
- Finabile helps reduce redundancy by offering a one-stop solution which creates an automated workflow-based environment streamlining everything from origination, approval, disbursal, monitoring, collection, reporting to closure in a unified cloud-based solution.
- The seamless integration with third-party credit rating and scoring applications would accelerate the loan origination process and speed up the application’s turnaround time creating a huge improvement in customer satisfaction.
- Finabile takes off a significant amount of time taken for a loan lifecycle by streamlining the approval process with its rule-based framework which could be customized to enable multiple checkpoints and reviews to ensure a compliance-centric process and minimize the manual errors.
- The mobile-ready interface of Finabile induces a surge in the productivity of the loan/credit officers by reducing their workload with its intuitive user interface which takes care of all functionalities in a loan lifecycle from loan origination to loan collection and updates them real-time on the cloud database.
- The mobile app offered by Finabile gives financial institutions a perfect way to keep an eye on the real-time location of the loan officers through the inbuilt GPS tracker. It is also easy to track their performance at any point in time with the instant synchronization aspect of the mobile app.
Schedule a demo today to procure our unified home loan software solution which automates your complete loan lifecycle and reduces the strenuous paperwork.