Small value home loans are the loans of smaller amounts that are commonly addressed as small ticket size loans in home loan industry. The loan value which is below 30 lakhs is generally termed as smaller ticket size loan. It is usually perceived that small value home loans means affordable housing loans OR Small value home loan means loans given to low income group /profile customers. However this misconception is false. Small value loan is a broader term and it covers various housing products and affordable housing loan is one of the loan products which is a part of small value home loans.
Any loan products in home loan industry say for instance home loan, mortgage loan, top-up loan, commercial loan, lease rental discounting, loan against property, home improvement or home renovation loans, etc with small ticket size are “Small Value Loans.” It necessarily does not cater only to low income group but it necessarily caters to all loan borrowers who are looking for smaller loan amount.
Practical reasons when a borrower opts for smaller value home loans irrespective of his income profile:
1) When he buys a property of the smaller value.
2) When he makes larger own contribution for purchasing the property.
3) When he has immediate requirement for medical, education or marriage expenses small top-ups can be availed on existing home loan.
4) When he wants to switch his home loan i.e. balance transfers his existing home loan which has outstanding balance of less than 30 lakh.
5) When he is eligible for smaller amounts on the basis of income earned per month.
There are basically two main benefits of applying for small value HOME loans.
1) Highest LTV (Loan To Value) of 90%.
It gives you an advantage over the maximum funding for your property. As per the guidelines banks will fund you 90% on the market value of the property which is below 30 lakh.
2) Lower Interest Rates.
Generally the home loans with less than 30 lakh are the ones which get the advantage of lower interest rates. Interest rates on small value home loans always differs from normal home loan rates of the banks this is mainly because the default/NPA ratio in smaller value home loan is very low as compared to the other high ticket size home loans. This possesses minimum risk to banks in funding the same and hence lower interest rates can be enjoyed.
However with the introduction of government affordable housing scheme such as “Pradhan Mantri Aawas Yojana” in 2015, there has been an increase in the market for small value home loans. It was specially introduced to help the weaker sections or low income profile customers to build a house of their own, who necessarily may or may not possess the formal income documents required for taking a housing loan. Pragati scheme of ICICI Bank, Unnati of Punjab National Bank, Khusi of Yes Bank, Aasha Home Loan of Axis Bank Swaraj of IIFL and Reach product of HDFC are few such products launched by the banks under the scheme of affordable housing loans for the borrowers.
Conclusion: Irrespective of the various small value home loan products of the banks, they seem to be less focused and marketed, may be due to the small turnover earnings on such small values. Income earnings on small value home loans are also small.
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