Caution 20/80 Home Loan Schemes
September 4, 2013 3 Comments
Real estate companies have been offering schemes called 20:80 and 25:75 where the builder agrees to pay interest on the borrower’s loan for a specific period. The buyer pays 20% upfront and the bank disburses the entire loan to the builder through the individual. The builder finances the construction of the project with the money, and agrees to pay interest on behalf of the borrower to the bank.
Banks such as ICICI Bank ,HDFC Bank and Axis Bank have been lending under these schemes in the hope of increasing the pace of home loan disbursement.
Here is what the RBI has to say about :
Any delayed payments by developers/ builders on behalf of individual borrowers to banks may lead to lower credit rating/ scoring of such borrowers by credit information companies as information about servicing of loans gets passed on to the CICs on a regular basis.In cases where bank loans are also disbursed upfront on behalf of their individual borrowers in a lump-sum to builders/developers without any linkage to stages of construction, banks run disproportionately higher exposures with concomitant risks of diversion of funds.
Teaser products, of any nature entail risks. You need to be cautious of ‘too-good-to-be-true’ type of products. You can’t be blinkered into believing that there are no risks when developers offer to pay interest on a your loan for a specified period. You have to be cautious because in the event of a developer delaying payment, the credit bureau reports will reflect this in your records, thereby impacting your creditworthiness.