Question

Case 4: (10 Marks) Salim has been dreaming about building his own house after getting employed. He has been employed in a small private company for the last 2 years and earning a salary of OMR 395 per month. He wants to now build his dream house on a plot that he has got in Al Ansab. He has approached an engineering consultant for building this house, who has given him an estimation for OMR 75,000 for this house. Salim has got savings of OMR 10,000 in his bank account and has no other income other than his salary. Salim has approached for your guidance on the most suitable option to raise the needed finance for building this house. Although there are various housing loan schemes from different banks, he is keener on getting a loan from Oman Housing Bank. You are required to give more information to Salim on the following:

Answer 1

Solution:

1. DIFFERENCE BETWEEN COMMERCIAL BANK AND HOUSING BANK

If you are planning on taking a home loan you have two options as to where you can borrow from: a bank and a housing finance company. Now, choosing between a housing finance company and a bank for a home loan depends on key factors like loan repayment period, processing fee, interest rate etc.

There are various advantages in taking a home loan from a housing finance company: like offer a higher loan quantum, Quick documentation process etc.

In this question, Salim also wants to take a loan for his house and need a high quantum of money. Oman Housing Bank is a housing finance company and it will be more suitable for Salim’s financing needs.

2. LOAN CALCULATIONS

When we do loan calculations on Oman Housing Bank website then we have to assume certain details which are not mentioned in question like age etc.

Here we have assumed date of birth of Salim is 1st January 1990 and fill it in loan calculator then we got

The maximum amount of loan       =          OMR 55,600

Maximum time to repay =          288 months or 24 years

Rate of interest per annum =          1.73% per annum

3. NEED OF A GUARANTOR

When housing finance company provide loan then the bank can secure its loan by land and house itself. Here, Oman Housing Finance Company can secure its loan on land and house on it. Hence, Salim does not need any guarantor for this loan.

If someone is unable to pay back the loan then the bank can auction loan security which is the land and house on it and can recover its loan.