Category: Articles That Matter | ATM

ATM :: Should you take a home loan from a bank or an NBFC?

Should you take a home loan from a bank or an NBFC?You would find NBFCs more willing to lend even if you have a poor credit score

Adhil Shetty | June 10, 2017 Last Updated at 22:13 IST | Business Standard

Lending rates have trended downwards over the last two years. Currently, several lenders are offering home loans at an interest rate of 8.35 per cent, way lower than the 10-11 per cent rate that prevailed four years ago. For customers this translates into a lower Equated Monthly Installment (EMI) on an existing loan, or allows them to borrow more to finance a bigger home. As they begin the process of short listing a loan provider, customers may find themselves wondering whether they should borrow from a bank or an NBFC (non-banking financial company). Here’s a look at some of the key criteria that will help you make this decision.

All new loans with floating interest rates offered by banks are now linked to the Marginal Cost of Lending Rate (MCLR). This departure from the base rate regime began on April 1, 2016. The MCLR serves as a bank’s lending benchmark, upon which they charge an interest rate spread. For example, for home loans up to Rs 30 lakh, a leading bank has a spread of 35-40 basis points above its one-year MCLR of 8 per cent. An MCLR-linked loan clearly mentions the intervals at which its interest rate will automatically change. In a falling interest rate scenario, this allows customers to receive RBI-mandated rate cuts in a transparent, time-bound manner. This wasn’t the case with the base rate-linked loans where transmission of rate cuts was weaker.

On the other hand, loans by Housing Finance Companies (HFCs) and NBFCs are not linked to the MCLR. They are linked to the Prime Lending Rate (PLR), which is outside the ambit of the RBI. While banks can’t lend at rates below the MCLR, PLR-linked loans do not have such restrictions. NBFCs and HFCs are free to set their PLR. This allows NBFCs greater freedom to increase or decrease their loan rates as per their selling requirements. This suits customers and provides them more options, especially when they fail to meet the loan eligibility criteria of banks. This also needs to be understood in context of a customer’s credit score, explained below.

Loan to value ratio

The actual cost of property acquisition typically goes up to 105-110 per cent of the property value, including cost of stamp duty, registration, and an assortment of payments towards brokerage, furnishing, repairs, etc. Based on where you are in India, you may pay between 3 and 11 per cent of the property value as registration cost. Banks are allowed to fund up to 80 per cent of a property’s value. For example, if you are buying a property worth Rs 50 lakh, you may receive a loan of Rs 40 lakh from banks. The other 25-30 per cent of your fund requirements would have to be met by you. Often, these last mile costs weigh heavily on the final decision to buy a property. Both NBFCs and banks are not allowed to fund stamp duty and registration costs. However, NBFCs can include these costs as part of a property’s market valuation. This allows the customer to borrow a larger amount as per his eligibility, thus giving the NBFC an edge over competition.

Should you take a home loan from a bank or an NBFC?

Product bundling

Both banks and NBFCs may bundle products. For example, it’s not unusual for lenders to sell a loan protection insurance plan along with a home loan. The insurance plan helps settle the loan in case the borrower were to pass away during the tenure. Both banks and NBFCs have cross-selling targets. While banks have a much larger range of products to sell, NBFCs push more aggressively to sell third-party products like insurance to bring in more profitability per customer. Compared to banks, NBFCs have a smaller customer base. They have fewer branches and operate in fewer locations. As a result, there is an increased focus on profitability per customer. Customers need to evaluate whether the bundled products are useful to them. If not, they can refuse them and save costs.

Credit scores

Today, there is heightened focus on customers’ credit scores. Increasingly, the interest rate you pay on your loan is linked to your credit score. For example, a leading bank had recently offered its best rates to customers with a CIBIL score of 750 or more. You needn’t wait to apply for a loan to find out your score. You can access one free report a year by visiting the websites of credit rating agencies such as CIBIL or through third-party credit report generators.

If you scan the loan market, you will see that NBFCs have more relaxed policies towards customers with low credit scores. However, with a low score, both banks and NBFCs will likely charge you a higher interest rate. Loan seekers can make the best of both these options. A customer with a low score may start with a loan from an NBFC. Through timely repayment, he can improve his credit score. After this, he may meet a bank’s eligibility criteria and may transfer the loan balance to the bank. If the outstanding loan amount at this point is small, it’s better to continue with the NBFC.

Overdraft facility

A home loan is typically a long-term commitment with significant interest costs. If you borrowed Rs 50 lakh at 8.6 per cent for 20 years, your total interest paid over the loan tenure will be Rs 54.89 lakh, which is more than the principal borrowed. Therefore, loan holders look to reduce their interest outgo through timely pre-payments. An overdraft (OD) loan facility helps in this regard. An OD loan is linked to the customer’s bank account in which he can park surplus funds. The surplus over the EMI amount is treated as pre-payment towards the home loan, thus bringing down the overall loan liability and interest charged on the balance. Moreover, the customer can still withdraw the surplus as and when he requires it. At present, only banks provide the OD loan facility and NBFCs don’t. This facility is useful to families with the ability to generate regular surplus income, such as a working couple. It is also useful for someone who may be in frequent need of short-term funds, such as a businessman who can withdraw this surplus based on his needs.

Paperwork and processing

Banks have more stringent paperwork requirements for home loans. This is not necessarily a bad thing for the loan seeker. In lieu of the greater scrutiny, he stands to receive an attractive interest rate. NBFCs are known for relaxed paperwork policies and faster processing. For example, in Bengaluru banks will not finance properties that do not have a ‘B’ Khata, but NBFCs will.

The writer is CEO,


ATM :: The advent of mutual fund SIPs in India

Equity investing have always been associated with high riskiness and the proverbial doom and crash in India
ANUPAM SINGHI | Fri, 16 Jun 2017-07:25am | DNA


Systematic investment plans (SIPs) were first introduced in India about 20 years ago by Franklin Templeton, a global investment firm. SIPs entail recurring disciplined investing via experienced portfolio managers. By necessitating fixed periodic (monthly, quarterly etc.) investments, it makes the timing of the markets, which can be risky, irrelevant, and at the same time, it typically provides above average market returns over a long period. Therefore, SIPs can be relatively less risky and also offer a hedge against inflation risk.

The top SIP funds have consistently given annualised returns of about 20% over the last two decades. The return from SIPs are calculated by a methodology called XIRR, which is a variant of internal rate of return (IRR). In the recent times, SIP fund managers usually tend to invest not more than 2% of the total capital available in a single stock. Portfolios are usually well diversified.

Currently, there are scores and scores of SIP funds to choose from. Different types of SIPs are available to suit an individual’s risk appetite, ROI goals, the time period of investment, and liquidity. Unlike PPF or Ulip, there are no restrictions and penalties on regular SIP payments and withdrawals. Investment can be as low as Rs 500 per month. Retail investors can look to invest in small-cap SIP funds initially, and once their capital builds up significantly, can shift to the less risky large-cap SIPs.

Equity investing have always been associated with high riskiness and the proverbial doom and crash in India. However, the trend is changing in recent times. Increased availability of information about investing, and greater digital marketing, has led to more and more individuals taking the SIP route. The number of SIP accounts has gone up by about 30% in the last 12-15 months alone. SIP monthly inflow volume now stands at about 3,000-3,500 crore, as opposed to about 1,000-1,500 crore in 2013. Retail participation is low India but is bound to increase at an accelerated rate.

Several brokerages are now waking up to the fact that higher P/E ratios are the new normal, as they are warranted by a fundamentally strong economy. Currently, the Indian stock market capitalisation to GDP ratio is approximately 98%, compared to 149% in 2007. With only about 250 Futures and Options (F&O) available out of approximately 4,200 individual securities, shorting opportunities are limited. Increased inflow SIP money could very well drive and support quality stocks in a growing economy.

The writer is COO, William O’Neil India


ATM :: Impact of GST on homebuyers

GST may reduce the cost of houses if it is at a rate below the current applicable taxes that are levied by the central and state governments
Ashwini Kumar Sharma | First Published: Mon, Apr 24 2017. 05 31 PM IST |


The biggest reform in the indirect tax regime is set to get implemented very soon. Instead of different types of taxes—central, state, local and so on—soon there will be only one tax: the Goods and Services Tax (GST). Like any other sector, real estate will also come under the ambit of GST. However, as of now, there is lack of clarity on various aspects such as whether the rate of GST will remain at par with current applicable taxes and whether affordable or low-cost housing will remain out of the GST’s ambit. Read on to know what impact GST will have on the real estate sector in India.

Service Tax
When you buy an under-construction house, service tax is levied on a certain percentage of the total value of the property, which is considered the cost of construction. Cost of land is excluded from service tax. To do this, income tax provisions allow abatement to the tune of 75% on under-construction properties costing less than Rs1 crore; hence, service tax is calculated on 25% of the gross value. And, 70% abatement is allowed for properties costing more than Rs1 crore: service tax is levied on 30% of the value.

Given that service tax of 15% is charged only on the construction cost, the effective rate on the entire value of a property costing below Rs1 crore is 3.75% (i.e., 15% * 25% of the property value), and for a property above Rs1 crore, the effective rate is 4.5% (15% * 30% of the property value). Thus, if you buy a property at Rs80 lakh, you will have to pay Rs3 lakh (3.75% of Rs80 lakh) as service tax. And, if the property was Rs1.6 crore, service tax would be Rs7.2 lakh (4.5% of Rs1.6 crore). Once GST gets implemented, “Payment of service tax on the properties under construction does not arise. It will be replaced with GST,” said Kunal Wadhwa, partner-indirect taxes, PwC. Besides that, “Existing abatements under the service tax laws are also to be done away with post implementation of GST,” added Wadhwa. So, it is likely that tax will be charged on the actual construction value.

However, the concern is whether the GST rate would be higher than the prevailing service tax rate or lower. “It is expected to remain around 12% or lower than 15% (the current applicable service tax rate). It will not be on the higher side at around 18%,” said Abhishek Rastogi, partner, Khaitan & Co. If the GST rate remains on the lower side, it will bring down the overall cost of houses.

Value added Tax
Some states like Haryana and Delhi also charge value added tax (VAT) on under-construction properties, which is again borne by a homebuyer. However, once GST gets implemented “the current composition schemes for developers under VAT laws of respective states would come to an end,” said Naveen Wadhwa, deputy general manager, VAT is a state subject and varies between 1% and 5% of the property value. However, “There is a lot of litigation going forward on this account,” said Nangia. There are many contentious issues for both developers and homebuyers regarding VAT. Some cases have also reached the apex court. Once GST gets implemented “it will simplify tax structure and reduce the scope for litigation, however this may increase the cost of real estate in states that never had VAT,” said Nangia.

Stamp Duty
A homebuyer has to pay stamp duty to get the property registered. Even after GST, “Stamp duty will continue, as GST will not subsume stamp duty levied by government,” said Wadhwa.

Stamp duty is calculated as a percentage of the agreed value of the property, or the circle rate (the minimum price on which a property can be transacted, which is decided by the government), whichever is greater. In addition to stamp duty, typically 1% of the value of a property is charged as registration fee for registration of property documents (sale deed). In some states, if a property is bought in the name of a woman, the stamp duty levied is lower. For instance, in Delhi, properties registered in the name of women attract 4% stamp duty, compared to 6% otherwise. However, in case of joint ownership, where the property is bought jointly in the name of a man and a woman, buyers have to pay stamp duty of 5%, in case of Delhi.

In some states, stamp duty also depends on the region in which a sale deed is executed. For instance, in Haryana a man is required to pay 8% stamp duty in urban areas and 6% in rural areas, while women have to pay 6% in urban areas and 4% in rural areas.

“The Task Force on Goods and Services Tax recommended in the Thirteenth Finance Commission that real estate sector should be integrated into the GST framework by subsuming the stamp duty on immovable properties levied by the states, to facilitate input credit and eliminate the cascading effect,” said Nangia.

But “due to political and economic considerations, stamp duty—which is a good contributor of revenue to state government—is not subsumed in the GST framework for the time being,” added Nangia.

As of now, taxes and duties can increase the cost of property by 15-18% for homebuyers. After GST gets implemented, whether the cost of houses will come down or increase, will depend on the rate at which GST is charged and whether there will be any abatement or not.


ATM :: Is home loan EMI jeopardising your other financial goals? Here’s what to do


By Sanket Dhanorkar, ET Bureau|May 22, 2017, 11.01 AM IST | Economic Times


A roof over your head is a basic necessity, but if you spend too much of your income on shelter alone, you should be concerned. A big home loan EMI can render you “house poor”—a peculiar situation where the individual owns expensive real estate but has no money left for other expenses after paying the EMI. This week’s cover story focuses on the pitfalls of overinvesting in a house. We also tell you how to maintain a healthy balance between housing and other critical goals.

The downside of buying
One of the main reasons why family budgets go haywire is delay in getting possession of homes. The double burdens of EMIs and rent can be too costly. Mumbai-based businessman Chintan Valia, 33, should know. Valia booked a flat worth Rs 35 lakh back in 2009. As the builder was a reputed one, Valia was confident that the property would appreciate in value, allowing him to make a neat profit by selling it a few years down the line. He is yet to get pos ..

Chintan Valia, 33, Businessman, Mumbai
Bought a flat worth Rs 35 lakh on loan in 2009, but is yet to get possession. He is paying an EMI of Rs 15,000 and Rs 20,000 in rent. His monthly income is Rs 85,000.
Housing cost as percentage of income: 41%
Sell the property as soon as construction is completed.

“The cost hurts. Very little is left for savings after catering to household expenses,” rues Valia. His story is hardly unique. There are thousands sailing in the same boat. The typical Indian who made a huge financial commitment while buying a dream home only to have it become a millstone around his neck. Even those who have got possession are finding it tough to service the home loans. These people own houses worth Rs 60-70 lakh, but after their EMI is paid, they have little money for other expenses.

Too often, lulled into a false sense of security, many home-buyers make the longterm financial commitment without factoring in the costs that come with the purchase. The home loan EMI is only a part. Society maintenance charges, home insurance premium, cost of décor and property tax can collectively make a big dent in a household’s finances. After shelling out these payments, many are left with hardly any money, ending up compromising on key goals. Turn to page 7 to know if you are paying more than you can afford.

Be future-wise
With home loan interest rates at multi-year lows, advertisements are exhorting homebuyers to make a move. “This is the best time to buy a house,” chorus lenders and housing developers alike. It’s hard to resist the bait. At 8.4% rate of interest offered by a leading public sector lender, the EMI on a Rs 50 lakh home loan for 20 years now stands at Rs 43,075, as against Rs 48,251 at 10% three years ago. However, this luxury of low EMI will only be fleeting. “You are not locking in at the current low rate for the entire tenure of the loan. The lender will revise the interest rate upwards when the broader rates start inching up,” cautions Jayashree Kurup, Head of Content and Research, Magicbricks. Besides, the benign mortgage rates completely mask the fact that the price of the homes itself continues to remain beyond the average homebuyer’s budget.

Often, homebuyers build in certain expectations of how their income will grow over the years or how the value of the house will appreciate to build the foundation on which they commit to high-ticket loans even if current circumstances do not favour such an outflow. Ritesh Brahmbhatt, 34, from Mumbai, is banking on a better future earning profile to ease the burden he faces today owing to a hefty home loan. Brahmbhatt, along with his wife, is currently paying off two housing loans entailing a combined EMI outflow of Rs 72,000. He bought his first house for Rs 25 lakh nine years ago, but decided to opt for another under-construction flat worth Rs 74 lakh closer to his workplace a few years back. While the couple’s monthly income is around Rs 1.5 lakh, a household expenditure of around Rs 30,000 along with other annual commitments of around Rs 25,000 on property tax and insurance premium leaves them with meagre savings. However, Brahmbhatt argument is that while he feels the pinch of the high outflow now, he has the benefit of age on his side to overcome the difficulty. “I took a chance and opted to build assets at an early age that could provide me with a security blanket in future. I am banking on my own ability to do well and prosper in my career to support the high payout,” he insists. He is also confident that should he need to, he would be able to sell one of his properties at a good price.

Ritesh Brahmbhatt, 34, Banker, Mumbai
Paying EMIs on two housing loans. He invested in property banking on future income growth. While he earns Rs 1.5 lakh a month, Rs 72,000 goes towards loan repayment.
Housing cost as percentage of income: 48%
Liquidate one flat to ease burden on finances and use funds to invest in higher yielding assets. Try to prepay loan using any surplus.

However, homebuyers would do well not to be so confident of being able to sell their poperty should they need to. Property is not a very liquid asset. It usually takes a lot of time for sellers to find a buyer and realise the value of their asset. The prevailing housing market serves as a cautionary tale. The secondary or resale market has been hit hard by the demonetisation exercise. Many homeowners like Valia, who purchased a house as an investment, are stuck with an illiquid asset. With home sales muted, developers continue to face severe cash crunch, forcing many to abandon projects mid-way. “The risk of delay has killed the market for investors and made it highly illiquid. Homebuyers should ideally look for completed projects instead of taking on the risk of a delay in construction,” says Kurup. While the Real Estate (Regulation and Development) Act (RERA) is expected to provide better protection for the homebuyer, there remains a degree of uncertainty on how effectively and uniformly it will be implemented across states. Besides, while house prices can appreciate a lot over the years, there can be periods or regional pockets where home values can remain stagnant or even witness a decline.

Also, one doesn’t become house poor overnight. It can happen gradually as your personal situation changes. Perhaps at the outset you are able to pay off the high EMIs, but you may end up house poor if your circumstances change. For instance, what if one partner is left jobless for an extended period of time? The current trend of mass layoffs across sectors should serve as a warning to anyone projecting sustained higher income into the future. The salaried class is also witnessing lower increment“It is prudent to base the home buying decision on current income profile rather than making assumptions about the future,” warns Amol Joshi, Founder, PlanRupee Investment Services. Likewise, if one partner decides to stay home after having children, or after the birth of the second child, housing payments can become a greater burden than what it may appear today.

Bigger is not always better
Homeowners may end up being house poor if they insist on buying more space than they really need. “Many homebuyers are biting off more than they can chew,” says Joshi. Most insist on buying a home that would continue to cater to their needs 15-20 years down the line, such as when the family grows larger. So even if a 1-BHK is an appropriate fit today, there is a tendency to opt instead for a 2 or even 3-BHK. This approach leads most to over-leverage. It is critical that buyers evaluate their requirements carefully. Do not stretch yourself to the limit just to own a bigger house. “Buy for today’s needs,” exhorts Kurup. “Opt for a smaller unit today. You can consider shifting to a larger unit a few years later when you have an idea about your actual requirements and possibly have a better grip on your finances,” she adds. Besides, purchasing a bigger house or one in a better locality will not only carry a higher purchase value, it is also likely to set the tone for higher future home related expenses that come with maintaining a certain lifestyle.

Most experts insist that the home loan EMI should not exceed 40% of the monthly income. Anyone spending more than that faces the real possibility of being house poor. The lower the percentage of income that goes toward housing costs, the more breathing room you will have to be able to handle any cash crunch that may arise owing to changes in your life, such as the birth of a child, an extended illness or a layoff. When setting the percentage you’re comfortable with for a housing budget, be sure to account for ancillary costs—property and water taxes, home insurance, maintenance charges etc.

Further, do not get enticed into opting for a large home loan for the tax benefits it can provide. While it can reduce your taxable income substantially and in some cases, even bring you to a lower tax slab, these deductions are only eligible for homes that are fully constructed. Tax exemption for property that is under construction is very limited. Besides, recent tweaks in the tax rules have taken away much of the tax relief for aspirants for second homes. The maximum deduction on interest payment towards home loan is now capped at Rs 2 lakh as against the entire interest that was tax-deductible earlier. “The decision to purchase a home should never be based on tax benefits it can bring,” warns Brijesh Parnami, ED & CEO, Essel Finance Wealth Zone.

Renting not a waste of money
Another fallacy that pushes people to buy a home they cannot really afford is the argument that paying rent is a waste of money. Experts say it makes more sense for prospective homebuyers to stay on rent rather than commit to a high-ticket purchase. “Buying property simply to save on the rent has put many under severe stress,” points out Suresh Sadagopan, Founder, Ladder 7 Financial Services. “It may be a better idea to stay on rent for the time being and invest the balance in a high-yield investment that can allow you to build savings so that you are in a better position to afford that house later.” Investing the savings on EMI through a SIP in an equity the house for at least another five years.

Renting may be the smarter option particularly in some cities where the home value-to-rental value ratio is very high (See table). The Arthayantra Buy vs Rent Report 2017 suggests that in cities like Mumbai, Delhi, Bengaluru and Chennai, anyone with yearly income less than Rs 25 lakh, Rs 16 lakh, Rs 12 lakh and Rs 16 lakh respectively, would be better off renting than buying.

Cost to rent compared with cost to buy should influence buying call
While it makes more sense to rent a home in Mumbai, the urgency-to-buy ratio suggests in Hyderabad, it is prudent to buy rather than rent a home.

Cost to rent includes sum of rent and maintenance charges
Cost to buy includes EMI and maintenance charges

Is home loan EMI jeopardising your other financial goals? Here's what to do
The Urgency-to-Buy (UTB) ranking helps to decide whether you should buy or rent in a particular city. The UTB ratio indicates what extra payment one has to pay every month if the property is purchased instead of rented. The average monthly cost of renting is derived from the sum of rents and maintenance cost whereas monthly cost of buying is calculated by adding maintenance cost with the EMI.
Source: ArthaYantra Buy vs Rent Report 2017

Avoid a cash crunch
If you are still intent on buying that house and committing to a large EMI outflow, there are some things you should put in place at the outset, insist planners. First, build up an adequate contingency fund— equivalent to six months of EMIs—that you can dip into in case there is some interruption in your normal cash flow. Put this amount in a liquid fund. This will act as a buffer till the time your cash flow situation improves. If you haven’t already done so, take adequate health and life insurance cover to provide added protection to your finances. While many lenders offer bundled term insurance cover, do not feel compelled to opt for this. Take a separate term insurance cover instead. Most home loan insurance plans come with a reducing cover, where the quantum of cover is linked to your outstanding loan amount, so the sum assured reduces over time as the loan is being repaid. On the other hand, term plans offer a fixed sum—the beneficiary is entitled to the full amount irrespective at which point of the loan tenure the claim is made. The borrower’s family can use this pay-out to settle the outstanding loan amount with the lender and the balance, if any, can be utilised as deemed fit. Arun Ramamurthy, Co-founder, Credit Sudhaar, suggests homebuyers take a job-loss insurance policy, along with the term insurance. “In the event you are unable to service the loan for an extended period owing to an accident or job loss, the policy will cover the EMI for a specified time,” he says.

For some, the cash crunch can be severe if they are dealing with multiple loans. Take for instance the case of Nirdesh Jain, 28, a chartered accountant from Pune. Apart from a home loan EMI of Rs 21,000, Jain pays a car loan EMI of Rs 10,000 and a personal loan EMI of Rs 5,000. Together, the EMIs eat up 3/5th of his Rs 60,000 monthly income. Jain finds himself trapped in a vortex of short-term personal loans to tide over this crisis. . For such borrowers, consolidating the multiple loans into a single loan via balance transfer can provide some relief, suggests Parnami. “By consolidating the high cost loans into a lower cost loan over a longer tenure, the principal value of the loans will get amortised over many years, which will reduce overall EMI burden and improve cash flow,” he says. Even if you are on a single high-ticket home loan that bears a high interest rate, you should consider switching to a lower interest rate loan, particularly in light of the recent sharp cut in borrowing rates. As a rule, if the rate of interest payable on your home loan is 1% more than the rate on offer in the market, you should consider refinancing the loan.

Nirdesh Jain, 28, Business analyst, Pune
Has multiple loan commitments. As much as Rs 36,000 of his monthly income of Rs 60,000 goes towards paying off a car, personal and home loans.
Loan burden as percentage of income: 60%
Repay costlier car and personal loans at the earliest or take top-up on existing home loan and consolidate other loans into a single low-cost loan.

Is it better to rent or to buy?
The cash flow of a household has to be kept in mind while deciding to rent or buy.

Is home loan EMI jeopardising your other financial goals? Here's what to do
Figures indicate Arthayantra Buy vs Rent Score.
Source: Arthayantra Buy vs Rent Report 2017

Know when to sell
In the absolute worst case scenario, it would be prudent for the homeowner to cut the cord rather than dig a deeper hole. If you are under severe stress owing to housing related payments, consider selling the house and moving into a smaller, more affordable home. While you may not be in a position to enhance your income to support the payments, you can definitely get rid of a payment that is too large for your budget. “If you have exhausted all other options and are staring at a bleak situation where you are unlikely to make ends meet, it is better to cut your losses and let go of the property,” insists Ramamurthy.


ATM :: Planning to invest in home? Here is how you can raise your down payment

With interest rate-cuts and increased liquidity with banks following the demonetisation, loan products have more accessible.
Adhil Shetty | Published: May 11, 2017 4:02 PM | Financial Express


Consumers with healthy credit scores today would be receiving loan offers aplenty. With interest rate-cuts and increased liquidity with banks following the demonetisation, loan products have more accessible. Yet availing a home loan for the very first time remains a complex experience that loan seekers view with trepidation.

There are often misconceptions about what a home loan can do, and what it costs. For instance, you may be of the belief that the loan granted will match the property price. That is untrue, as financial establishments expect you to pay the margin amount.

The margin amount is another term for down payment for your new home. It could be anything between 15% and 20% of the home’s net value. For a first time home buyer, it is no easy task raising this money.

Here are some ways to help.
1. Strategic savings
Nothing beats strategic savings and for this you need to start your planning early. It involves you visualizing your long-term fund needs—including the need to buy a home—and beginning to save and invest accordingly. Begin with simple and accessible investment tools such as mutual funds or recurring deposits. Slowly and surely, you’ll be able to build your deposit over time. You can be efficient at this by locking in your savings at the start of the month. The earlier you start, the sooner you build this fund for your down payment.

2. Take loans but exercise restraint
There could be a situation where you are in urgent need of funds for the down payment. You could consider taking a personal loan to meet the need. Yet, you need to do this in a controlled manner. Having an existing loan will reduce your ability to take on, and repay, additional loans such as a home loan. You would find your finances stretched as you attempt to pay two EMIs at once. This isn’t an ideal situation to be in and is recipe for a financial disaster, in case you were to temporarily lose your ability to generate income. Therefore any loans for down payments need to be taken thoughtfully, and settled as soon as possible to reduce monthly EMI liabilities.

3. Mortgage another property
If you are confident that your current income can take care of EMIs of more than one loan, you could consider a loan against property. You can claim this loan against several options. For example, an existing property or home could be mortgaged. You could also claim it against assets such as shares, jewelry, PPF account, and LIC policies. There also exists the option of taking a loan against rent.

4. Withdraw from your PF account
As per the new EPFO norms, you are now allowed to withdraw up to 90% of your EPF corpus. Not just that, you could also withdraw from this corpus to pay for your EMIs. This scheme was recently implemented keeping in line with the Housing For All initiative of the central government. A word of caution: your PF corpus is meant to help you generate a pension income in retirement, so if you intend to redeem it for a property purchase, you must replenish it soon, or create a backup pension fund to meet your future needs.

5. Deferred down payment
You have the option of requesting a deferred down payment when purchasing a house from a well-known property developer. Under this, you will have the choice of dividing the down payment into multiple instalments. These instalments can be paid over a jointly agreed period of time. Let us say that you have to make a down payment of Rs. 10 lakh. Ask the builder for a time frame of five months to pay Rs. 2 lakh per month.

6. Liquidate your investments
Before you decide to make a property purchase, take stock of your savings, investments and assets. Anything from a vehicle to a part of a property you own can be liquidated for a down payment. Bank deposits, gold, mutual funds, shares etc. can be disposed. This should be carefully done so as to not disturb other financial objectives.

7. Approach an NBFC/ HFC
Non-Banking Financial Companies (NBFCs) and House Finance Companies (HFCs) provide loans that can help you cover a larger part of your fund requirement. For example, they may provide a loan to cover your registration and home repair costs as well. The entitlement of the loan, of course, will be calculated on the basis of your ability to repay.

Always remember to not act in a hurry. Think long and wise about the route you are taking to raise the down payment for your house. It is also advisable to wait and let an offer go if you cannot make the down payment, as there will always be another good offer in the future.

(The writer is CEO,

Source :

ATM :: How to withdraw 90% of your provident fund to buy a house

May 12, 2017 | 11:39 IST | SOURCE : Economic Times | Retrieved from


In an effort to make its ‘Housing for all by 2022’ a success, the government has allowed for EPFO members to withdraw up to 90 percent of their provident fund (PF) accumulations to make down payments to purchase a house and to pay housing loan EMIs.

Pre-requisites for PF withdrawal

In order to dip into the provident fund saving, the new rule highlights that the PF holder will only be eligible if he/she has been a contributing PF member for at least 3 years, and is buying property in a registered housing society that has at least 10 members.

Further, the property has to be purchased in the member’s name and cannot be purchased jointly with anybody else, except your spouse.

How the money can be used

The money withdrawn can only be used for an outright purchase, as a down payment for a home loan, for buying plots or for the construction of a house. The transactions can be made through central government, state government and even from a private builder, including promoters or developers.

Can the money be used to buy resale flats as well?

Unfortunately no, EPFO will only make payments directly to a co­operative society, the state government, central government, or any housing agency under any housing scheme, or any promoter or builder, in one or more installments. The rule will not apply to real estate purchases in the secondary market or resale transactions.

Can you withdraw both employee and employer contribution?

An EPFO member can withdraw his own share of PF contribution plus interest as well as the employer’s share of contribution plus interest.

Can you EMI payment through PF?

A PF member can use his PF contribution to pay full or part EMIs for a home loan taken in the member’s name. The EMI will be directly paid by EPFO to the government, housing agency or the bank.

How to apply

A PF member can apply individually or jointly through a housing society to get a certificate from the EPFO.

Through Annexure I form, an employee can ask for the balance and the deposits made in the last three months before applying. This will help the EPFO determine how much EMI can be arrived at.

Also, the employee has to mention the name and details of the bank or housing society to whom such certificate is to be issued.


The EPFO then issues a certificate showing the outstanding balance and last three month’s deposit in the account. Alternatively, members can take printouts of their PF passbook downloaded from the EPFO website and submit it to housing agencies or banks.


If a member wishes to use PF money to meet EMI’s, then in addition to Annexure I, an authorisation by the member is to be filled in a prescribed format. It will carry details such as PF amount, PF and loan account number, lender name, address etc. One has to get this form authorised from the lender i.e. branch manager of the lender who has sanctioned the loan. Once approved, EPFO will start transferring EMI’s online to the lender’s account.


What if an employee leaves his/her job?

The EPFO has made it clear that under no circumstances would it be liable for any default of payments to the lender. The EPFO will not be party to any agreement made between an EPFO member and a society or builder.

In case a member quits his job, the responsibility of repaying the loan would rest with the employee and not the EPFO.


While dipping into your PF account to make a down payment makes your life easier, it is important to remember, your PF is meant to take care of your post­ retirement needs, and depleting it may jeopardise your retirement.

So make sure you have a backup plan to meet post­retirement needs through equity mutual funds or PPF.


ATM :: Home loan tax reliefs often missed by taxpayers

By Preeti Motiani | ECONOMICTIMES.COM | May 11, 2017, 10.55 AM IST


The Union budget of 2017 brought mixed bundle of joy for the taxpayers. While the section 80EE was re-introduced, holding period was lowered which brought cheers for the taxpayers, on the other hand, the individuals claiming a loss on the let out property or deemed to be let out property were left in shock.

Many of you who already own a second house or looking to buy a new house might give a look at the rules listed below to receive the often missed benefits.

1. You can claim tax benefit on interest paid even if you missed an EMI.
Section 24 of the I-T act mentions the word interest payment “payable” on housing loan. It means that even if you have missed the EMI payment in a year you can still claim the tax benefit on it. It can be claimed as a deduction so long as the interest liability is there.

Kuldip Kumar, Partner and Leader – Personal Tax, PWC says, “One should retain the copy of the interest certificate issued by the lender i.e. bank or NBFC specifying the amount of loan, interest due etc. as this will help in case of any questioning from the tax department.”

The principal repayment deduction under Section 80C, however, is available only on actual repayments.

2. Principal repayment tax benefit is reversed if you sell before 5 years.
While the finance minister may have provided a relief by reducing the holding period to 24 months to qualify for the long-term capital gains but if you sell a house within five years from the date of purchase, or, five years from the date of taking the home loan, the tax benefit gets reversed.

“The deduction claimed will be added back to the income of the taxpayer in the year in which the property is sold,” says Archit Gupta, founder,

However, the loan amortisation calculations are such that the repayment schedule has lower component of principal repayment in the initial years of the home loan and the tax reversal rule only applies to Section 80C. Also, the benefit of lowered holding period for capital gains will apply from April 1, 2018, AY only.

3. You are eligible for tax break only when you are a co-borrower and co-owner.
You cannot claim a tax break on a home loan even if you may be the one who is paying the EMI. For instance, there may be a situation when you’re paying the EMI of a home loan for the property which is owned by your parents or spouse.

“However, when the house is in the joint name and funded by both the spouses by a way of housing loan, both husband and wife can avail the separate deduction for the interest payments and principal repayment of such loan,” says Kumar.

Even if you own a property with your spouse, you can’t claim deductions if your name’s not on the loan book as a co-borrower.

4. You can claim pre-construction period interest for up to 5 years.
Any interest paid on the borrowing during the construction of a house is eligible for tax relief only after you have received the completion certificate.

“Interest paid during the construction period can be claimed as a tax deduction in five equal instalments starting from the year in which construction of the property is completed. The total tax benefit will be annual interest payable + 1/5th of the pre-construction period “says Gupta.

While filing returns for the AY 2017-18, the maximum limit for the self-occupied property is Rs 2 lakh. In the case of let out property, there is no limit.

The union budget 2017 has removed this anomaly and put the cap of Rs 2 lakh on the let out property. The same will be effective while filing the returns for next year i.e. 2018-19.

5. Re-introduction of the Section 80EE
To provide an additional relief to the homebuyers, the section 80EE has been reintroduced with effect from April 1, 2017. The maximum deduction available has been reduced from earlier of Rs 1 lakh to Rs 50,000 now.

However, this deduction comes with certain restrictions which need to be satisfied while availing this deduction. The conditions are:
a) The home-owner/s should be first time buyer even if the property is bought in the joint ownership,
b) The loan value must not exceed Rs 35 lakh and property value should not exceed Rs 50 lakh, and
c) The loan must be sanctioned by a financial institution during the period April 1st, 2016 to March 31st, 2017.

Archit Gupta, Founder & CEO, says, “If the taxpayers are able to meet conditions for both of section 24 and 80EE, their taxable income can be reduced by 2.5 lakhs in FY 2016-17 return filing.”

6. Processing fee and other charges are tax deductible.
Most taxpayers are unaware that charges related to their loans such as processing fees or prepayment charges qualify for tax deduction. As per law, these charges are considered as interest and therefore deduction on the same can be claimed.

“Section 2(28A) of I-T Act defines interest as interest payable which includes any service fees and other charges in any manner in respect of money borrowed,” says Kumar.

Therefore, it is eligible for deduction under Section 24 against income from house property. Other charges also come under this category but penal charges do not.

Also, any payment made towards stamp duty and registration fees incurred by the individual are also tax deductible as per the section 80C(2) (xviii) (d) of the act.

7. Loans from relatives, friends and employer are eligible for tax deduction.
If you have taken a loan from friends and/or relatives to acquire a house then you can claim a deduction under Section 24 for interest repayment on loans. You can also claim a deduction for money borrowed from individuals for reconstruction and repairs of property.

“A taxpayer would need to obtain a certificate from the relative which would contain the details such as the amount of interest payable, amount of loan taken, specifying the property details for which loan is taken,” says Kumar.

However, one must remember that this rule is only applicable for interest repayment. You cannot avail the tax benefits available on the principal repayment on that part of the loan borrowed from your relatives, friends and employer.

Further, a lender, in this case, your relatives and friends must disclose the interest earned on such transaction while filing their income tax returns.