Tagged: EMI
ATM :: 7 home loan repayment options to choose from
By Sunil Dhawan | ET Online | Updated: May 05, 2018, 12.32 PM IST | Economic Times
Buying that dream home can be rather tedious process that involves a lot of research and running around.
First of all you will have to visit several builders across various locations around the city to zero in on a house you want to buy. After that comes the time to finance the purchase of your house, for which you will most probably borrow a portion of the total cost from a lender like a bank or a home finance company.
However, scouting for a home loan is generally not a well thought-out process and most of us will typically consider the home loan interest rate, processing fees, and the documentary trail that will get us the required financing with minimum effort. There is one more important factor you should consider while taking a home loan and that is the type of loan. There are different options that come with various repayment options.
Other than the plain vanilla home loan scheme, here are a few other repayment options you can consider.
I. Home loan with delayed start of EMI payments
Banks like the State Bank of India (SBI) offer this option to its home loan borrowers where the payment of equated monthly instalments (EMIs) begins at a later date. SBI’s Flexipay home loan comes with an option to go for a moratorium period (time during the loan term when the borrower is not required to make any repayment) of anywhere between 36 months and 60 months during which the borrower need not pay any EMI but only the pre-EMI interest is to be paid. Once the moratorium period ends, the EMI begins and will be increased during the subsequent years at a pre- agreed rate.
Compared to a normal home loan, in this loan one can also get a higher loan amount of up to 20 percent. This kind of loan is available only to salaried and working professionals aged between 21 years and 45 years.
Watch outs: Although initially the burden is lower, servicing an increasing EMI in the later years, especially during middle age or nearing retirement, requires a highly secure job along with decent annual increments. Therefore, you should carefully opt for such a repayment option only if there’s a need as the major portion of the EMI in the initial years represents the interest.
II. Home loan by linking idle savings in bank account
Few home loan offers such as SBI Maxgain, ICICI Bank’s home loan ‘Overdraft Facility’ and IDBI Bank’s ‘Home Loan Interest Saver’ allows you to link your home loan account with your current account that is opened along with. The interest liability of your home loan comes down to the extent of surplus funds parked in the current account. You will be allowed to withdraw or deposit funds from the current account as and when required. The interest rate on the home loan will be calculated on the outstanding balance of loan minus balance in the current account.
For example, on a Rs 50 lakh loan at 8.5 percent interest rate for 20 years, with a monthly take home income of say Rs 1.5 lakh, the total interest outgo for a plain vanilla loan is about Rs 54,13,875. Whereas, for a loan linked to your bank account, it will be about Rs 52,61,242, translating into a savings of about Rs 1.53 lakh during the tenure of the loan.
Watch outs: Although the interest burden gets reduced considerably, banks will ask you to pay that extra interest rate for such loans, which translates into higher EMIs.
III. Home loan with increasing EMIs
If one is looking for a home loan in which the EMI keeps increasing after the initial few years, then you can consider something like the Housing Development Finance Corporation’s (HDFC) Step Up Repayment Facility (SURF) or ICICI Bank’s Step Up Home Loans.
In such loans, you can avail a higher loan amount and pay lower EMIs in the initial years. Subsequently, the repayment is accelerated proportionately with the assumed increase in your income. There is no moratorium period in this loan and the actual EMI begins from the first day. Paying increasing EMI helps in reducing the interest burden as the loan gets closed earlier.
Watch outs: The repayment schedule is linked to the expected growth in one’s income. If the salary increase falters in the years ahead, the repayment may become difficult.
IV. Home loan with decreasing EMIs
HDFC’s Flexible Loan Installments Plan (FLIP) is one such plan in which the loan is structured in a way that the EMI is higher during the initial years and subsequently decreases in the later years.
Watch outs: Interest portion in EMI is as it is higher in the initial years. Higher EMI means more interest outgo in the initial years. Have a prepayment plan ready to clear the loan as early as possible once the EMI starts decreasing.
V. Home loan with lump sum payment in under-construction property
If you purchase an under construction property, you are generally required to service only the interest on the loan amount drawn till the final disbursement and pay the EMIs thereafter. In case you wish to start principal repayment immediately, you can opt to start paying EMIs on the cumulative amounts disbursed. The amount paid will be first adjusted for interest and the balance will go towards principal repayment. HDFC’s Tranche Based EMI plan is one such offering.
For example, on a Rs 50 lakh loan, if the EMI is xx, by starting to pay the EMI, the total outstanding will stand reduced to about Rs 36 lakh by the time the property gets completed after 36 months. The new EMI will be lower than what you had paid over previous 36 months.
Watch outs: There is no tax benefit on principal paid during the construction period. However, interest paid gets the tax benefit post occupancy of the home.
VI. Home loan with longer repayment tenure
ICICI Bank’s home loan product called ‘Extraa Home Loans’ allows borrowers to enhance their loan eligibility amount up to 20 per cent and also provide an option to extend the repayment period up to 67 years of age (as against normal retirement age) and are for loans up to Rs 75 lakh.
These are the three variants of ‘Extraa’.
a) For middle aged, salaried customers: This variant is suitable for salaried borrowers up to 48 years of age. While in a regular home loan, the borrowers will get a repayment schedule till their age of retirement, with this facility they can extend their loan tenure till 65 years of age.
b) For young, salaried customers: The salaried borrowers up to 37 years of age are eligible to avail a 30 year home loan with repayment tenure till 67 years of age.
c) Self-employed or freelancers : There are many self-employed customers who earn higher income in some months of the year, given the seasonality of the business they are in. This variant will take the borrower’s higher seasonal income into account while sanctioning those loans.
Watch outs: The enhancement of loan limit and the extension of age come at a cost. The bank will charge a fee of 1-2 per cent of total loan amount as the loan guarantee is provided by India Mortgage Guarantee Corporation (IMGC). The risk of enhanced limit and of increasing the tenure essentially is taken over by IMGC.
VII. Home loan with waiver of EMI
Axis Bank offers a repayment option called ‘Fast Forward Home Loans’ where 12 EMIs can be waived off if all other instalments have been paid regularly. Here. six months EMIs are waived on completion of 10 years, and another 6 months on completion of 15 years from the first disbursement. The interest rate is the same as that for a normal loan but the loan tenure has to be 20 years in this scheme. The minimum loan amount is fixed at Rs 30 lakh.
The bank also offers ‘Shubh Aarambh Home Loan’ with a maximum loan amount of Rs 30 lakh, in which 12 EMIs are waived off at no extra cost on regular payment of EMIs – 4 EMIs waived off at the end of the 4th, 8th and 12th year. The interest rate is the same as normal loan but the loan tenure has to be 20 years in this loan scheme.
Watch outs: Keep a tab on any specific conditions and the processing fee and see if it’s in line with other lenders. Keep a prepayment plan ready and try to finish the loan as early as possible.
Nature of home loans
Effective from April 1, 2016, all loans including home loans are linked to a bank’s marginal cost-based lending rate (MCLR). Someone looking to get a home loan should keep in mind that MCLR is only one part of the story. As a home loan borrower, there are three other important factors you need to evaluate when choosing a bank to take the loan from – interest rate on the loan, the markup, and the reset period.
What you should do
It’s better to opt for a plain-vanilla home loan as they don’t come with any strings attached. However, if you are facing a specific financial situation that may require a different approach, then you could consider any of the above variants. Sit with your banker, discuss your financial position, make a reasonable forecast of income over the next few years and decide on the loan type. Don’t forget to look at the total interest burden over the loan tenure. Whichever loan you finally decide on, make sure you have a plan to repay the entire outstanding amount as early as possible. After all, a home with 100 per cent of your own equity is a place you can call your own.
Source: https://bit.ly/2wjnSId
ATM :: Despite RBI maintaining status quo on rates, your loans may pinch more
By Sunil Dhawan, ET Online | Updated: Apr 05, 2018, 06.29 PM IST | Economic Times
The Reserve Bank of India (RBI) may have kept the repo rate unchanged at 6 percent in its first bi-monthly review for the financial year, but it would be premature for home loan borrowers to rejoice.
This is because equated monthly instalments (EMIs) on loans may still go up as some banks have already increased their marginal cost-based lending rates (MCLR) over the last month owing to rising cost of funds. Repo rate was last cut in August 2017 when it was reduced by 0.25 percent.
“In the current interest rate cycle, we have touched the lowest level and it will come as no surprise if the cycle turns. Against this background, the impetus for stimulating housing demand does not lie on interest rate alone but on other reforms and steps taken by various stakeholders. Measures such as implementation of RERA in true letter and spirit, palatable payment plans for home buyers and relatively cheaper house prices are some of the critical determinants to revive the real estate sector. Until such time the benefits of these measures percolate across markets, the sector will continue to reel under pressure,” says Shishir Baijal, Chairman & Managing Director, Knight Frank India.
All bank loans, including home loans, taken after April 1, 2016, are linked to a bank’s MCLR and any rise in it will push the interest rate higher. As things stand today, the interest rate appears to either remain stagnant or there exists a remote possibility for them to move up in the near term. Unless liquidity in the system improves and inflation is well under RBI’s target, borrowers, both existing and new, will have to make do with a high interest rate regime.
At a home loan rate of 8.4 percent, the EMI on a Rs 1 lakh loan for 15 years comes to Rs 979. If the rate is increased by by 100 basis points (or 1 percent), the EMI will go up to Rs 1038 — a difference of Rs 59 or about 6 percent increase.
Rising MCLRs
Interestingly, State Bank of India, the country’s top lender by assets, had increased its MCLR across most maturities in March. SBI also raised the 1-year MCLR to 8.15 percent from 7.95 percent, other lenders like ICICI Bank and Punjab National Bank, followed suit and raised their MCLR, albeit by a slightly lower magnitude of 15 basis points. Other banks may hike their MCLR too, and thus EMIs may rise.
When base rate fails
It is important to note that several loans taken before April 1, 2016 which are still linked to base rate are still being serviced by the borrowers. They stand to benefit only when the bank will cut its base rate. Not many banks have cut their base rate in the recent past. SBI had it by 0.30 percent on Jan 1, 2018, before this it had cut it by 0.5 percent in September 2017. Effective April 1, 2018, Allahabad Bank had cut base rate to 9.15 percent from 9.6percent and even its benchmark prime lending rate (BPLR) has been brought down to 13.40 percent from 13.85 percent.
Taking stock of the situation, RBI in its February meet had stated that, “Since MCLR is more sensitive to policy rate signals, it has been decided to harmonize the methodology of determining benchmark rates by linking the Base Rate to the MCLR with effect from April 1, 2018.”
MCLR linked home loan
Banks, however, may or may not lend at MCLR. They may ask for a spread or a mark-up or a margin. The actual home loan interest rate can be equal to the MCLR or have a ‘mark-up’ or ‘spread’, but can never be lower than the MCLR.
Note: Loans are disbursed by HDFC Ltd.
New home loan borrowers
For new home loan borrowers, it’s only the MCLR linked loans that matter. Don’t wait any longer in the hope of an interest rate cut if you are thinking of getting a loan. Instead, if you are eligible, you can opt for the benefit under the Pradhan Mantri Awas Yojana (PMAY) scheme. The deadline to avail the benefit under this scheme is March 31, 2019. Under the scheme, a credit-linked interest subsidy is given according to the applicant’s income level.
Existing home loan takers
a) Home loans linked with MCLR
As was no rate cut today, there is unlikely to be any downward pressure on MCLR. On the flip side, with banks increasing their MCLR, the possibility of home loan rates going up when the reset date arrives cannot be ruled out either. In MCLR-linked home loans, the rate is reset after 6/12 months as per the agreement between the borrower and the bank. The rate applicable on that date becomes the new rate for servicing the EMI’s.
b) Base rate home loans
Interest rates charged under the base rate system is relatively higher as compared to that under the MCLR regime. Still, if your home loan interest rate is linked to the base rate system, you might want to reconsider the option of switching to an MCLR based loan. As has been seen in the past, there has been a lag in the transmission of cut in repo rate by banks to the consumers after the central bank reduces rates. However, under the base rate system, whenever RBI had raised repo rates, the banks used to raise their base rates without any delays.
Source: https://bit.ly/2qjZSzv
ATM :: How to make your EMI affordable
A prudent borrower will plan it wisely to make his home loan EMIs affordable.
Ravi Kumar Diwaker | Magicbricks | February 23, 2018, 18:21 IST
Home loan is a long-term financial commitment and it is important to ensure your EMIs are within your budget and do not impact your monthly income. It is seen as a financial burden which has to be planned very carefully.
A prudent borrower will plan it wisely to make his home loan EMIs affordable. Often, home buyers choose a long-term home loan in order to pay a lower EMI but end up paying more interest.
These easy steps can help you reduce the total interest on your home loan.
Short-term loan
Buyers should choose a short-term for their home loans as it ensures a reduced long-term financial commitment. A 15-year loan is better than a 20-year home loan as it results in a lower interest rate on your total amount. Your monthly EMI may be higher but interest will be less. A short-term tenure means the principal amount of your loan is paid faster leads to lower interest rate because interest is calculated on the outstanding principal amount.
Reduce interest rate
You must always choose the lowest interest rate home loan and go ahead with refinancing of your loan if your interest rate is coming down.
Pay the principal
Make sure that you are paying the principal as quickly as possible as the lesser principal amount means lesser interest to be paid to the bank. If you have extra cash in hand then try to give it to the bank and get your principal amount reduced. Some buyers do that so that the EMI interest can come down.
More than one EMI
You can also pay more than one EMI every year. This will reduce your loan tenure and interest cost as well. It is very important to calculate your finances based on your income. It will make you pay more but ultimately you will be benefited.
Higher EMI
With rise in your salary, you can choose to pay a higher amount of EMI. It is good to reduce your home loan interest burden. You can calculate the interest rate as per your home loan amount, tenure and interest to find out how much amount you are paying less by this step.
Compare interest rates
Banks will not reduce the interest rate to the existing home loan borrowers till you go there and ask them to do it and fill a form for the same. If your existing bank does not reduce the interest rate then find out which bank is offering you lower interest rate and get your loan refinanced. You must also find out the charges for switching the loan before going ahead with refinancing.
These are some tips for home loan borrowers to help them reduce the burden of home loans. The government is already giving the CLSS benefit to buyers purchasing affordable homes. You can also opt for that so you pay less amount of EMI. A short-term loan may reduce your interest payout but it will increase your EMI and may impact your monthly income. You need to choose the EMI amount that is affordable to your pocket.
Source: https://goo.gl/anrzoi
ATM :: 5 rules to keep in mind after your loan is sanctioned
Jan 08, 2018 04:27 PM IST | MoneyControl.com
The following article is an initiative of BankBazaar.com and is intended to create awareness among the readers
Applying for a loan can be nerve-racking, with a number of formalities expected to be completed. Most of us think that our job is done once the loan is sanctioned, but this is not the case. The real story, in most cases, begins once the loan is disbursed, for this is when we encounter problems with the repayment.
So if you are someone who has recently applied for a loan, (be it a home loan, a personal loan, car loan, medical loan, or any other loan), you should consider these 5 rules to ensure that you get the most out of the money.
1. Never miss your EMI – Taking a loan is a huge financial responsibility. Banks sanction loans for a specific time period (the tenure), charging interest rates on the amount loaned. The borrowed money is expected to be repaid within the given time, with the entire sum and the interest component split into EMIs. Paying the EMI on a monthly basis is not merely a requisite with regards to the legalities, it also helps in building a good credit score.
A missed payment is reflected on the credit report, which could make it difficult to get a loan sanctioned in the future. Missing successive payments could result in lenders blacklisting one, which could ultimately lead to the borrower being labelled a defaulter.
A borrower should ensure that he/she has sufficient funds to repay the loan on time. In certain cases, banks can charge a fine for late payment, which can be a considerable sum in case of high loan amounts (for example a home loan).
2. Never use your savings to repay the loan – Most of us invest in certain saving schemes like PPF, fixed deposits, mutual funds, etc. These funds are ideally designed to help us during emergencies. Utilising them to repay a loan is an absolute NO-NO. Similarly, digging into your retirement fund to meet your EMI obligations should be avoided at all costs, for this can have a huge impact on your future, where you might find it hard to have a regular source of income.
3. Take an insurance cover for the loan amount – Certain loans can be of extremely high values. This is especially true in the case of home loans, where the loan amount is typically in excess of Rs.10 lakh. This can be a significant sum for most people, with it taking years to repay it. Given the unpredictability surrounding life, one should always take an insurance policy which covers the loan liability in case of the borrower’s death. A number of life insurance policies come with this option, wherein the outstanding loan amount (in case the insured passes away) is paid by the insurer. This can limit the financial strain on the family members of the borrower. One could also consider taking an insurance policy in case of other loans, if the repayment amount is significant.
4. Avoid taking additional loans while a current loan is active – Banks and NBFCs often come up with attractive offers to promote borrowing. A number of us can often give in to the lure of extra money, applying for additional loans even when we don’t need them. This should be avoided at all costs, for any additional loan increases the financial burden when it comes to repayment. Also, applying for multiple unsecured loans like personal loan or travel loan while already paying EMIs can come across as sketchy, in addition to having an impact on the credit score. Banks would be wary of offering loans in the future in such instances. If one truly is in the need of additional financial resources, he/she should first close an existing loan before taking a new one.
5. Make prepayments when you have extra money – There are a number of times when we come across additional income. Returns from investments, a bonus from the office, an increase in your salary, etc. can be used to prepay a loan. This can help one save money on the interest payable, in addition to offering peace of mind, knowing that one’s liability is reduced.
A loan, when used effectively can help us out during financial emergencies, but being frivolous once it is sanctioned could lead us towards additional turmoil.
Source: https://goo.gl/enBVeJ
NTH :: No homes, no EMIs! Can Jaypee home buyers seek legal recourse?
By Vandana Ramnani | Sep 14, 2017 03:54 PM IST | Source: Moneycontrol.com
Jaypee home buyers want interim relief from court that they should be allowed to stop paying EMIs until flats are delivered to them as they have no hope yet
More than 100 homebuyers, who have invested their hard-earned money in Jaypee projects, are planning to move court to grant them interim relief to allow them to stop paying their equated monthly instalments (EMIs) until completed residential units are delivered to them.
“Why should we pay EMI for a non-existent property? What is the monetary relief we are getting from the September 11 SC order? We are not asking for suspension of EMIs – we are only asking for deferment of our EMIs until the insolvency resolution professional (IRP) comes up with a resolution plan and preferably possession of the flat is given to us without any interest or penalty to ensure that we are not charged or penalised for the delay in paying EMIs,” says Shilpa Vij, a buyer who bought a house under the subvention scheme in 2011and started paying EMI in 2013 in the hope of getting her house in 2014.
“We want an interim relief. EMIs and monthly rents are draining us and there is no hope yet that we will get a flat,” she says.
Ramakant Rai, Trilegal, who is advising Jaypee home buyers, says that buyers have two options – one, they can write to RBI or the National Housing Bank concerning their problems and two they can file a writ petition either in the High Court or the Supreme Court concerning the issue.
“Many buyers have already sent complaints to RBI and NHB. RBI can act on the basis of these complaints. Also, in case the issue is raised through a writ petition before the Supreme Court, the SC on grounds of equity to protect the interests of home buyers can issue directions to RBI, NHB or directly to banks to allow them to hold EMIs until units are fully developed,” he says.
Homebuyers have alleged that banks did not do their due diligence and disbursed loans even when project approvals were not in place and that banks had given pre-approved loans for the project.
“We have filed RTIs with the Noida Authority and received a response from them that approvals were sanctioned only in 2012 whereas projects have been sold since 2008. The requisite permissions were not in place at the time of the project launch. There was lack of due diligence on the part of banks as they had disbursed loans even when plans were not in place,” says Pramod Rawat, a buyer.
S K Suri, a home buyer, who has filed RTIs with the authorities for information regarding dates of applications made by the developer and final approval of plans, says that he has been given copies of approval letters for seven Jaypee projects, details of the builder filing an application for approval and the date of the authority granting approval.
“Most of the approvals were received only after 2011 whereas most bookings/loan disbursements started way back in 2008,” he says, adding it took him nearly four months to get a response to his RTIs and several rounds to the authority’s office. One response is still awaited.
Most homebuyers have decided against not paying their monthly EMIs for fear that their CIBIL score and future credit history may get impacted. But legal experts say that in case the court intervenes in this matter, it can direct CIBIL to not touch their scores. “Also, buyers are not asking for a refund, they are only asking not to pay EMIs until they get possession of the flats which has been delayed by almost five to eight years,” they say.
Legal experts also say that the September 11 SC order puts a moratorium on all cases against Jaypee. ‘All suits and proceeding instituted against JIL shall in terms of Section 14(1)(a) remain stayed as we have directed the IRP to remain in Management,’ says the order. “Homebuyers can argue that this is a uni-dimensional order as homebuyers cannot file cases against the builder in other courts such as NCDRC or RERA. It should also protect home buyers and allow them to stop paying EMIs and banks should not proceed against buyers until the time homes are delivered,” they say.
“The only possible way that home buyers have recourse to the bank is if the deal has been brokered by the bank’s real estate arm or if the bank has disbursed the full amount rather than construction-linked progress payment. Even in such cases they should issue a notice to the bank first claiming damages before taking any precipitate action such as stopping pre- EMI interest payment,” says CA Harsh Roongta, a fee only investment adviser.
Source: https://goo.gl/iWVUjo
ATM :: How to reduce your home loan interest rate
RoofandFloor | AUGUST 09, 2017 10:00 IST | The Hindu
Nothing compares to the joy you experience when months of patience leads to the discovery of your dream home. This is followed by a home loan application, with the final choice being governed by the interest rates on offer.
While the current home loan interest rates available in the market have seen a reduction, even a little difference between the rates offered by the lender can be the difference. You might feel like you managed to strike gold with the rate you received from your lender, but here are a few things you can look out for to reduce your interest rate even further.
Shorter duration
While a shorter home loan tenure may increase your EMI, it ensures that your principal amount is repaid earlier. Since the rate of interest is calculated on the principal, once the bank recovers the principal amount, the absolute interest pay out decreases marginally. However one must be aware that higher EMI reduces your ability to borrow in future. With the regulator ruling prepayments on floating rate home loans should not be charged any penalty, the borrower can higher prepayments / EMIs keeping the base tenure longest.
Set EMI targets
Make it a goal to pay an extra EMI every year. This will help to get to the finish line much before than expected. Not only that, in the months your finances seem to have a better cushion, add the surplus to your EMI as it will help reduce your principal amount as well as the interest.
Increase your EMI annually
With your annual salary appraisal, get into the habit of increasing your EMI every year by at least 5%. This will allow you to repay the principal much faster and reduce your interest.
Refinance your housing loan
If you come across a financial institution whose housing loan interest rate is lower than the one being offered by your current lender, then think about switching to the other lender.
Your interest repayment burden can easily be reduced by refinancing your home loan at a lower rate of interest. However, before you take the plunge, do check the legal fee and the prepayment penalty associated with the process. It would be wise to do a cost analysis to make sure that the savings from a lower rate of interest are higher than the amount spent during the refinancing process.
Move to marginal cost of funds based lending rate
Post-April 2016, all banks moved from base rate to MCLR or marginal cost of funds based lending rate, as it allows borrowers to benefit from changes in the rate of interest.
If you took a loan before April 2016, then ask your bank to switch your loan to MCLR. Banks tend to levy taxes as well as a conversion fee of 0.5% on the outstanding amount that needs to be repaid, so a cost analysis would again be beneficial.
Though every borrower tries to avail the lowest possible rate of interest, make sure the option you settle for fits comfortably with your monthly financial budget. While your aim should be the repayment of the principal amount at the earliest, don’t set an EMI amount that starts to seem like a burden. Once that happens, you are bound to miss payments!
This article is contributed by RoofandFloor, part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group
Source: https://goo.gl/gk2P4H
ATM :: A quick guide to hastening your home loan repayment
By RoofandFloor | UPDATED: JULY 17, 2017 14:00 IST | The Hindu
The thought of owing someone a debt is an uncomfortable one for most of us. When the amount owed is large, as in the case of home loans, the cognitive discomfort can be significantly greater. Additionally, the monthly financial burden of paying EMIs and housing loan interest isn’t exactly everyone’s cup of tea. To counter this, many homeowners choose to prepay their home loans.
There are multiple schools of thought when it comes to prepaying a home loan. However, there is no one-size-fits-all approach, and the decision must be made considering both financial and personal aspects.
Merely making the decision to prepay your property loan doesn’t solve your problem, though. Figuring out how to save up for prepayment is the key to succeeding without financial discomfort.
If prepaying your home loan is an option you’d like to consider, here’s a short guide on how you can make that happen.
Consider the decision
Determine whether prepayment is right for you. Home loans offer tax benefits that need to be taken into account. For instance, the housing loan interest (upper limit of Rs 2 lakh) can be deducted from taxable income. However, if your interest amount exceeds the upper limit, prepayment could save you the additional cost. Every individual’s situation is unique and should be assessed carefully before making the choice.
Fortify your backup
Get your financial safety net in place before committing to prepay the home loan. A general rule of thumb is to have the following taken care of:
• Emergency funds (medical or otherwise)
• Backup savings for EMIs and regular expenses in case of loss of employment
• Children’s education funds
• Other recurring financial liabilities
Plug the leaks
Scrutinise your financial records to identify where you tend to haemorrhage money. They usually show up in the form of unnecessary frills such as credit cards with additional privileges (that you don’t use), unused memberships (clubs, gyms and recreational establishments), loans with high-interest rates (here refinancing is an option) and so on. Eliminating these situations will improve your disposable income and thereby your savings.
Get creative
Saving up to prepay home loans can be simplified with some thought. Consider replacing your expensive forms of entertainment and recreation with creative, cost effective solutions. Tighten the purse strings as far as possible to boost your monthly savings.
Hike up the EMIs
This is a simple yet effective option. Even marginal increases in EMI payments can help reduce the principal amount. This helps reduce the tenure of the home loan. Reduced home loan tenure then results in lower total home loan interests.
Utilize windfalls
Consider partial repayments from unexpected sources of income such as bonuses, gifts from family and so on. Check with your bank regarding the number of partial repayments allowed beforehand (usually there is no such limit).
Supercharge your savings
Consider investing in a reputed mutual fund with reasonably good returns meant purely for home loan prepayment. Returns are higher than normal savings accounts while the tax payable is far lower than other forms of savings such as fixed deposits.
The choice to prepay a property loan should be made rationally and be backed by careful planning. Hasty, emotion-driven decisions could seriously hamper your overall financial wellbeing.
This article is contributed by RoofandFloor, part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group
Source: https://goo.gl/gYFXTh
NTH :: You can repay your entire loan in cash, provided each installment is less than Rs 2 lakh
By Preeti Motiani | ECONOMICTIMES.COM | Jul 04, 2017, 03.20 PM
Going by an income tax department circular issued yesterday, it appears that you can repay your entire loan amount to any HFC (Housing finance company) or NBFC (Non-banking finance company) in cash provided each instalment is less than Rs 2 lakh. As per the new income tax rule introduced in the last budget, cash payments/receipts of or over Rs 2 lakh are illegal and will attract penalty.
This rule had created confusion as to whether the rule applied to single instalment repayment of loan or to the entire repayment amount. The finance ministry issued a circular dated July 3, 2017, clarifying that the prohibition of cash payment would only apply to repayment of a single loan instalment in cash and not to the aggregate amount.
Section 269ST was introduced in the last budget to discourage the use of large amounts of cash as a step towards controlling generation of black money.
Section 269ST prohibits any person to receive amount of Rs. 2 lakh and above in cash:
(i) In aggregate from a person in a day, or
(ii) In a single transaction, or
(iii) In respect of transactions relating to one event or occasion from a person
Though this gives clarity for determining the applicability of section 269ST, from an individual perspective, he/she has to maintain necessary supporting documents to substantiate any future request from the authorities seeking clarification on the source of cash says Amarpal Chadha, Tax Partner & India Mobility Leader, EY.
The government has also introduced penalty provisions in case of section 269ST is violated.
Section 271DA defines the penalty amount to be paid by the person who receives the amount in cash over the specified limit. The penalty amount as per the law shall be equal to the amount received in cash.
Income Tax department in its circular dated July 3, 2017 has given a clarification regarding the transactions that will fall under the purview of section 269ST in case repayment of loan is done using cash.
The circular states that receipt of repayment of loan by the Non-Banking Finance Companies (NBFC) and Housing Finance Companies (HFC) will fall under the purview of section 269ST clause (b) if the repayment of ‘one’ loan instalment is equal to or above Rs. 2 lakh. “All the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions of section 269ST.” This means that the Rs 2 lakh limit will only be applied to a single loan instalment repayment in cash and not to the total of all the instalments.
The department has received the representations from NBFCs and HFCs seeking clarification regarding the applicability of section 269ST on the repayment of loan whether it will be on one instalment or on the whole loan amount.
The circular has clarified that the NBFC or HFC will end up violating Section 269ST only if they receive a single loan instalment in cash of or over Rs 2 lakh.
Source: https://goo.gl/D61Dtr
NTH :: Home loan EMIs of under-construction houses, renting & land leasing to attract GST from July 1
GST, which the government intends to roll out from July 1, 2017, will subsume central excise, service tax and state VAT among other indirect levies on manufactured goods and services
PTI | Updated: March 28, 2017, 18:29 IST | ET Realty
Home loan EMIs of under-construction houses, renting & land leasing to attract GST from July 1. Come July 1 and leasing of land, renting of buildings as well as EMIs paid for purchase of under-construction houses will start attracting the Goods and Services Tax.
Sale of land and buildings will be however out of the purview of GST, the new indirect tax regime. Such transactions will continue to attract the stamp duty, according to the legislations Finance Minister Arun Jaitley introduced in the Lok Sabha yesterday for approval.
Electricity has also been kept out of the GST ambit.
GST, which the government intends to roll out from July 1, 2017, will subsume central excise, service tax and state VAT among other indirect levies on manufactured goods and services.
The Central GST (CGST) bill — one of the four legislations introduced, states that any lease, tenancy, easement, licence to occupy land will be considered as supply of service.
Also, any lease or letting out of the building, including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services as per the CGST bill.
The GST bills provide that sale of land and, sale of building except the sale of under construction building will nether be treated as a supply of goods not a supply of services. Thus GST can’t be levied in those supplies.
‘Goods’ in earlier drafts of the bills were defined as every kind of movable property other than money and securities but includes actionable claim. ‘Services’ were defined as anything other than goods. It was thought that GST may be levied on supply of immovable property such as Land or building apart from levy of stamp duty.
But the bills presented in Parliament have now clarified this position.
Tax experts said that currently service tax is levied on rents paid for commercial and industrial units, although it is exempt for residential units.
Deloitte Haskins Sells LLP Senior Director M S Mani said: “While service tax is applicable at present on sale of under construction apartments, it is levied on a lower value as abatement allowed. The abatement is ostensibly to take care of the value of the land involved in the construction of apartments”.
He said the GST Rules, which will come up for discussion in the Council meeting on March 31, would help ascertain whether a lower rate of GST is proposed for such transactions or whether a similar abatement procedure would be prescribed.
“This would also be dependent on the rate fixation committee which is expected to finalise its recommendations in April,” Mani said.
Experts said service tax is currently levied on payments made for under-construction residential houses after providing abatement, which brings down the effective rate from 18 per cent to around 6 per cent.
“The government is trying its best to make GST litigation free. The bills very clearly specify that GST would be charged on any lease of land or letting out of the building or construction of a complex, building, civil structure or a part thereof, where whole or any part of consideration has been received before issuance of completion certificate or its first occupation,” Nangia & Co Director Rajat Mohan said.
Experts said the GST subsumes central levies like excise and service tax and local levies like VAT, entertainment tax, luxury tax. However, it does not subsume Electricity Duty.
Since the GST Constitution Amendment Act does not provide for subsuming ‘electricity duty’ under GST, it will continue to be levied by the respective state governments.
Certain states like Delhi exempt residential properties from electricity duty but levy it on commercial and industrial units.
Source : https://goo.gl/0mRlKH
NTH :: Pink slips and housing finance
Nina Varghese for IndiaProperty.com | Moneycontrol.com
Will the 2016 retrenchments in the e-commerce space impact home finance? This is a question on many minds especially in a place like Bangalore where a large number of e-commerce companies are headquartered.
In recent times there has been disturbing news in the daily broadsheets about the pink slips in the e-commerce space. Of course, as many would say this was a bubble that was waiting to burst, mainly because of the proliferation of e-commerce companies offering a variety of services and yet there has been no corresponding rise in internet penetration; in other words, an increase in net users.
In addition to this, the other bad news from the Middle East, where a large number of Indians work, is that companies are retrenching staff to combat the declining oil prices and the squeezed profit margins.
It is likely that a majority of the people who have lost their jobs this year would be paying equated monthly installments (EMIs) on homes, cars and other household items, and EMIs will be impacted.
The impact on the home loan EMI may not be immediate but it is likely in the next two quarters. This seems to be a persistent worry for the real estate sector, especially as surveys show that home sales in major metros are improving and a number of new launches are going up.
So how do you service the home loan if you have lost your job? At this point you must be aware that banks have the provision to restructure loans and that there are a number of ways to do this; all depending on the type of loan that you have taken.
The first option would be to extend the tenure of the loan; wherein your EMI reduces and makes it easier to manage. The bank, however, has to be convinced that the reason for restructuring the loan is a genuine one. The second option is foreclosure; where the borrower can sell the house which is most likely the collateral, to settle.
However, in most cities in India, the housing market is tight and it might be difficult to sell at this point. If you show undue haste, it is likely you will not get the price you desire. It is very important that you talk to the bank in question and remember that running away and defaulting on this loan and other financial commitments is not a wise choice. Most bankers understand if there is a serious issue such as a loss of employment and it is imperative that you make yourself open to them.
Let’s take a look at which companies are doling out the pink slips this year. According to newspaper reports, Flipkart, the e-retailer laid off 1000 employees pan India, in July. In September, Twitter, the online social networking services sent 20 people home, in Bangalore while OLA the online cab service sent out 700 pink slips across India, in August. ASKME’s 4000 employees lost their jobs when the company shut shop, in July, after their investor exited. GROFERS, the online grocery delivery service, laid off 150 to 200 employees and revoked 65 job offers, in September.
In the first quarter of 2017, CISCO, the e-commerce shopping list firm, is likely to lay off 14,000 people worldwide with 7000 of them likely to be engineers in the company’s Research & Development centre, in India.
According to the Middle East news service MEED, Abu Dhabi National Gas Co (ADNOC) plans to cut 5000 jobs by the end of the year while 2000 layoffs have already been announced. Similarly, many companies in the oil and gas industry in the United Arab Emirates have cut flab in a bid to reduce operational costs. The job cuts have affected mainly engineers and those on contracts. These job cuts are likely to have a domino effect on the hospitality and retail industries too.
The banking sector in the UAE has also been impacted by the declining oil prices. The Emirates Islamic, the Sharia compliant lending arm of the Emirates NBD, sacked 100 people because of the diminished growth in the second half of this year. Those laid off were mainly from the sales force.
Newspaper reports from Qatar said that many large multinational oil companies were downsizing because they were suspending or cancelling projects.
So it’s the right time to sit tight and fasten the belts tighter.
Source: https://goo.gl/rZQSFI
ATM :: EMI-free loans: Best means to repay credit card debt
By Satyam Kumar – LoanTap | Sep 27, 2016, 04.34 PM | Source: Moneycontrol.com
Also known as credit card takeover loan, this can help you get rid of credit card debt.
One of the easiest ways we can choose to build a healthy financial future is to get a credit card and use it wisely and responsibly. Let’s say, for most people, a credit card offers their first opportunity to start building a credit history. While many credit card users pay off their credit bills in full every month, there are others who take the route of making minimum payments on their credit card bills and become too comfortable with the idea. But as easy as it may seem, it is just a delusion that making minimum payments is enough to prevent late fees and interest charges. Even banks and financial institutions are not likely to specify information on the damage minimum payments might cause in the long run. There are numerous consequences of failing to pay off your charges in full every month. The lack of awareness is causing credit card holders to lose money that they could easily save. Still not convinced? Here is your chance to learn more about minimum payments, how they might affect your financial health and the best possible solution available to you to undo the damage.
The minimum payment is a fraction of the total outstanding amount that is due. So, for instance, if the outstanding amount due on your credit card for a particular month is Rs 25,000, then the minimum payment would be Rs. 1,000. It is a common misconception among many people that banks will not charge interest on their credit card as long as they are making the minimum payment. Unfortunately this is not true. The only benefit that can be derived by making the minimum payment is that one will not have to pay late fees. Also, this will keep credit score in good shape but there would still be no respite from paying steep interest.
Relying on making minimum payments for an extended period can result in a huge debt that may even exceed one’s credit limit. This is because the higher the pending amount, the higher will be the interest amount. This might pose to be a challenging financial problem. This is when a credit card takeover (CCT) loan comes to the rescue. Many consumers aren’t aware of the benefits of a CCT loan and how it might help them in saving and maintaining their credit score.
Here are a few ways it can take care of a huge credit card debt:
1. A CCT loan offers low interest rates compared to credit card interest rates. The annual rate of interest is usually 18% lower than any credit card interest rate. This dramatically reduces your interest burden.
2. It is convenient for those who are financially not ready to pay the full outstanding amount that they have run up on their credit cards. One can only pay the interest amount initially and wait until they are in a better financial position to pay off the principal on quarterly or annually, which is easily affordable.
3. A CCT Loan can help in protecting your credit score. How? We all know that delayed credit card payments can have a negative impact on one’s credit score, which eventually lowers any chances of loan approvals later in life. In such cases, taking an EMI-free loan is the best way to save the CIBIL score.
4. A CCT loan can provide the opportunity to avoid late fees and penalties as the loan can be sanctioned within a small span of time. This eventually helps in saving up a lot of money in the long run.
People nowadays opt for flexibility in everything, whether it is their job or education. Loans like CCT or EMI Free is helping those sections of people by offering flexible options to repay credit card debt. Although one can use it for numerous purposes like buying a house, paying for education fees, or even for financing one’s marriage, its low interest rate makes it a viable option to pay off outstanding credit card debt that may be creeping up on your savings without your realizing its deleterious impact.
Source: https://goo.gl/iuG5Ax
ATM :: Seven reasons why you should buy a home while you’re young
Buying a home early in life helps home buyers.
Kishor Pate CMD, Amit Enterprises | Retrived on 12 July 2016 | Moneycontrol.com
There are lots of arguments for and against buying a home early in life, but the rationale for doing so is, in fact, the strongest and most convincing.
1. In the first place, the longer the tenure of a home loan, the lower the EMIs are. EMIs are calculated on the basis of the loan amount and how long the borrower can logically repay the home loan. In India, the retirement age is 60, and banks will consider this as the age by which the borrower must under any case close the home loan if he or she has not done so already. The longer one defers the decision to avail of a home loan to buy a property, the bigger the EMIs become.
Also, it is easiest to get approved for a home loan when one is young. Lenders are eager to provide home loans to young people because they are at the beginning of their careers, and will doubtlessly grow in them over the ensuing years. Their financial viability – and therefore their future ability to service a home loan – is therefore at its highest point.
2. In fact, the eligibility for a home loan is even higher for young married couples taking out a joint home loan. This is by far the most desirable lending scenario for banks. They are assured that two instead of only one income stream will back the home loan proposal, and the fact that two instead of one borrower are involved decreases their risk. Taking a joint home loan also helps a couple to close down the financial commitment of a home loan much faster, allowing them to focus on other investments earlier in life.
3. Another advantage of purchasing a home early in life is that it becomes easier to pay off the outstanding amount on a home loan with accumulated savings later in life. This opens up the opportunity to upgrade to a bigger, better-located home is the future – which is what most Indians aspire to do at some point.
4. Today, many newly-married couples are deferring their plans to have children until they have had a chance to enjoy some unfettered years together. Such a decision also works very well for such couples from the point of view of home purchase. It means that they can make a big down payment on their home before children and their education become an additional financial responsibility. A bigger down payment reduces the EMI burden, meaning that they can close their home loans faster.
5. It is also important to note that the earlier one buys a home, the longer it has to appreciate in value. Given that the annual appreciation of a well-located residential property can be to the tune of 15-20%. This results in a huge incremental increase of the investment value of such an asset.
6. It also makes much more sense to invest one’s hard-earned money in an appreciating asset rather than pay monthly rentals for which there are no returns at all. Repayment of a home loan also brings with it the financial advantage of income tax breaks. These are an added benefit which the Indian Government has provided with the express purpose of encouraging young citizens to invest in self-owned homes and thereby safeguard their and their children’s future.
7. Finally, it makes much more sense to pay monthly EMIs on a home loan, into an investment-grade asset, rather than pay monthly rent which is nothing but an expense with absolutely no returns on investment.
The above reasons should present a convincing argument for making the important decision of buying a home early in life. The New Age ‘logic’ that it is better to live on rent simply does not hold water if one considers the multi-faceted advantages of investing in a self-owned home while one is young. It is true that it requires financial discipline to service a home loan, but this very desirable quality can never come too early.
Source : http://goo.gl/iGEZw9
ATM :: Should young earners take their parents’ advice while investing?
By Jayant Pai | Jun 20, 2016, 07.00 AM IST | Economic Times
Every parent fondly looks forward to the day when children will begin earning a steady income. However, for Indian parents, it is difficult to sever the metaphorical umbilical cord even after their child secures financial independence.
There are various reasons parents do not shy away from advising their children on money matters. One, they feel that their naive children will be parted from their money if left to their own devices. Hence, right from the first payday, they will tell you about the virtues of saving and warn against reckless spending. Two, they do not want their children to make the same mistakes they made, be it a failed investment or a loan to a friend which was never returned. Three, errors of commission committed by close family members also play a part in conditioning parents’ thought process.
Why such advice may be less effective today: The previous generation was brought up on the belief that the collective wisdom of elders was indispensable. Today’s generation is a bundle of contradictions. On the one hand, they are avowedly individualistic. On the other, they are swear by the opinions of peers in social media on every topic, be it fashion, electronics or money. Hence, parental influence is waning.
While every generation thinks it knows best when it comes to finance and investments, today’s youngsters have more educational and decision-making tools at their disposal. These may be in the form of blogs, apps, portals and even robo-advisers/algorithms. In fact, they face a glut, rather than a drought, of information. Hence, parents may often be behind the curve.
Today, wealth managers are increasingly viewing such youngsters as an economically viable segment. Hand-holding newbies, with the hope of growing with them as they uptrade, is a strategic choice.
Should children listen to their parents? In most cases, the advice received from parents is well-meaning. That may not necessarily be true in case of advice from outsiders. However, good intentions alone are not sufficient to render it suitable. While certain home truths like avoiding borrowing for consumption or maintaining a high savings rate are worth heeding, others are better ignored.
For instance, many parents dissuade their children from investing in stocks and suggest they opt for fixed deposits or gold. This may stem either from their own poor experience in the stock market or a belief that stocks are risky and another form of gambling. However, by blindly heeding such advice, youngsters may do themselves a great disservice since they forego the power of compounding that equities offer.
Similarly, parents may consider real estate as a great investment option even if they have to avail of a heavy mortgage. Children should follow such advice only after considering the repercussions of paying EMIs for long tenures of 25-30 years. Also, some parents are averse to their children purchasing insurance policies, fearing that this is an invitation to disaster. Such superstitions should not stand in the way of protecting life, limb and health. In a nutshell, when it comes to parental advice, trust them, but verify the advice.
(By Jayant Pai, CFP & Head, Marketing at PPFAS Mutual Fund)
Source : http://goo.gl/iECSwU
ATM :: Home loans: Facing a cash crunch? Here’s what borrowers should do
However, if the borrower can manage his EMI from the very beginning, he should not opt for moratorium even if the offers sound tempting
By: Adhil Shetty | Published: June 14, 2016 6:05 AM | Financial Express
Recently, a major public sector bank launched a home loan scheme with a moratorium for three to five years. In it, customers have the option of paying just their interest during the moratorium, after which their EMIs are gradually stepped up in the following years. This is meant to make things a tad bit easier for customers—young professionals especially—to repay their debts. It now remains to be seen other banks start offering loans with similar features.
Moratorium on loans is not a new concept. Education loan providers have been offering this benefit to students to allow them some time to find a job in order to start repaying their debts.
The real estate sector has gone through a rough phase in the past few years. The industry awaits a revival though there have been intermittent spurts in the economy at large. Therefore a home loan with an EMI moratorium would benefit potential home buyers who have been waiting for an increase in income or a turnaround in the economy.
What is a moratorium?
A moratorium is suspension or delay of an activity. In case of bank loans, a moratorium may mean not having to pay EMIs in part or full.
In the first type, no payment is made during the moratorium. In the second, which is more common, the borrower pays only the interest during the moratorium. After the moratorium, the borrower must start repaying his loan in full, as per his agreement with the lender.
Pros and cons
Let us analyse the advantages of a moratorium, especially of the first kind where absolutely no payments are required. This is preferred by borrowers facing short-term problems in paying their EMIs but expect their financial situation to improve in the near future.
For example, the borrower may have had an emergency expenditure or a loss of job, leaving him incapable of repaying his loan for a short period.
A moratorium on his loan would help him immensely.
It also provides borrowers the breathing space to manage and plan their finances for the next few years during the tenure of the loan. Moreover, the interest paid during the moratorium is lower than the actual interest rate at which the loan was procured. The difference can be as high as 1%.
Additionally, borrowers may be eligible for higher amounts as home loan under this scheme than they would in a standard loan. It allows potential home owners to dream of a bigger home-buying budget without having to worry about the downside of paying a bigger EMI straightaway, thanks to the moratorium and the gradual stepping up of EMIs which pairs very well with a gradual increase in the home owner’s income as well.
But there are some pitfalls of the scheme as well.
First, in most cases, the lending institution agrees to provide moratorium only on the principal amount. The borrower has to pay the interest right from the disbursement of the loan. At the start of your repayment tenure, the interest component of your EMI is much larger in comparison to the principal. Hence there is effectively not much to save for the borrower.
For example, for a 20-year loan for R30 lakh taken at a rate of 10%, your EMI works out to be R28,951, or R202,655 annually. After one year of repayment, you would have repaid only R28,356 of your principal whereas most of 86% of your repayments—R174,299—would have contributed to interest. Hence your absolute savings in terms of principal repayments would be small.
Additionally, the EMI amount will be higher after the moratorium period is over. This is despite low savings in the initial few years of interest payment. For example, suppose a borrower has taken Rs 25 lakh as home loan for 20 years with a moratorium periodof two years. In these two years, the borrower is supposed to pay the interest only. After the moratorium, the borrower has to repay the EMI in the remaining 18 years. Naturally, the EMI will be much higher since the repayment tenure got smaller.
What borrowers should do
If you are facing a cash crunch and expect it to resolve in a few quarters or years, a home loan with a moratorium is a good option. Just like an education loan, a moratorium is required because all borrowers may not be able to repay immediately after borrowing. However, if you are purely looking at temporary savings and relief, this is not the right choice.
At the same time, if the borrower can manage EMI from the very beginning, they should not go for moratorium even if the offers sound tempting. Keeping loans unpaid for longer increases the outflow because of interest being continuously added to the principal.
Finally, if you are really keen on taking the advantage of a home loan with moratorium, take a decision based on three criteria—the moratorium period, interest rate in the moratorium period, and the EMI that you are expected to pay after the moratorium period is over.
The writer is CEO, BankBazaar.com
Source : http://goo.gl/qFVDAh
ATM :: Beware of these hidden charges on your home loan
HARSH ROONGTA | Tue, 29 Mar 2016-09:22am | dna
Shrinking interest rate margins have made several lenders to insert hidden charges to increase their margins by stealth.
The home loan industry has come a long way from the time when the only charges that you had to watch out for were the processing charges taken under various heads and pre-payment charges. Regulation has ensured that there are no pre-payment charges and competition has ensured that there is a greater degree of transparency around the processing fee, legal fee, valuation fee or technical charges. Competition has also ensured that there is hardly any difference in the interest rates charged by various home loan lenders. Unfortunately, the shrinking interest rate margins have made several lenders to insert hidden charges to increase this margin by stealth.
Here is a list of these charges:
Charge interest on the loan which is disbursed late – This is a common practice. The lender prepares a cheque, but it is not to be handed over till certain documents are received from the borrower and/or the seller. These documents normally may take a few days to a few weeks, and meanwhile, the interest meter is ticking for the borrower. This is not as small as it looks. On a loan of Rs 1 crore, the interest @9.50% works out to Rs 2,600 daily.
The cost of a 10-day delay in handing over the cheque (which is pretty common) means an additional cost of Rs 26,000 or 0.26% of the loan amount. You should negotiate with the lender that you will only pay interest from the day the cheque is actually handed over to the seller and not from the date mentioned on the cheque.
Advancing the EMI payment date – The EMI amount is calculated assuming that the payment will be made at the end of 30 days from the date of disbursement. If this EMI is paid earlier than 30 days, the cost becomes much higher than the stated cost. An example will illustrate this. If the disbursement is made on February 15, 2016, and the EMI is payable on the first of every month then typically you should pay interest equivalent to 15 days’ interest (from February 15, 2016, to March 1, 2016) and the EMI should start from April 1, 2016, only. However, most lenders will start off the EMI from March 1, 201, and still charge you for a full month’s interest. Again, the difference is not as small as it sounds. 15 days’ extra interest for a Rs 1 crore loan @9.50% works out to Rs 39,000 or 0.39% of the loan amount. Again, you can negotiate with the lender to make sure that this additional hidden interest is not charged to you. Unlike the first point which is easily understood, this point is technical and the lender can run loops through the borrower while explaining how the EMI is calculated.
Forcing borrowers to buy expensive insurance products – Lenders have tied up with life and general insurance companies to provide life, disability and property insurance to borrowers and they force you to take these policies. The lenders earn fat commissions on the sale of these insurance policies and even though officially not permitted, they force the borrowers to sign up for these policies. It is a good practise to have such type of insurance policies when you take a loan, but the problem is that the policies being hawked by the lenders are hugely overpriced, reflecting the captive base of borrowers and the fat commissions for the lender inbuilt in such policies. To avoid having to pay for these overpriced policies, you can negotiate with the lender that you will buy these policies on your own. In all probability, you will get the exact same policy from the same insurance provider as what the lender is pushing at a fraction of the cost that the lender will charge.
Forcing borrowers to take a credit card or some other add-on products – In most cases this is offered for free while not stating that it is free only for the first year and would have an annual fee every year after that. You can easily negotiate your way out of this one.
Whilst these are the “extra” charges that lenders take from borrowers, there is a charge that they are unfairly accused of taking. For example, in Maharashtra, you have to pay a stamp duty of 0.20% of the loan amount on the document creating the security in favour of the lender. It is obvious that this charge will be recovered from the borrower (it is also mentioned in the loan agreement as recoverable from the borrower), but I have heard many borrowers complain that this is a hidden charge sprung upon them. This document is in favour of the borrower as it is conclusive proof that documents have been handed over to the lender. This is extremely useful when the loan period ends because there have been increasing the number of cases where the lenders have misplaced the title deeds and claim that these were never deposited with them in the first place. A stamped and registered document will prevent the lender from making any such claims.
In this new age, the lenders depend on the borrowers lack of attention to slip in the extra charges. It makes eminent sense for the borrowers to take the help of professionals to help them navigate through this process. The fee payable to such professionals will be more than made up by the savings in these “extra” charges.
Source : http://goo.gl/ImwYEb
ATM :: Are you ready for a home loan?
Rajiv Raj – Founder & Director, Creditvidya.com | Mar 04, 2016, 07.15 PM | Source: Moneycontrol.com
Answering these five questions will help you to assess if you are ready for a home loan.
Owning a house and making it your home is a dream come true for many. But making the decision to take up a home loan of the right amount, at the right time, is no easy task. So how would you ensure that the right home loan choice is made?
Gaining ownership of a house is a matter of pride, commitment and number crunching. The financial stakes are high along with a huge involvement of time and energy. One needs to be prepared to make an investment of this magnitude. This article will help you in doing a self-assessment about how ready you are to take up a home loan. Read on to know more.
#1 Is your score good looking?
An important factor among the many that lenders look at while accessing a potential borrower is their CIBIL score. The CIBIL score is mentioned in the CIBIL report. An unsatisfactory CIBIL score can have many implications, ranging from a lesser sanctioned amount to application rejection. Facing an obstacle at a stage when one has already started considering properties can be disappointing. Instead, how about obtaining the report directly from CIBIL, a couple of months before applying for the loan? It gives you sufficient time to work on improving the score, if required and paving a smoother road to the sanction process.
#2 Are you prepared to dig deep in your pocket for a down payment?
Lenders want to understand the quantum of the down payment amount which the borrower can contribute. Inability to commit a sufficient down payment amount can even lead to a loan application being disqualified. This amount constitutes a considerable chunk and cannot be arranged by using small credit limit products like a credit card. Saving up for the down payment amount beforehand takes care of an important aspect of the home loan process. Draw up a rough calculation to understand how much the down payment amount is adding up to. Check for the various sources from where these funds can be arranged and be prepared!
#3 Is it a smooth road with the existing debts?
A home loan is going to increase your debt obligation many folds. Hence, it is important that you are financially comfortable to handle this additional debt. Analyze your existing debts and check if you are having any trouble meeting current liabilities. Lenders will definitely take a look at your debt to income ratio. If the outstanding debt amount is high, in comparison to your income, then it may spell trouble. Consider this point before applying for the loan and work towards clearing existing debt obligations.
#4 Are you ready for a commitment?
A home loan decision is one with which you have stick for a really long time. It is crucial to ask yourself earnestly, if you are indeed ready to take on a commitment of this tenure and magnitude. It would mean making sustainable alterations in the way finances are managed. Whether it is cutting down on expenses or restructuring your investments, be ready for major changes. A long term commitment would also mean that fulfilling this liability remains your priority over other things.
#5 Is your income ready and steady for EMI’s?
EMI’s are going to hit your account every month! Is your cash flow ready to take the blow? The time to analyze that is now, before applying for the loan. Note down the income and expenses incurred for a month. Now make a provision for accommodating an estimated EMI amount on the expense side. Do you have inflow sources pumping in sufficient cash to help clear monthly outstanding dues? Are the sources of income reliable and steady? If you have answered this in the positive then take a step forward towards getting that home loan!
Answering these questions will enable you to decide if going in for a home loan now, is a good decision. It will also help by highlighting points which need to be worked on before applying for the loan. Planning is the key. The tedious application process will be a cake walk and loan disbursal will be smooth when the preparation is on point. We wish you a dream run through the loan process to your dream home. Of course, only when you are ready!
Source : http://goo.gl/gqMXxM
ATM :: Loan Basics: Making the most of EMIs
ADHIL SHETTY | published on February 7, 2016 | The Hindu BusinessLine
Avoiding pre- EMIs and opting for tranches can get you more bang for buck
The concept of repaying loans with equated monthly instalments (EMIs) is preferred by many borrowers. This is especially true for big financial commitments like home loans, where repayment in one go is near impossible.
But ensuring small savings in EMIs and better management can make a huge difference to your finances. Here is a look at how smart planning of EMI commencement can help you save money over the long run.
EMI versus pre-EMI
The interest outflow differs for ready-to-move-in properties and under-construction properties. While a full loan disbursement is made on a ready-to-move-in property, the bank makes disbursements to the builder for an under-construction property in instalments. In the latter case, the disbursement to the builder is usually linked to the level of construction.
Many people purchase under-construction properties to save some money on the final ownership cost, but sometimes end up burning a hole in their pockets by paying heavy pre-EMI interest.
Suppose the builder takes 20 months to complete the construction, you need to pay 19 pre-EMI instalments before your regular loan EMI starts. This amount will not reduce your principal outstanding and consists of interest only. The longer the builder takes to finish the construction, the higher your interest outflow.
For example, if in the above case, a loan of ₹50 lakh is taken at 10.5 per cent, the borrower pays around ₹3.9 lakh in pre-EMI interest, assuming his loan disbursement happens every alternate month.
Saving on pre-EMIs
Borrowers have the option of signing up for tranche EMIs, where one can start repayment of the home loan itself, right after the first disbursal by the bank. If the borrower takes a ₹50 lakh loan for a 20-year tenure, his total monthly EMI will come to ₹49,918. He can pay back ₹1.19 crore in total if he opts for tranche EMIs. This means he will have to pay ₹69.8 lakh as interest. However, if he takes the pre-EMI route, his total interest outflow will now increase by ₹3.9 lakhs, that is, he will have to pay a total interest of ₹73.7 lakh.
Apart from a tranche EMI, advance disbursement facility (ADF) is another option to save pre-EMI interest. If your builder has a tie-up with the bank, the bank may disburse the entire loan amount at one stretch, providing advance funding for the builder. In this case, you can start paying the EMI straightaway.
EMI management
Shorter the tenure, higher the EMI, but lesser the interest outflow: Any change in tenure can change your EMI substantially. For example, if the above loan of ₹50 lakh is taken for a period of 15 years only, the EMI works out to ₹55,270 and the total repayment ₹99.4 lakh. This translates to an interest saving of around ₹20 lakh. However, while choosing a higher EMI, do ensure that you can afford it.
Timing EMIs: The timing of EMIs is important to avoid defaults. It is ideal not to keep EMI dates towards the last week or first date of the month. If it is first date of the month and your EMI debits are linked to your salary account, any delay in salary credit and consequent insufficient account balance can cause a missed EMI on your loan account. As many salaried people are likely to exhaust their savings account during the last week after all bill payments, it is best to keep the dates anywhere between 5{+t}{+h} and 20{+t}{+h} of every month. If you have more than one loan, plan your EMIs on the same date or with sufficient gaps, as convenient.
Any minor savings in EMI can mean a lot in the long run. Therefore, if you do not plan to get the full sanctioned loan amount for an under-construction property, get your loan amount downsized and start your EMIs instead of paying pre-EMI interest.
The writer is CEO, Bankbazaar.com
Source : http://goo.gl/QJZXNj
ATM :: How to Achieve Your New Year Resolution of Buying a House
Creditvidya.com | Last Updated: January 03, 2016 14:11 (IST) | NDTV Profit
A New Year brings with it fresh hopes, aspirations and dreams. Many of us like to make New Year resolutions, or promises we make to ourselves to achieve something, whether for mental, spiritual, financial or emotional betterment.
If your resolution for the New Year 2016 is to buy your dream home, here are some useful tips you can use:
Save for down payment
Planning to buy a house requires that you get your finances in order as buying a house involves a huge financial commitment. If you are planning to take a loan for buying a house, remember that banks do not offer 100 per cent of the property value as loan. Depending on a bank’s policy and loan amount, the loan value may be 80 per cent to 90 per cent of the property value.
Therefore, if you are buying a Rs 50-lakh house, you need to have Rs 5 lakh to Rs 10 lakh available to make a down payment. Also remember: the higher the self-financed amount the lower is the EMI and overall interest burden. So make sure you save enough for the down payment or plan ahead how you are going to meet the requirement – whether it is by dipping into your deposits, withdrawing from your PF corpus or liquidating your investments.
Focus on your CIBIL score
When you apply for a loan, apart from making sure that you meet the eligibility criteria, financial institutions also look at your CIBIL score. CIBIL score is a reflection of how you have treated your loans in the past; it will reflect your payments and defaults right from the days of your first credit card or your first loan. So in case you are preparing to take a loan, it is important that you focus on your CIBIL score and try to improve it (if required) at least a few month in advance. Credit restoration is a process that requires time and patience depending on how good or bad the situation is.
Even in case of an average score, it makes sense to try and improve it as a higher credit score could get you a better deal in terms of interest rate and also give you a choice about which bank to borrow from.
Do some homework
Before you actually apply for a loan or choose a house, it is a good idea to start your homework months in advance. On the property front, it is important that you focus on the area that you planning to buy a house in and find out if there are any issues and concerns specific to that area, and also focus on the property prices and see if they match your budget. If you are buying a house from a developer, check about the credentials of specific builders and projects: whether they have the requisite approvals etc., when the handover of the property will take place if it is under-construction and so on.
Also check about the policies and rates offered by various banks for loans. Though rates may change over time but generally, changes are not too frequent or sudden. Some research will help you shortlist some banks as per the rates they offer, loan duration, eligibility criteria, and help you understand whether you meet them. All this information is available online. You will have sufficient time to rectify any shortfalls that may be there.
Other things to keep in mind
There are a few other things that can come in handy when you are planning to buy a house:
Have a budget in mind: This is the most important aspect. Keep in mind how much you can pay every month as EMI and how much you have saved as down payment.
Plan you Finances: A loan means a fixed outflow every month towards the EMI, so make sure that you have your finances planned for the future by factoring in this expenditure.
Check EMI online: EMI calculators are available online; check the EMI for various loan amounts and duration combinations to ensure whether it is sustainable for your take a loan with you current financial position.
Do not stretch your finances: While you may be tempted to buy your dream house, it is important to be pragmatic. Do not buy a house that will stretch your finances and make it hard for you to pay EMIs. Remember, it is a long term commitment!
Do keep a contingency fund: Do not completely exhaust your savings while making the down payment. Keep some amount separately as a contingency fund to meet any unforeseen situation. If your entire funds are tied in the house, you may face a liquidity crunch in the time of some crisis.
All journeys begin with the first step. So, if you want that you celebrate 2016 in your new house then start planning. Make sure is planning is comprehensive yet practical.
Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
ATM :: Multiply Your Happiness
Amid falling rates, it makes sense for home-loan borrower to increase his EMI and accelerate repayment of principal
By: Saikat Neogi | October 13, 2015 12:08 AM | Financial Express
THE Reserve Bank of India (RBI) cut its repo rate by 50 basis points on September 29, taking the total reduction since January to 125 bps. But banks and housing finance companies offering home loans have cut their rates by up to 50 basis points only.
State Bank of India is offering interest rate on housing loan at 9.55% to salaried individuals. Similarly, HDFC is offering housing loan at 9.6-10.15% across all loan amounts and ICICI Bank at 9.6-9.65% for loan amounts less than Rs 75 lakh. So, if a new borrower takes a Rs 50-lakh loan for 20 years at 9.55% interest rate per annum, the equated monthly installment (EMI) will be Rs 46,770.
Lower risk weight
The central bank has also lowered the risk weights on select home loans of up to Rs 75 lakh where borrowers are willing to put in more money and lower the loan-to-value ratio. A Crisil research expects interest rate on home loans to come down by another 25-30 bps over the next few months because of this move. The RBI has lowered risk weights on housing loans of up to Rs 75 lakh from 50% to 35% in cases where the borrower puts in at least 20% of the value of the home as own equity for loans up to Rs 30 lakh and 25% of the value of the home as own equity for loans between Rs 30 lakh and Rs 75 lakh.
Home loan borrowers in smaller cities are likely to be the biggest gainers. In fact, Crisil estimates that around 80% of home-loan borrowers and 70% of home loans by value would meet the criteria for lower risk weights set by the central bank. The loan-to-value ratio for home loans has come down from 75% in the third quarter of FY10 to 66% in the same quarter of FY15, which means a higher proportion of new loans would meet the criteria for lower risk weights.
Increase EMI or tenure
Borrowers benefit from an interest rate fall, especially in case of a floating rate home loan. Also, one of the immediate benefits of a rate cut is that the new borrower’s loan eligibility amount increases. Ideally, one’s EMIs should not exceed 40-50% of his monthly income. If the EMI is much lower than this, increasing the EMI is an effective way to ensure the loan is paid out early. Increase in EMI can be requested at any point of time during the loan and, usually, there are no charges for such a request.
Whenever lenders reduce the interest rate of home loan, for an existing borrower, however, they either keep the EMI unchanged and reduce the loan term or reduce the EMI and increase the loan tenure. It always makes sense to keep the EMI amount unchanged. If possible, increase the EMI so that the interest outgo for the entire tenure is reduced significantly. Analysts say when the interest rate drops, the borrower should increase the EMI and accelerate the repayment of the outstanding principle.
For instance, an existing borrower of Rs 50 lakh who has paid for five years from the total tenure of 20 years, a 20-bps decrease in interest rate (1 bps a hundredth of a percentage point) will reduce his EMI by Rs 550 from Rs 48,583 to Rs 48,033. This would mean a total savings of Rs 99,000 as interest payment for the remaining period of the loan. On the other hand, if the borrower keeps the EMI amount unchanged and reduces the period of the loan by four months, then the net savings on interest would be over Rs 2 lakh, provided the interest rate remains the same for the entire period of the loan. One can opt to make partial payments at regular intervals, say, every six months or one year, to repay the loan quickly and save the interest as banks and housing finance companies do not charge any pre-payment penalty for principal repayment.
Loan switch
If your lender is charging you higher interest rates than others, switch the bank. Ensure that the difference in the interest rate between your existing lender and the new one is at least 75-100 bps as you have to pay processing (around 0.25% of the loan due) and legal fees to switch the existing loan to the new lender. Analysts say it will make sense to switch only if more than seven years of repayment remain. It is not always advisable to shift the home loan from one bank to the other just because of lower interest rate. The borrower must calculate the actual amount that he can save by switching the loan and after adjusting all the charges.
WHAT TO DO
* Ideally, EMIs should not exceed 40-50% of monthly income
* If EMI is much lower than this, increasing the EMI is an effective way to ensure loan is paid out early
* When the interest rate drops, the borrower should increase the EMI and accelerate the repayment of the outstanding principal
* If your lender is charging you higher interest rates than others, switch the bank
* Ensure the difference in the interest rate between your existing lender and the new one is at least 75-100 bps as you have to pay processing and legal fees for the switch
* Calculate the actual amount that you can save by switching the loan after adjusting all charges
Source : http://goo.gl/MIg3iL
ATM :: Here is how different types of credit lead to a better CIBIL score
RAJIV RAJ | AUG 24, 2015, 12.41 PM | BusinessInsider.in
Today, each of your financial activity is being tracked not just by your bank, but the premier credit bureau in the country, Credit Information Bureau Limited (CIBIL) to rate you on your credit behaviour. Each time you apply for a new loan or credit card, your CIBIL score becomes a parameter of how creditworthy you are. Moreover, potential employers these days are often asking for the CIBIL report of potential recruit. This is to assess how responsible one is with his finances and thus how trustworthy and responsible he will be in his job.
The most important factor that has a 35% bearing on your CIBIL score is your payment history. There are other factors that impact your CIBIL score are credit utilization or how much of your total credit you have used, how long how you been servicing debt, the amount of new credit you have taken or applied for and the mix of your credit. Here we talk about how the mix of your credit can improve your CIBIL score.
Having a good mix or secured and unsecured loans
One thing that helps you attain a high CIBIL score is a good balance of secured and unsecured credit. A mortgage or an auto loan qualifies as a secured credit. But having these and not having an unsecured credit won’t make you a good scorer. A credit card with a reasonably high credit limit, or a personal loan qualifies under the head of unsecured credit. Unsecured credit means that no collateral or advance payment is required to be paid by the consumer at the time of the disbursal of such credit. Having a mortage or an auto loan and credit card that you service on time is a good way to diversify your credit mix and keep a high CIBIL score.
Installment credit
Another type of credit that helps you score points on the credit mix front, is having some exposure to installment credit. If you have do not have a mortage or a loan for a vehicle, your student loan qualifies as installment credit as well. In other words, any kind of loan with a fixed amount of repayment each month under a pre-specified time frame qualifies as installment credit. So, if you are in your first job and still servicing a student loan for a management degree or a vocational degree that you have recently completed, you are still scoring high with CIBIL as far as your credit mix is concerned.
Finding the right balance
The trick to have a good credit mix is to have a good balance of active credit. If you do not have a student loan and are not in a position to apply for a mortgage or an auto loan just as yet, do not be under the impression that no credit will help you have an impeccable CIBIL score. While we are not asking you to be reckless and apply for loans, you may want to start out small and prove that you are creditworthy by applying for a credit card at first when you are stepping in your professional life. A credit card is a great way to build your credit profile if you are using it responsibly. Spending within your means on the credit card and making outstanding payments in full is a great example of prudent use.
A word of caution
While we are reiterating the fact that you must diversify your credit mix, you should not consider it to be a green flag to go and apply for every loan on offer. In this intensely competitive financial world, telemarketeers and even direct mailers are always trying to lure you with loans on “low rates of interest” or “lifetime free” credit cards, but do bear in mind that things are being sugar coated and you are not being given the full picture upfront.
So don’t bite the bait easily. Not only will you end up with a loan that you do not need, your CIBIL score may drop as a result of too many hard inquiries. A hard inquiry on your CIBIL report happens when a lender accesses your CIBIL score and report to see how creditworthy you are. Therefore, your aim to diversify your credit profile may backfire against you!
Thus, as you can see diversification of your credit mix is a great way to improve your CIBIL score it has an important bearing on your CIBIL score. But when you set out to diversify your credit profile, do so carefully so as to avoid a boomerang and end up with a lower score instead!
(Rajiv Raj is the Director and Co-Founder of http://www.creditvidya.com)
Source : http://goo.gl/kHLc70
ATM :: Unsure about financial planning: 10 questions to help understand why you need one
by Kalpesh Ashar | Jul 30, 2015 16:26 IST | Firstpost.com
In today’s world, each one of us is constantly trying to be updated with the latest in technology, gadgets, knowledge, lifestyle etc. Competition is fierce all around us and the urge to professionally outperform always remains within us.
Everything is changing and evolving very rapidly and we are always playing catch up. But have we changed our personal financial scenario or even seriously considered doing so?
Or, are we yet walking down the same old path where regardless of what things around us are, we are still committing the same financial mistakes and ignoring the right signals in the path of our financial well being. It’s about time every individual starts to create a personal finance plan, to not only live a stress-free financial life on day-to-day basis, but also for his future money life.
Here are ten questions to ponder on and if you find yourself ticking majority of the boxes affirmatively, it is imperative that you get yourself a personal financial plan in place without much delay as these are the potential alarm signals which could spell disaster for an individual if not addressed.
1. You are not sure whether your expenses exceed your monthly/annual income.
2. Do you face a cash crunch every other month ?
3. Do you find it difficult in repaying your personal debts and liabilities i.e. credit card dues, loan EMI’s or insurance premiums ?
4. In case of any urgent monetary requirement, do you look at selling your existing investments or consider taking a loan?
5. You have not been able to put your investment objectives/goals on paper.
6. You feel your family will not be able to maintain the current lifestyle or achieve your goals if some unforeseen, unfortunate event were to happen to you (The sole bread earner) ?
7. You do not understand the financial products in your portfolio?
8. You prefer investing in only one particular asset class.
9. Do you mostly invest with your friends and relatives selling financial products – who offer free advice and offer a “latest” product every time they meet you ?
10. Would you like to know what amount would be your retirement corpus (after considering inflation)?
The reason for listing these 10 questions is that these are the precise pain points which most of the people encounter on a daily basis in their personal finances.
It is a complex financial jungle out there and it is natural that individuals lose their way in taking the right steps for their own good. A personal financial plan done correctly and ethically would automatically rectify the above mentioned shortcomings and clear the myths or should we say ‘cobwebs’ from the mind of an individual and put him on the path of financial well being presently and for his future. If this is put in place in an earnest and methodical manner, rest assured all your other endeavors in various aspects of your life will be in perfect alignment. What is necessary is taking the first step and start moving in the right direction.
Kalpesh Ashar is a member of The Financial Planners’ Guild, India and Founder, Full Circle Financial Planners & Advisors (a Sebi-Registered Investment Adviser)
Source: http://goo.gl/MHQi4k
ATM :: Must Read for Aspiring Entrepreneurs : Financial Plan
Go for angel or VC funding if cashflows are likely to be uncertain. Else, borrow from family and friends
Anil Rego | July 25, 2015 Last Updated at 22:04 IST | Business Standard
Financial planning is crucial for any entrepreneur. That’s because entrepreneurship is a high-risk choice that can impact one’s personal as well as family’s well-being. Once salary income stops, it becomes much more difficult to take care of regular expenses such as equated monthly instalments (EMIs) for repaying home loans. This is especially so if your spouse is not working. After assessing cash flow requirements, the next step is to realign existing assets to provide a monthly income. Look at the worst possible scenario and assess how much time you would give yourself to exit the business if it is not successful. It is advisable to plan for three to five years of monthly income, or till business cashflows stabilise.
By doing this beforehand, you will know the time you have to self-sustain the business, or abandon the venture and get a job.The financial plan should include both the business as well as personal life goals, since both are integrated with one’s financial well-being.
Cashflows
Cashflow is the lifeline of any business. Unlike salaried income, cashflow from business is likely to be irregular. You need to forecast the cashflow requirement not only for the start-up phase but also when the business grows to different stages. In the initial years, you may have to fund the operating expenses of your business as well as your family’s personal expenses.
For example, if your monthly expenses including EMIs are Rs 80,000 and your business requires Rs 1 lakh a month, you need to generate a monthly income of Rs 1.8 lakh. You may need to take a call on whether you are okay with eroding capital for a few years if the capital you have built is insufficient.Apart from regular cashflow required to manage operational costs, there could be major investments required in the form of capital. Further, capital infusion is not limited to the initial phase but every subsequent/new phase (like expansion). Entrepreneurs have to make sure that there is adequate capital available to avoid getting into a debt trap or losing out on potential opportunities. If you plan to fund these cash flow requirements from your own assets, it needs to get connected to your personal financial plan.
Handling debt
Debt forms a part of one’s financial plan especially while starting a new business. Typically, cashflows while starting a new venture are managed by borrowing funds. However, debt always has an impact on one’s monthly cashflow since it needs to be serviced regularly in the form of EMIs. The quantum of debt you take would depend on the cashflow analysis you have done. In the previous example, some expenses maybe required upfront and one may need to use debt instead of funding it from your investments. For example, apart from Rs 1 lakh of operating expenses per month, if you are servicing another Rs 50,000 of business loan EMI, then you need to plan for a monthly income of Rs 2.3 lakh per month. If the returns from your investment are unable to cover Rs 2.3 lakh, set a limit for your self on how much capital you can afford to erode.
Servicing debt can become difficult if cashflows are irregular. Thus if an entrepreneur has taken debt or borrowed funds and is regularly paying EMIs, he needs to create a contingency fund which can be in the form of a separate liquid fund or bank deposit. The corpus in the emergency fund can be equivalent to three to four months of monthly expenses and should be touched only during emergencies. If the loan amount is too high, it is advisable to take a risk cover which is equivalent to the outstanding loan amount in order to cover the liability in case of an unfortunate event.
The first place you can go to for borrowing is family and friends as this is unlikely to come with an interest component. However, if there is an issue with repayment, it could impact one’s personal relationships. Banks and NBFCs are options but may not give you loans in the initial stages of your business. So, it is advisable to take loans while you are still working. Mortgage loans are a good option as the interest rate is lower; so is loan against securities like shares. Personal loans, however, can prove costly and should be avoided. If cashflows are not very certain, it maybe a good idea to get equity funding for your business from angel investors or venture capital funds.
Managing investments
Managing investments is crucial. Let’s assume you had a financial portfolio of Rs 1.8 crore, giving a weighted average return of 12 per cent, or Rs 21.6 lakh a year. The portfolio is spread across bank fixed deposits (40 per cent), equity mutual funds (40 per cent) and equity shares (20 per cent). You will need to generate Rs 2.3 lakh a month (as mentioned earlier). As such, there would be a yearly shortfall of Rs 6 lakh which would result in an erosion of Rs 30 lakh in a five-year period.
This portfolio will need to be rejigged to ensure sufficient liquidity and generate returns high enough to replenish the fixed income portion. For this, part of the amount in fixed deposits can be put into liquid funds with a systematic withdrawal option. Periodically, gains from equity shares/equity MFs can be used to replenish the fixed income.
Illiquid assets like real estate or concentrated equity like Esops should be liquidated.
On starting a new venture you will be losing out on the health cover from the company that you had been working for; so it is advisable to have a family health cover. One could go in for a family floater health insurance policy of Rs 10 lakh or more. Sufficient life cover through a simple term plan is necessary to cover your loans. If your spouse is working and you are able to get cover by virtue of her company coverage, then this requirement would be addressed.
Source : http://goo.gl/pi1xeW
ATM :: Transfer your home loan with a top-up
But tax exemption will depend on the purpose
Priya Nair | Mumbai July 16, 2015 Last Updated at 22:33 IST | Business Standard
Balance transfer of home loans has become very common after the removal of penalty on pre-payment. Many banks are offering borrowers the option to avail of a top-up loan while doing the transfer. The advantage is the possibility to shift to a lower interest rate loan and getting a higher amount at the same time. The additional amount can be used for any purpose as long, as it is not speculative in nature.
Today, banks are willing to offer top-up home loans at the same rate as a home loan, as a strategy to entice borrowers to do a balance transfer, says Gaurav Gupta, of Myloancare.in, a home loan advisory.
“Most banks tend to price top-up loans closer to rates on loan against property (LAP). But to make balance transfers attractive, many are offering discounts on top-ups as an incentive,” Gupta says.
As compared to an LAP, the advantage of a top-up home loan is a lower interest rate and longer repayment period. Processing is also faster since the bank already has your property documents, says an official from State Bank of India. “We offer up to a maximum of Rs 5 crore and repayment period of up to 15 years on a top-up loan. If the repayment period on the original home loan is 10 years, the top-up can continue up to five years after that.”
Some reasons why people take a top-up loan include home renovation, home extension, childrens’ education, medical emergency, etc. In the case of businessmen, the loan can be used to meet a cash flow requirement. Remember that the tax exemption will be available only if the purpose is home extension or home renovation and not for any other purpose, points out Gupta.
“The bank will take an undertaking from the borrower about the purpose of the loan. If the purpose is children’s education or investing in business, then the top-up amount will not be eligible for tax exemption,” he points out.
A top-up loan can also be used for repaying off other loans like auto loan or personal loans, says Brijesh Parnami, chief executive officer, Destimoney Advisors. “If customers have the ability then we advise them to take a top-up and consolidate other loans, as it will work out cheaper. Today, with banks offering similar repayment terms as a home loan, it makes sense to take a top-up loan. We see lot of customers opting for top-up while doing balance transfer,” he says.
Typically, the rate on LAP is 11-12 per cent, while on top-ups it is around 9.5-10.5 per cent. The eligibility for top-up depends upon two factors — value of the property and the EMI paying capacity of the borrower.
Assume, borrower took a 25-year home loan of Rs 50 lakh at 10 per cent to buy a property worth Rs 65 lakh when he was getting a salary of Rs 75,000 per month. The EMI would come to Rs 45,435. Then after five years, the borrower wants to take a top-up loan.
Assuming the property value has grown at nine per cent, it will be worth around Rs 1 crore. The bank will offer home loan at a loan to value (LTV) of 75 per cent and top-up loan at 65-70 per cent LTV. In this scenario, the maximum top-up loan possible is around Rs 25 lakh (given that the home loan is still running). The combined LTV would be around 73 per cent.
Similarly, if the customer’s income has grown to Rs 1,25,000 per month, he would be eligible for a top-up loan of up to Rs 35-37 lakh. So, the customer would be eligible for the lower of the two amounts as a top-up loan – that is Rs 25 lakh in this case.
The eligible amount for LAP would be lower by about 20 per cent due to the higher rate of interest. The second issue is that since the house is already mortgaged to the bank for a home loan, an LAP might not be possible on the same property at the same time.
All said and done, borrowers should avail of loans only if extremely necessary. For those borrowing more or merely extending the tenure, they will end up paying more interest to banks, not prudent for their financials. But, if one is combining all other high-cost loans into a single top-up loan at a lower interest rate, it would be the best, provided the tenure is the same or lesser.
Source: http://goo.gl/2sqqNh
ATM :: 5 questions for home buyers
Babar Zaidi, TNN | Jul 20, 2015, 06.46AM IST | Times of India
No loans to repay, modest aspirations and not a very ambitious retirement target. For Mumbai-based bank executive Alpesh Mehta and his schoolteacher wife Deepali, saving for their child’s education and marriage, as well as their own retirement, will be a breeze. But this could change if they go ahead with their plan to buy a house. In Mumbai, the minimum price of a 800-1,000 sq ft house is Rs 1 crore. They will have to liquidate all their existing investments to raise about Rs 20 lakh for the downpayment. The balance Rs 80 lakh, if borrowed at 10% for 20 years, will mean an EMI of Rs 77,200, which is roughly 60% of their combined monthly income of Rs 1.3 lakh. Either the Mehtas will have to stop saving for their child’s goals or their retirement will have to be pushed back.
The Mehtas are not the only ones entering this minefield. Across the country, a number of people are firming up plans to buy a new house. The New Home Index of Zyfin Research, an indicator of home buying plans of 3,000 households across 11 cities, has inched up in the past 12 months. Though it is still in pessimistic territory, buyers are less pessimistic now than they were in May 2014. “The decline in pessimism has more to do with increased optimism about future income and job security than lower borrowing costs,” says Debopam Chaudhuri, Chief Economist and VP-Research, ZyFin Research.
Despite the surge in buyer sentiment, real estate is still not a good investment in most parts of the country. Property price are still very high and despite the recent interest rate cuts, the cost of borrowing has not come down significantly. Before they take the plunge, potential borrowers need to ask themselves 10 questions. Your answers will tell you whether you should save more for a bigger down payment, buy a smaller house, invest in a cheaper city or not buy at all.
1. Can you afford the home loan EMI?
It might sound a no-brainer, but many home buyers get this wrong and bite off more than they can chew. The home loan EMI should be around 40% of your net household income. But that is if you don’t have other loans. A high EMI outgo can put your house-hold budget under pressure. If the home loan EMI accounts for more than 50% of the net household income, other goals will have to be downsized or junked altogether. Don’t be fooled into thinking that the recent cut in home loan rates have made property a viable investment. It will have a marginal im-pact on the total EMI. A 25 basis point cut will reduce the EMI of a Rs 50 lakh loan for 20 years by Rs 826.
It’s easy to get ambitious and go for a bigger loan if you are expecting generous increments in the coming years. Don’t make the mistake of leveraging on future income. While your income would certainly rise, but so would your expenses and financial commitments.
2. Have you factored in the other costs?
The advertised price is usually the base price of the property. The add-ons are usually kept hidden till you sit down with your cheque book. Many builders will slip in charges for facilities that you thought were free with the property. Others will keep certain charges hidden from the buyer by tucking them away in the fine print. These apart, there are other big-ticket add-ons such as the legal costs. The stamp duty and registration charges payable to the authorities add up a neat 7-8% to the overall price of the property. In all, these charges can push up the property price by 20-25%. Make sure you have factored in these additional costs.
3. Have you considered renting?
The high property prices means that renting is a better option in most cities. A 2-BHK house in Mumbai will cost close to Rs 1.2 crore. If a buyer puts in Rs 40 lakh as downpayment and takes a loan of Rs 80 lakh, the EMI for 20 years comes to about Rs 76,500. He also loses around Rs 23,500 in interest that the Rs 40 lakh downpayment could have potentially earned. The total cost per month comes to Rs 1 lakh while he can easily get a similar house on rent in Mumbai for about Rs 40,000-45,000 a month.
Don’t go by hypothetical examples.
Instead, use an online rent-or-buy calculator to find which is is better for you.
The one developed by Bigdecisions.com is a sophisticated online tool that takes into account several things, including the cost of the house, the amount of downpayment, the rate of interest of the home loan, the expected appreciation in the house price, the rent payable for a similar accommodation in the area and even the expected hike in the rent every year.
4. Will house value rise faster than the interest on loan?
In the early 2000s, when home loans were available at 6-7% and property prices were galloping at 20-25%, it made eminent sense to invest in an upcoming apartment project. Now, property prices are appreciating at a slower pace. In some markets, such as Noida and Greater Noida in the NCR, prices have even come down in the past 12-18 months.
If you are buying property as an investment with a loan, first assess whether its price will appreciate at a rate higher than what you are paying on the loan. “If you are payings 10% on the loan and the property price is expected to appreciate by 5-6%, then it is a bad buy,” says Manish Shah, Cofounder and Chief Executive of Bigdecisions.com. Shah says the expected rate of appreciation is the single biggest determinant in their rent-or-buy calculator. “It makes the biggest difference in the decisions,” he says.
5. Will this purchase force you to postpone other major goals?
Stagnant property prices and high EMIs are not the only problems that potential home buyers should be wary of. Their home buying plans can have serious implications on other financial goals, such as saving for their children’s education and marriage and their retirement. If the home loan EMI is too big, it will push other goals out of the financial plan. Worse, buyers like the Mehtas might have to liquidate existing investments to raise money for the downpayment. Though parents are unlikely to surrender child insurance plans and education related investments, retirement planning is easily sacrificed. “Younger people tend to think that retirement is an old age problem and defer the investment,” says Shah of Bigdecisions.com. It is easy for investors to raid their retirement savings to fund their real estate dreams. You can take loans from the Provident Fund or the NPS for buying a house. Buy a house only if the purchase will not impact other goals. Otherwise, be ready for an asset-rich but cash poor retirement. Or not having enough money to send your child to a good college.
Source : http://goo.gl/1Q55Q7
ATM :: Bank can deposit EMI cheques before due date
Jehangir Gai | July 12, 2015 Last Updated at 22:06 IST | Business Standard
Customer cannot fault the bank to cover up his own default
Pradeep Bhupendrabhai Desai, a businessman, had an account with Hong Kong & Shanghai Banking Corporation (HSBC). The bank issued him a credit card. Later, a second credit card, too, was issued.
According to Desai, he used to make timely payment of all credit card bills. His record was so clear that the bank even sent a letter offering him a pre-approved personal of Rs 5 lakh at an interest rate of 14.95 per cent and one per cent processing fee. The loan would be repayable in 48 monthly instalments of Rs 13,903, payable by the 15th of each month.
The bank deposited the EMI cheques three to four days prior to the due date of the 15th of each month. There were occasions when the EMI instalment was credited two days prior to the due date. The bank also added one extra instalment of Rs 3,346.37 as the 49th instalment. Desai felt aggrieved as his financial planning got upset when the bank deposited the cheque before the due date. Some cheques also got dishonoured due to shortage of funds as he had not made the provision for payment prior to the due date. The bank also penalised him for the dishonour. This continued to happen in spite of his complaints to the bank. Consequently, he was branded a defaulted and his credit rating with the Credit Information Bureau (India) Limited also suffered.
Aggrieved, Desai filed a complaint before the Gujarat State Commission, claiming Rs 25 lakh as compensation for deficiency in service along with 35 per cent interest. He claimed another loan of Rs 25 lakh that had been sanctioned by ICICI Bank was not disbursed as his credit rating had suffered. He also lost his reputation because of the financial problems created by HSBC due to advance deposit of the EMI cheques.
The bank contested the complaint, claiming Desai had been explained the system in vogue by which the cheque would be deposited around the 10th of the month so that the EMI would be realised by the bank by the 15th. Accordingly, cheques were deposited a few days in advance to take care to the time it took for clearing. The bank also pointed out that Desai had filed the complaint to avoid his liability to repay the loan amount. The bank explained that the additional instalment of Rs 3,346.37 was towards charges for the overdue payment.
The bank pointed out that ICICI Bank had offered to advance a loan to Desai subject to his submitting certain documents and fulfilling certain conditions. The loan had never been sanctioned. Desai had lost his credit rating because he had defaulted on payment, for which he was not entitled to blame the bank. Refuting the allegation of any deficiency in service on its part, the bank sought a dismissal of the complaint.
The State Commission observed that Desai was academically well qualified and a businessman. He had signed the documents undertaking to repay the loan, but had defaulted. The Commission concluded that there was no substance in Desai’s complaint and that it was devoid of merit. It upheld the bank’s contentions and dismissed the complaint. Desai challenged the order in appeal.
The National Commission noted that Desai had admitted having defaulted on repayment of the loan, but had attributed this to be due to the bank’s action of upsetting his financial planning by depositing the EMI cheques in advance of the due date. The Commission observed that the entire dispute revolved around the question whether the bank was entitled to deposit the EMI cheque three or four days prior to the due date of 15th of every month. The Commission found that the documentary evidence on record showed that the bank had acted according to customary norms and practice and in accordance with the terms and conditions of loan repayment. The Commission indicted Desai for wanting to avoid making payment till the last minute.
By its order dated July 8, 2015 delivered by Suresh Chandra for the Bench along with V B Gupta, the National Commission concurred with the view taken by the State Commission that there was no deficiency in service on the part of the bank. Accordingly, Desai’s appeal was also dismissed.
A customer cannot fault the bank to cover up his own default.
Source: http://goo.gl/WuAIVj
The writer is a consumer activist
ATM :: Five things you must know if you pay Pre-EMI on home loan
Sukanya Kumar,Founder & Director, RetailLending.com | MoneyControl.com
Pre-EMI neither reduces your home loan outstanding, nor it brings tax benefits in under construction period. Opt for pre-EMI arrangement if and only if you have cash flow issues
When you borrow to purchase an under-construction property, you probably do not notice whether your repayment mode is a pre-EMI or EMI. All you know is you have to pay an ‘x’ amount every month. Some of you feel joy when your lender offers you the ‘facility’ of starting the EMI only after possession. You consider this as an opportunity to save money and consider this as a ‘flexibility’ offered by your lender which allows you to start the repayment only after you enter your new home.
But, before you accept that offer, understand the matter first. Here are some frequently asked questions and answers which may help you get the clarity-
FAQs:
What is EMI?
Equated Monthly Installment (EMI) is a repayment option where you pay both interest and principal to the lender via a monthly fixed payment. The interest payable throughout the loan tenure gets computed over a chart called amortisation schedule which portions the interest and principal in a descending and ascending order respectively.
What is Pre-EMI?
Pre-EMI is the only simple interest payable on the principal drawn for the number of days of usage, payable to the lender on a specific day of every month. Upon drawing down further amount, it keeps increasing since the interest payable on the principal drawn increases accordingly. This mode of payment is possible only in case of under- construction purchases where the loan disbursement happens in tranches.
How does one benefit from opting for either?
If you can afford to start paying the EMI, that is, both principal and interest from the beginning, it helps you reduce the outstanding principal as well as the tenure from the very first month. If you are staying in a high-rental accomodation and do not have spare money to start the EMI right now, you may prefer to start paying the ‘interest-only’ on the partially disbursed amount which is Pre-EMI.
Who should opt for Pre-EMI?
As mentioned, if you are not comfortable starting to pay off the loan principal right now due to constraint in fund-flow, you could opt for Pre-EMI till you can start paying the EMI. This does not essentially mean that you will have to wait till possession. You can switch in between too.
Who should opt for EMI?
Similarly, if you have spare cash to start the monthly EMI right now, you can start repayment of the loan right away. This way your loan principal repayment starts and your unexpired tenure reduces too.
Can the repayment mode be switched from Pre-EMI to EMI in the mid-term prior to possession?
Yes, there is. We generally advise our clients to not to wait till possession to start the EMI. In a situation where say, you have drawn down 95% of the loan and the final 5% is payable on possession, but the project is delayed by 6 months, which is a common phenomenon in India, you land up paying Pre-EMI (simple interest) on almost the complete loan amount for 6 months, which is actually close to the EMI amount itself. Your acquisition cost shoots up and no repayment of the principal or reduction in the tenure happens! So, switching to EMI mode after drawing down 70-75% is recommended. But not all lenders allow that. Are those who allow, won’t initiate it for you. You will need your adviser to structure this for you.
What is beneficial for the borrower?
Depends on the borrower’s suitability. One must keep the following risks in mind if you opt for Pre-EMI:
(1) Few lenders do not allow you to part-preclose the loan under Pre-EMI stage. They will ask you to pay installments to the builder instead for a few tranches, but won’t let you reduce the loan amount.
(2) Some lenders give you automatic Pre-EMI option without checking with you. This is very risky. In the loan application, there is no provision to opt for it and generally during loan agreement signing either you forget to check or specify or the lender overlooks it in a hurry.
(3) You save no tax benefit by paying interest-only to the lender and some don’t even issue you the interest certificate. If you are paying the EMI from the beginning, you can claim all the interest paid during the under-construction stage in a spread of 5 years, after taking possession. You can not do so for payment of Pre-EMI in under-construction stage.
(4) Upon getting the possession only your repayment starts. So, whatever sum you have paid so far neither reduced your principal, not tenure. If you had opted for a 20 year loan term 5 years ago and paid Pre-EMI for 5 years, then you pay 5+20 years. Some lenders consider this 5 year Pre-EMI term included in the 20 year and amortise your repayment in 15 years, making the EMI amount higher!
(5) Delay in possession bleeds you bad. For example, if the loan amount was 1 crore and 95% of that is drawn, you pay interest only on Rs 95 Lacs for all the months of delay without a single rupee repayment, for which the EMI could be lesser than Rs 1 Lac a month, wherein you pay Rs 95,000/- of Pre-EMI unnecessarily.
Source : http://goo.gl/OaNehL
ATM :: Applying for a home loan after 45? Do not miss these tips
Adhil Shetty,CEO,BankBazaar.com | MoneyControl
Borrowing after 45 years of age may make the borrower worried about repaying his home loan. However, these tips can help you reduce your anxiety and offer some peace of mind.
Durgesh, 48, a government employee, was planning to take a home loan. He has only 10 years left in service and his loan requirement was 15 lakhs. He was confronted with a number of questions like any other late loan takers: Am I eligible for the required amount? Will it be difficult for me to manage the higher EMI? Can I continue paying the loan after my retirement, provided I have pension? Can I include my son’s income if I’m not eligible for the loan?
As he thought about it, more doubts surfaced: Should I break my FD to manage the down payment? What should I do to preempt the EMI from becoming a burden? Soon, Durgesh was overwhelmed.
Loans are usually offered so long as one has salary. So, the lesser your service period, the shorter will be your loan tenure, which means EMI burden on you is higher.
A higher EMI has an upside as well as a pitfall. The good news is that your interest outflow will be lesser, as you pay off your loan sooner. The bad news is that your loan eligibility will be reduced and the EMIs can weigh heavily on your personal finances.
Taking the case of Durgesh here, if he takes a loan of 15 lakhs for 10 years at 11% interest rate, his EMI will be around Rs.20663, and he will pay back Rs.25 lakhs. But if he takes the same loan for 20 years, he pays back Rs.37 lakhs in total – a staggering increase of Rs.12 lakhs!
Like Durgesh, many borrowers in the 45-60 age bracket battle many self-doubts when in the market for a home loan. Here are some of them answered.
Am I eligible for the required amount?
Usually loans are offered till you are in service. For example, Durgesh earns a salary of Rs30000. So his loan eligibility for 10 years is 12 lakhs only. But since he is a government employee, he gets pension. He can use part of his pension for loan repayment, and banks too may consider this option. His loan application can be therefore considered for up to 20 years, and he can be offered a higher amount.
Considering his pension will be lesser than his salary, the EMI outflow post retirement will be lesser. This is also called step-down repayment options, as the later EMIs are stepped down here.
Other options for him are to consider his wife or son (if they are employed) as joint applicants. If he is having any additional income like rental income from some any other property, that too can be considered.
Will it be difficult for me to manage the EMI? How should I prevent the EMI from becoming a burden?
In Durgesh’s case, his monthly salary being Rs.30000, it will be difficult for him to service a loan of 15 lakhs. Moreover, he has other expenses to take care of as well, like his down payment and funds for his second son’s higher education.
Durgesh can opt for an accelerated loan repayment option. Under this option, he can choose for a lesser EMI during the initial years. As he works through the loan tenure, the EMI slowly grows with the passing years. However, there are two flip sides to this option.
1) Lesser EMI means more interest outflow
2) Growing EMI means a higher outflow when he is deprived of his salary post retirement
If he plans his repayment smartly, he can opt for an accelerated EMI here, provided he plans to close or make part prepayments on his loan when he gets his gratuity and EPF amount on retirement. This way, the EMIs will not be a burden for him; to curb the interest outflow, he can choose to close down the loan soon he gets retired.
Alternatively, since he has an FD with the same bank, till he retires, he can opt to earn the interest out of it, or opt for a dividend option from some of his MF investments. This means, he gets some additional income every month. And with this additional income, the EMIs will not be a burden for him. If he owns some other property, he can think about renting it out to earn some additional income.
How should I manage the down payment? Should I break my FD to manage it?
The strategy to be adopted is completely based on the financial situation of the individual. However, considering the other expenses one may meet during retirement, breaking an FD is not advisable.
However, there are some alternatives for Durgesh. If he owns some other properties, he can plan on selling it to raise some funds so that he can manage both his son’s education and down payment. If he can afford to pay more EMI, i.e. if he has any passive income, he can plan for a loan against FD, a PF loan or a loan against his insurance policies to raise some funds, so that his temporary financial crunch will be managed. If he is holding some shares, he can plan on selling a couple of them.
Alternatively, instead of taking both the burden of his son’s higher education as well as down payment simultaneously, he can opt for an education loan for his son, so that he needs to worry only about the loan down payment.
If none of the above options work, he can check with his bank if to see if they offer the proportionate release option which can bring down his EMI considerably in the initial few instalments.
Above all these, latecomers on the home loan scene should research their options well. This is because some banks charge a higher fee based on the age of the applicant if they have considered pension income, since this constitutes a risky profile for them.
Source : http://goo.gl/vNmJXD
ATM :: Top-up car loans can work out cheaper than personal loans
Opt for balloon schemes if you are capable of paying a large instalment upfront
Gaurav Khurana | June 13, 2015 Last Updated at 22:26 IST | Business Standard
In India, 80 per cent of car buyers avail of a loan to buy their dream car. The car loan market is growing at a rapid pace and the leading financial institutions are launching innovative and attractive schemes for the buyers.
Buyers have a variety of offers and repayment schemes to choose from depending on their needs. For elasticity in loan repayment, there are options such as the Tata Balloon Scheme, a bullet scheme. Then, there are external top-up options from HDFC or Tata Capital for those looking for money against their cars.
The balloon scheme
Tata Balloon Scheme is for customers who can periodically repay a larger instalment for their car loan. It allows customers to repay a fixed amount in two different formats 11- 1 and 1-11. For a loan tenure of one year, if the criterion is 11-1, a customer pays 11 smaller installments first and then one larger installment at the end of the year. This plan is especially beneficial for those who expect cash flows at the end of a certain period – for example, salaried employees who expect a bonus during a certain month. The other format allows customer to pay one large instalment followed by 11 smaller instalments.
Let’s take an example to understand this. Thirty-year-old Karan Singh works in an IT company and has availed of a car loan of Rs 1 lakh. If he avails of a normal repayment scheme, he will pay a fixed equated monthly instalment (EMI) of Rs 8,840 for one year. On the other hand, if he avails of a balloon scheme using the first format, he will pay 11 smaller installments of Rs 7,553 and one larger instalment of Rs 23,800. In the second format, he will pay one larger instalment of Rs 22,800 followed by 11 smaller installments of Rs 7,500 each.
As can be seen from the table, the balloon scheme has two sides to it. Depending on the format chosen, either the borrower or the bank will benefit. If you pay the larger EMI first and the smaller later, the borrower stands to gain. If you pay the smaller EMIs first and the larger EMI towards the end, you will end up paying more interest compared to a normal loan scheme. So, borrowers wanting to avail of the Tata Balloon Scheme will do well to choose the 1-11 format.
The top-up option
Those who have taken a car loan but are not able to pay their next EMI, can avail of an external top- up loan from banks. They can get a loan against the financed car to get their engrossment brought to a close. So, the scheme has two benefits: foreclosure of your previous car loan and an additional loan at a rate (about 15 per cent) which is cheaper than a personal loan (17-18 per cent).
HDFC, for example, has a special scheme if you are looking for cash against your car. The bank will foreclose your running car loan and initiate it with the additional amount. HDFC will calculate your eligibility and provide you finance according to your eligibility. To avail this scheme, 18 EMIs of your car loan should be paid and your EMI track record should be clean. The formula to calculate the eligibility is:
EMI amount*tenure paid*multiplier (1.5) = loan amount
This will be your additional loan amount.
Let’s take an example to understand this. Pankaj Rao has a running car loan of Rs 5 lakh from a bank ‘X’. He has repaid Rs 3 lakh to the bank by paying 20 EMIs. Rao requires another Rs 2 lakh to close the loan. According to the eligibility criterion, he can get a top-up of Rs 4.5 lakh. After availing this top-up, HDFC will close his running loan by repaying remaining Rs 2 lakh and also provide him an additional Rs 4.5 lakh. Thus, Rao will become a customer of HDFC by availing a total loan amount of Rs 6.5 lakh. Though the process is a bit lengthier, the top-up scheme can help borrowers purchase their dream car as well as get an additional loan.
NBFCs are more lenient regarding top-up schemes. Tata Capital, for instance, is a recent entrant into the market. If you have not defaulted in paying 18 EMIs for your existing car loan, you can get a funding of 120 per cent against your car from Tata. If you have a clean track record of paying 12 EMIs, you become eligible to get 100 per cent funding.
Final word
By availing such options, one can enjoy a certain amount of flexibility during repayment. Borrowers should, however, acquaint themselves with different aspects of these schemes to ensure that they choose the right option and do not fall into a debt trap. For instance, if you are opting for 11-1 balloon scheme, be certain that you will be able to pay a larger lumpsum at the end of 11 months.
The writer is CEO, Dialabank
Source : http://goo.gl/DMhrvN
ATM :: Foreclosing a home loan? Here are the do’s and don’ts
Jun 5, 2015 00:04 IST | FirstPost.com
So your heart leapt when you read last year that the RBI had disallowed foreclosure penalties on home loans, but should you now scramble to have yours closed? Not so fast, here are a few check boxes to tick before you do.
1. What percentage of your income is your EMI – an EMI of over 40% of your monthly household income is definitely not desirable, it hampers smooth budgeting and your financial planning for a secure future. So if, for whatever reasons, your EMI is over 40% of inflows, do pay off your home loan as quickly as your capacity will allow – and do consult your loan officer for every charge associated with the repayment/s.
2. Weigh the impact of losing that tax benefit – you’re currently claiming certain deductions under say, Section 80C or 24B. Assess the impact of foregoing those benefits when you plan to foreclose a home loan. Maybe now is not the right time, a careful look at the increased tax outflow needs to factor in your decision.
3. How will foreclosure impact the rest of your financial planning – There are certain mandatories in financial planning, like retirement, children’s education, insurance, health care contingencies. Your foreclosure should not be at the cost of any of these. Any funds being considered for use in repayment should ideally be surplus after considering such essentials.
4. Better sooner than later – While it isn’t advisable to foreclose your loan within 6 months of taking it, you’d incur high processing fees; direct all surplus funds into early, rather than late, repayment of your home loan.
5. Measure the trade-off between Interest paid and returns on other investment options – Your surplus funds can be invested in numerous ways, some of these may offer better returns over a period of time than the loan-interest pay-out in that same time. An exception though would be a situation where you are nearing retirement and your salary income is due to cease- in such a case, foreclosure could be more attractive.
So yes, while it is a very tempting picture to see yourself rid of a large long-term responsibility like a home loan, rushing into foreclosure may not be the right answer. Take a long, hard look at the pointers above and ensure that your decision is made optimally. If all signs point to GO even after assessing them, then foreclose away, and congratulations to you!
Source : http://goo.gl/kR3zlK
ATM :: Five Harmful Credit Behaviours That Can Derail Your Financial Future
Harshala Chandorkar | Updated On: June 09, 2015 12:58 (IST) | NDTV Profit
Before you start reading this article, please take this quiz:
- What is the three digit score which is one of the key factors that decides your access to loans or credit cards called?
- What is the range of this score?
- What is generally considered a good score by banks and credit institutions for approving loans and credit cards?
While most of you, who have taken a loan or credit card in the past, may answer this quiz quickly, some of you may still need help. This 3 digit number is your CIBIL TransUnion Score which ranges from 300 to 900. This score is calculated based on your credit history as reflected in your CIBIL report. Today an individual’s CIBIL TransUnion Score is one of the important factors that banks and credit institutions review before granting a loan or a credit card. An individual’s CIBIL TransUnion Score provides a credit institution with an indication on the likelihood of the individual paying his loan or credit card dues on time. Higher the score more favourably the loan application will be viewed by a credit institution. Most banks and credit institutions today lend to individuals, who have a credit score of 750 and above.
Therefore, it is essential to maintain a healthy credit score by following a disciplined credit behavior. Here is a list of 5 harmful credit behaviours that can hamper your CIBIL TransUnion score and derail your financial future:
1. Missing payments on loan installments: Most loan EMIs get auto debited on a set date each month from your linked bank account. Default on the monthly payment will occur if sufficient fund is unavailable in your linked account. Defaulting on loan EMIs is detrimental to your CIBIL TransUnion Score. So ensure you pay your loan EMIs month on month and have adequate funds in your bank account for the loan EMI debit.
2. Delay or default on credit card bill payment: Forgetting to pay your credit card bill on the due date or not paying your credit card bill at all can hamper your credit score drastically. Ensure you set up payment alerts on your credit card bill and make the payments before or by the due date.
3. Settlement on a loan or credit card: Making a settlement on a loan or a credit card is a harmful credit behaviour. If the customer has partly paid the dues and settled a loan or a credit card then the status will reflect as “settled” in the credit report. It is important to understand that though there will be no impact of the “settlement” flag on the customers CIBIL TransUnion Score, his credit history will show a “settled” status in his CIBIL report and there will be days-past-due reflecting on the report since the payment on the loan has not been timely. Each bank has its own policy of viewing at a “settled” status and will decide on the consumers future loan applications accordingly. Therefore it’s best to not ever get into a loan settlement.
4. Exceeding or reaching the limit of your credit card: Spending more than the assigned limit on your credit card or spending close to the limit on the credit card may affect your credit score to some extent. Therefore ensure that you spend well within the limit on your credit card.
5. High credit exposure: The total size of your debt reflects on your credit report and has an impact on your CIBIL score. Having many loans or credit cards increases the total amount of debt you owe and increases your credit exposure. High credit exposure may impact your score. If you have many loans running ensure that you close some of them so that your total credit exposure is reduced, before you apply for new loans.
A disciplined credit behaviour will automatically ensure that your financial future is safeguarded and you are “credit ready” at any point in time.
(Harshala Chandorkar is Senior Vice President-Consumer Services and Communications at CIBIL)
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.
Source: http://goo.gl/5JBMC2