Creditvidya.com | Updated On: February 02, 2015 12:26 (IST) | NDTV Profit
The happiness of buying goodies and spending on parties you might have attended during Christmas and New Year may have come to naught for you, if you are staring a hefty credit card bill right now. While this is definitely not the best way to begin a new calendar year, the damage is already done. If you don’t have the money to repay your dues right away, here’s what you could do.
1. Take stock of the situation
The first and most important step to take is to acknowledge the problem in hand. If you become a defaulter on your repayment on your credit card, it will impact your Cibil score negatively. While making one late payment may not hit you immediately, but if you get into the cycle of late payments it may be difficult for you to get out of it over a longer period of time (ranging over 60-90 days), which will then shave the points off your Cibil score eventually. To ensure that your Cibil score remains intact, you need to handle your credit card debt pronto. There are several ways to do it such as a balance transfer, converting your debt into an EMI or opting for a cheaper loan to repay your debt. Let’s look into these options in greater detail.
2. Balance transfer
This is a facility that banks offer to people who have a large outstanding balance. In this facility you can transfer the outstanding balance from one credit card to another. You could opt for a fixed duration balance transfer (usually a 3-12 month window) within which you can make the repayment at an interest rate that is lower than what you would have paid on your regular credit card. The rate of interest is usually 9-10 per cent (differs from bank to bank). Some banks also offer a “lifetime duration” option to make the repayment, though the interest rate in this case is much higher (in the range of 12-24 per cent, depending upon the bank). In order to get this facility, you will have to pay a processing fee, which will be around 2 per cent of the outstanding amount you wish to transfer. After the bank verifies your details, they will send you the cheque or the demand draft in favour of your existing credit card that you can use to repay the first card.
Although a balance transfer sounds like a great way to handle credit card debt, and other banks will be more than glad to issue yet another credit card to you, you must take cognizance of the fact that it is only postponing your problem instead of solving it. Your attempt should therefore be to use this facility sparingly. Besides, if you get into the habit of frequent balance transfers, you will end up opening a large number of credit lines. A large number of open credit lines may also impact your Cibil score, albeit marginally, in a negative way.
3. Converting outstanding balance to EMI
If you do not want to go through the hassles of balance transfer from one credit card issuer to another you could consider converting your outstanding balance into monthly instalments. Banks may offer a rate of 1.49 per cent to 1.99 per cent per month to their existing customers, but this too may vary from bank to bank. However, the point to be noted here is that if you miss a payment cycle during the EMI repayment, the bank will revert to the regular interest charges and you will find yourself stuck back in the same situation.
4. Opt for cheaper loans
Of all the debts you service, the rate of interest you pay on your credit card is the highest at 36-42 per cent per annum if it is not serviced on time, so it makes sense to opt for a cheaper loan to repay this high cost debt as soon as you can. You could therefore consider a personal loan for a period of three years if you are in a position to service it. The interest rate you would pay for it would be in the range of 16-24 per cent.
You could also opt for security backed loans such as a top up loan on your home loan or a gold loan. If you have a good track record in servicing your home loan, you will be eligible for a top up loan which is available at an interest rate of 12 per cent. Similarly, if you have some gold jewelry stashed away in a locker, you could use it to get a gold loan at an interest rate 13-15 per cent.
If you have other investments such as a fixed deposit, you may also opt for a loan against it. Such loans are available at a rate of interest that is one percent higher than what is offered on the investment itself. For instance, if you are earning a rate of interest of 9 per cent on your fixed feposit, a loan against it will be available at a rate of 10 per cent. Loans against other investments such as traditional life insurance policies, mutual funds, etc. are also available at similar rates. If you have accumulated a large debt pile, you can also think about liquidating some assets to pay off your credit card debt.
5. Negotiate for a lower rate of interest
If you feel that none of the above options are feasible for you could pay a visit to the bank and explain your financial situation to them. If you can convince them about your willingness and intention of repaying, chances are, that you can get a low interest rate or a flexible repayment schedule depending upon the bank’s policies. However, do consider the feasibility of the other options discussed above, before you think of doing this.
6. Cash is your best friend
Till such time you have paid off your credit card dues, cut down on your expenses and live on cash. It’s a good idea to lock away your credit card till all the debt has been cleared on it. You will need to be patient as you atone for reckless financial behaviour, but this will probably serve as a lesson for a lifetime for you. Once you are in the pink of your financial health once again, you will feel good about your frugality.
A credit card debt pile can indeed be intimidating, so do be careful and responsible while using it in the first place. However, if things have gotten out of hand already, the above mentioned hacks can be used to get things back to normal. Once things are back in order, it is also recommended that you pull out your Cibil report. This is to ensure that your efforts to repay your debt are reflecting on your Cibil report and your Cibil score is in order.
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.
Brijesh Parnami | Posted at: Jan 12 2015 1:20AM | Tribune India
A home loan repayment, as we all know, is a major liability that often takes several years of your earning life. Sometimes, unforeseen circumstances such as a medical emergency in the family or a job layoff may turn out to be a heavy drain on your resources and may offset your calculations of repaying the loan in the scheduled phased manner. For a person who has a 10-year repaying timeline, a sudden layoff and downturn in the industry, may mean he or she may find it difficult to keep making the same repayment every month. Refinancing to a lower mortgage interest or a facility that enables you restructure your monthly instalments can come to your rescue in such situations.
It can also be to your advantage to refinance to a lower mortgage interest rate even when you are managing your finances well. This can enable you to invest in another lucrative venture or buy another property by sparing a greater monthly income at your disposal.
Qualifying for a lower interest rate on your home loan will save you money over the long haul. A lower rate of interest can also lower your monthly payments, which may help get you out of a financial bind if unexpected hardship strikes. If you find yourself falling behind in making your mortgage payments, being honest with your bank or financial institution may get you a lower interest rate without you having to refinance a new loan.
Often, in the absence of awareness about the facility of restructuring interest rates or lack of good advisors, people struggle with financial strains and continue to suffer hardships. Some, even default on their payments, or have to sell major assets to make ends meet.
All you need to do is gather your documents and speak to your bank. Most banks are ready to help create more congenial conditions that will allow you to pay back their loans successfully over the long run. As much as you do not desire to default on your payments, your bank too would be keen to ensure that the loan repayment is made smoothly.
Banks are also keen to make you stay with their services, rather than force you out to another lender.
Talk and negotiate with your bank
Speak to your bank executives and inquire about provisions to reduce your interest rate or make other adjustments to your loan terms as a way to decrease your monthly payment. Discuss your financial constraints and explain how you plan to go about the new repayment arrangements. Be prepared before entering into a discussion by making inquiries with other banks about current mortgage rates they are offering to individuals applying for home loans. This will help you be aware of the market rates and give you a negotiating handle.
Provide evidence of financial constraints
Meet your bank executives and provide them information and evidence about the financial problems you are facing lately. In case of a medical emergency, provide your medical bills to make evident the financial drain you are experiencing. Keep your documentation complete and write to the bank formally, if required with the request.
Not just proof of the additional financial burden, also keep ready the evidence of all your payments and expenses you incur every month vis-a-vis your monthly income to make your case. In case you have suffered a layoff or job loss, also provide proof of the same.
Check all options available
You bank may offer more than one restructuring offer after taking into account the problems being faced by you. If your bank is willing to modify the conditions of your loan, seek all details and terms of conditions in writing. Your lender might offer to lower your interest rate temporarily until you regain your financial abilities and catch up with your payments. Ask for all the conditions in writing at the time of negotiation.
Cite your payment history
If the borrower has a good repayment history, banks are more often than not willing to negotiate the terms of repayment when confronted with a financial situation. Cite your positive repayment history and if needed, also indicate to the bank that you might be willing to shift to another lender if the restructuring doesn’t work out here. In most cases, this will be enough to convince the bank to work out an alternative.
Be proactive about checking rates
Keeping yourself informed pays. Even if your finances are going all smooth, you should be proactive in keeping informed about the prevailing interest rates. Many banks continue to discriminate between old and new customers, charging the existing ones a higher rate than that being offered to new borrowers. If you are being charged a higher rate, ask your bank to convert it to the rate applicable to new borrowers. With the RBI abolishing the prepayment charges that were levied by banks, institutions or NBFCs, switching from one bank to another is not at all costlier now. It has boosted the spirit of the borrowers for going ahead with the negotiation discussion with their existing lenders.
The author is CEO, Destimoney Advisors. The views expressed in this article are his own
Source : http://goo.gl/8ZTetx
Rishi Mehra, Co- Founder, deal4loans.com | Nov 4, 2014, 05:44PM IST | MagicBricks.com
The Indian loan market has been given a boost owing to faster processing, rebate on income tax and flexibility of repayment.
The domestic loan market is expected to touch Rs 21,980.6 billion by 2016 at a CAGR of 18.7 per cent. Among loans, home loan holds the largest share in the market. According to a research by TechSci, home loan had a market share of 46.1 per cent in the Indian loan market in 2010. Declining rates, flexible repayment options and a spurt in housing schemes is seen as a catalyst for the growth.
A typical home loan runs for an average 15-20 years and it is advisable to continue monitoring the loan account and scout for better offers from other banks and not sit idle. A customer does not need to stick to the original bank and keep repaying the loan at the original rate. One can always switch and take advantage of lower loan rates and processing fees and no one can stop the customer from doing so.
Usually, an existing borrower is not eligible for a lower loan rate until he is about two years into the tenure. Though the Reserve Bank ofIndia has been insisting on lower interest rate benefits to be passed on to all existing borrowers, it is a rare occurrence. Customers, in such a scenario, can re-negotiate loan rates and if the bank is not agreeable, they can consider transferringthe balance loan to another bank.
Some case scenarios to be considered while deciding to switch your home loans:
Difference between current rate charged by the bank and available rates from other banks
If there is a difference of equal or more than 0.5 per cent in the existing rates to new rates one should go ahead and switch the home loan. If you switch your home loan from 10.50 to 10 per cent for a loan amount of Rs 50 lakh and a loan duration of 20 years, the savings will add up to Rs 4,00,298 for that period. For such savings one shouldn’t think twice, as there are no pre-payment charges at any bank or housing finance companies.
The new processing fee
One should switch to a new bank with lower processing fee as well.Processing fee is a one-time cost and eats into switching home loan savings, so try to get the bank with low charges and low processing fee.
Need top up amount on home loan
At times some customers need top-up loan and there are banks who offer top-up at the same home loan rate. So, one can switch when he is getting a new lender at a lower rate and is willing to top up your loan.
Talk to your existing bank and show the new offer
A customer should always talk to his existing bank and show him the new offer.If in such a case the existing bank agrees to reduce the rate and match the offer, one shouldn’t switch the home loan. But in case the existing bank can’t match the new offer, then it is advisable to go for the switch.
A home loan is usually for a period of 15-20 years and during such a long period one should be aware of offers from other banks and switch whenever it makes sense monetarily. The right re-finance option will depend on a person’s needs and the current financial situation. With the right re-finance rate quotes, one can really shift their payments so they can make their life easier.
Source : http://goo.gl/RG8sG3
While job security cannot be guaranteed today, a skilled or experienced worker can find another one before long. However, the interim period can be difficult if one does not plan one’s finances well.
“Having an emergency fund that can take care of at least three to six months’ expenses can be of enormous help,” says Suresh Sadagopan, a Mumbai-based certified financial planner. If you have an emergency fund, you won’t have to worry about money matters and can focus on hunting for a new job. However, if you don’t, what should you do? The following steps can help you manage your household till you find a new job.
Plan a new budget
Drafting a new budget is the first step and it entails cutting down the lifestyle expenses. A monthly budget has two components: fixed expenses such as rent, and variable expenses. The former include compulsory expenses, such as groceries, electricity bills, mobile bills and other utilities that you cannot avoid, whereas the lifestyle expenses would be weekend movies at multiplexes or restaurant dinners. “The first expenses to let go off during the unemployment period are these discretionary expenses,” says Kiran Telang, a financial planner.
Take independent health insurance
It is likely that your employer offered you and your family a medical cover. However, when you lose your job, you let go of the health insurance as well. This is the reason that most financial planners insist on employees buying an independent cover besides the group cover from the employer.
Medical emergencies can happen any time and paying medical bills while out of job can be excruciating. “Getting health insurance is of paramount importance. The cover should be at least `5 lakh,” says Sadagopan. Financial advisers suggest that you buy a separate family floater policy. The average premium for a family of four is usually around `12,000 per annum. You can port your group health insurance policy to individual health insurance by the same insurer. Check with your former employer’s insurer if this is possible.
“If your life or medical insurance premiums are due during the unemployment period, you must service them, even if it’s difficult to do so,” adds Telang.
Prioritise debt repayment
Most households have debts, such as a home loan, personal loan, and credit card bills. Make sure that you pay your EMIs, especially for the home loan. If you are finding it difficult to pay the instalment, request your lender to restructure the debt.
You can also ask for deferment of loan payment. If you have been a good borrower, chances are that the lender will oblige. Switching the loan to another lender who offers lower interest rate on the loan is also an option you can explore.
Credit card debt can prove very expensive if ignored, so pay at least the minimum amount due. You can also apply for a balance transfer to another bank’s credit card, which will reduce the minimum due amount. “If you have skill sets that can enable you to get a job within 3-4 months, you don’t need to aggressively look into restructuring debts. But if you are working in a lull sector and the overall job market is not looking good, it makes sense to restructure debts as soon as possible,” says Telang.
Tap into your portfolio
Even as you look for a job, you will need to tap into your investments. “Check your portfolio and take funds keeping your asset allocation in mind,” says Sadagopan. For instance, if you have a higher asset allocation in equities, you could sell a portion to meet your immediate needs and, in the process, balance your portfolio.
WAYS TO TACKLE LOAN INSTALLMENTS
The lender will increase the tenure of your loan, reducing the EMI.
You will have to convince your lender to give you a better deal in terms of interest rates.
Inform your lender that you won’t be able to pay the EMIs for some time, but assure repayment after the said period.
Switch the loan to a lender who offers a lower interest rate.
Source : http://goo.gl/OQ3nFq
By Preeti Kulkarni | ET Bureau | 2 Oct, 2013, 04.00AM IST
Guide to home loan borrowers, struggling with rising interests on loans amidst a financial crisis, to manage additional strain on their finances.
After the unexpected policy rate hike on September 20 by the Reserve Bank of India (RBI), many banks are contemplating an increase in their lending rates. If they decide to hike their base rates, home loan borrowers may have to deal with a ballooning EMI once again within a short span of time.
Several lenders, including the State Bank of India, ICICI Bank, HDFC and Axis Bank, had raised rates by 10-25 basis points during the last month. If you are one of those borrowers saddled with an unmanageable EMI, you need to consider taking some of these measures to deal with the challenging situation.
The elimination of prepayment penalty on floating rate loans has made it easier for borrowers to switch lenders. If you can secure a lower rate from another lender, you should consider switching your loan. “Customers should connect with their current lenders and seek reduction in rates on their loans. In case the negotiations fail, they should think of refinancing,” says Vipul Patel, director with mortgage consultancy firm, Home Loan Advisors.
“Only when customers begin switching proactively, will the lenders be forced to treat existing and new borrowers fairly.” You can save around Rs 2,000 per month on a Rs 50-lakh loan (with a balance tenure of 17 years) if your new lender’s rate is lower by just 25 basis points.
Another option is to go for the conversion facility. Banks allow you to switch to the current rate (which is always lower in order to attract new borrowers) in return for a one-time charge of 0.5-1% of the outstanding loan amount. It saves you the trouble of going through the documentation process all over again.
However, you need to do a cost-benefit analysis before making a choice between switching and conversion. “The conversion option may work for smaller loans in the under-30-lakh segment. But for higher loan amounts, it would be commercially wise to switch to another lender as processing fees are generally capped by most banks at Rs 10,000, or 0.25%, for balance transfers,” explains Patel.
Ask for a Repayment Holiday
If you are facing a financial crisis or staring at the likelihood of job loss, you should consider this option.
“A number of borrowers, who are approaching us these days, are struggling to service their EMIs after losing their jobs. In such cases, you have to discuss the matter with your lenders and apprise them of your financial situation. If the bank is convinced about the genuineness of your problem, it might grant you an EMI holiday for a short period or till the time you get another job,” advises VN Kulkarni, chief credit counsellor with the Bank of India-backed Abhay Credit Counselling Centre. However, remember, granting such relief is entirely at the bank’s discretion as unlike corporate debt, there is no standard framework in place to restructure distressed individual loans.
Make a Part-prepayment
If you are sitting on huge cash surplus, you can consider this option. Part-prepayment brings down the loan amount and interest outgo. You can save a lot of money on interest, if the loan is relatively new. If you are a floating-rate borrower, you don’t have to pay any prepayment penalty as it has been abolished by the Reserve Bank of India a year ago.
“Many people hold investments that earn, say 10%, while their home loan interest rate is 11%. In such cases, they can look at liquidating those investments and use the funds for part prepayment. Unless, of course, they are meant for certain financial goals. In which case, they should not be touched. Reduction in loan amount, and hence EMIs, will ease your monthly cash flows,” says Harshvardhan Roongta, certified financial planner, Roongta Securities.
Source : http://goo.gl/oymzlQ
Investment Yogi | Hyderabad September 13, 2013 Last Updated at 08:46 IST | Business Standard
On the basis of good repayment track record, individuals can also discuss and re – negotiate with their current lender for better interest rates
If you are not happy with your existing Home Loan, then there is a ray of hope for you. Now you can transfer your loan to another bank. Loan Transfer or Refinancing of loan is an easy option through which most of the people nowadays are opting to take the benefit of lower interest rates prevailing in the market.
Existing Loan borrowers are the class of people who are repaying a loan for the past two or three years and upon whom banks do not get pass on the advantage of decreasing loan rates. However, on the basis of good repayment track record, individuals can also discuss and re – negotiate with their current lender for better interest rates.
Reasons for transferring Home loan apart from savings on interest
Not just the reduction in interest rates, there are several more reasons due to which one would want to change his current lender. Few of the reasons are stated below:
In case, you need to renegotiate on some terms and conditions with existing bank. For Example: you want to increase the tenure of your loan and decrease the amount of your EMI but your bank has not agreed to that.
Loan Top – up: May be the value of property has climbed much higher in comparison to its original value. Based on this, you might want to top – up your loan to meet further requirements like renovation of home. But the lender might not be open to these.
Sometimes, you are just not happy with the services & accessibilities of the bank and wish to transfer the loan.
Process of Home Loan transfer
The process of transferring of home loan is very simple and it is completed in a few steps. Firstly, you need to submit an application to your current lender requesting to transfer your current home loan to the other bank. On the basis of your request, the bank will provide you a consent letter or NOC and also statement mentioning your all outstanding amount. Then you need to submit these documents to the bank where you want to transfer the loan.
Afterwards, your new lender sanctions the loan amount to the old lender for the closure of your account. Once all the transactions are over, your property papers will be handed over to the new lender and remaining postdated cheques or ECS will be cancelled. The home loan switch is beneficial because the bank in which such loan is transferred offers you a lower rate of interest.
The Bank you are moving on will treat your home loan as fresh and you have to follow all the procedures again. It will include your credit appraisals, legal verification of your property credentials and also the technical evaluation by the new bank, etc.
On transferring to your account, you need to pay some processing fees to your new lender which ranges somewhere between 0.5% and 1.5% of the loan amount.
Things to consider before transferring your Loan
Banks and other financial companies are struggling hard to expand their business by offering lower rates of interest to new customers. Now, as a borrower, it is your duty to check all the facts thoroughly before transferring your loan.
Here are few points you must take into account.
• One should always check the timing of loan switch to new bank: Always try to switch the loan in the early tenure of loan. It is not advisable to transfer your loan after 2 – 3 years of loan payment. As you have already repaid most of the interest amount and in the process of transfer, you will shell out more amount as fees.
• Always study processing fees & other charges: One should always consider the processing fees, legal charges, valuation fees, stamp duty and other charges which a new bank is going to charge. Then accordingly compare it with the benefit of reduced interest rate.
• Check the Teaser loan Terms and Conditions: Of late, the home loan transfer has been most essential when the teaser loan scheme hits the market. One should always keep in mind that the teaser rate is for a limited time frame and will adjust after that time.
• Take Documents in Time: Always take statements from current lender that documents of property will transfer to a new lender within a stipulated time frame. It will lead to hassle free transfer of the loan.
Do remember that loan transfer is only possible when you are regular in loan repayments to your current bank. At last, one should not always be attracted to interest rate which is lower than existing ones. After all, banks are dealing with lending and why would they give loan at lower rates when they are earning higher margin from other customers. So, it is good to be doubtful and always ask questions regarding all aspects before switching from an existing lender.
Girija Gadre and Arti Bhargava | Aug 5, 2013, 08.00AM IST | Economic Times
Home loan borrowers can avail of the facility to switch to a lower interest rate by opting for conversion or change of spread for the existing loan. By changing the interest spread on the loan, one can get the lower interest rate being provided to new borrowers. The borrower needs to choose between the options of increasing the EMI or the tenure of loan.
Request letter: Once the choice is made, a conversion request letter needs to be submitted in person to the nearest branch. The bank may also ask for a promissory note to be issued in its favour for payment of the balance at the new interest rate.
Conversion fee: Banks levy a conversion fee, which is usually in the range of 0.25-1% of the loan amount. This has to be paid through a cheque issued at the time of submitting the documents.
Bank scrutiny: Once the documents are submitted, the bank scrutinises them and, if satisfied, converts the loan to one with lower interest rate. A letter confirming the conversion, along with the revised terms and conditions, is sent to the borrower.
Fresh cheque: If the borrower has chosen to increase the monthly instalment and the mode of payment is post-dated cheques, fresh EMI cheques will have to be submitted.
Points to note
> The conversion application has to be signed by all the loan applicants.
> Some home loan institutions also offer the facility of initiating the conversion process online, subject to the submission of signed documents at their office.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre and Arti Bhargava.
Source : http://goo.gl/8JXzcP
By Preeti Kulkarni, ET Bureau | 20 Jun, 2013, 04.00AM IST| Economic Times|
Home loan customers have been watching the Reserve Bank of India’s (RBI) policy reviews very closely for some time. Every quarter when the central bank is ready to review its key policy rates, those paying 11-13% interest on their home loan would ask expectedly: Will RBI cut rates this time? Will banks cut rates on home loans? This Monday was no different, and RBI’s decision to hold rates once again disappointed many. However, after the policy review, many of them are looking at ways to ease their interest rate burden as it looks highly unlikely that the banking regulator would cut rates in a hurry. And at the moment, say experts, they don’t have much option other than proactively scouting for better deals in the market and switch to a lender who will offer a lower rate.
“Those who are currently paying an interest rate of 12-13% should certainly keep an eye on lenders offering a cheaper rate. In fact, even a difference of 50 basis points can result in savings of Rs 1,700-2,500 per month, as the average ticket size for home loan in Mumbai would be more than Rs 50 lakh,” says Rajiv Raj, co-founder and director of creditvidya. com, a credit counselling firm. Check the rates offered by various banks and compare the rate with the interest you are paying now to get a better picture.
“If borrowers are currently paying anywhere close 10.75-11%, they can consider moving to lenders who are charging 10.15-10.25% at present,” adds Vipul Patel, director with loan consultancy firm Home Loan Advisors.
“A reduction of 50 bps can knock off 6-10 EMIs from your repayment schedule, depending on your tenure and rate. This is bound to translate into substantial savings.”
Remember that since you don’t have to pay any pre-payment penalty anymore on floating rate loans, the only additional cost you would incur on transferring your loan would mainly be the processing fee. Even here, you can negotiate with the new lender and ask for a waiver, or at least, concessional charges.
“If your credit score is over 750, which is considered desirable, lenders are usually willing to accommodate your requests and offer better deals,” adds Raj. However, before taking a final decision on the new lender take a close look at his (as well as your current bank’s) track record in reducing rates in tandem with RBI.
“Even when the central bank has reduced policy rates in the past, many banks didn’t pass on the benefit of lower rates to their existing borrowers. This is probably the only sector where existing customers are given a raw deal when compared to newer customers.
In fact, they should be given loyalty rewards in the form of lower interest rates. Yet, banks continue with the discriminatory practice of wooing newer customers with lower rates, while keeping the rates for their existing borrowers unchanged,” says Harshvardhan Roongta, CEO, Roongta Securities. However, these banks have been very proactive when it comes to raising rates for the existing borrowers.
If you have noticed that your current bank, like many others, follows this pattern, you have to find an immediate way out. However, if you find the new bank you are going to shift to also follows a similar path, you need to rethink your decision. Before making the switch, however, attempt to negotiate with your current lender.
“There have been several instances where the banks have agreed to re-price the loan when the borrowers expressed their intention to shift to another lender. They could levy a ‘conversion’ fee of 0.5-1% of the loan amount for re-pricing the loan. In case the difference between the new rates offered by your existing lender and the new lender is not huge, you could consider opting for the conversion route. It will help you avoid the paperwork involved in entering into a new home loan contract,” suggests Raj.
Also, while choosing between balance transfer and conversion, do take into account charges like stamp duty, inspection and valuation fees that your new lender might levy.
Source : http://goo.gl/eSF0b
To switch to per lac EMI as low as Rs.962 (9.95%-240M) call+919322286765 now…
By Sanjeev Sinha, ECONOMICTIMES.COM | 17 May, 2013, 02.58PM IST9 comments |Post a Comment
Before opting for a loan, it is advisable to assess impact of taking a loan & subsequent EMI payments on the monthly cash out flows.
Buying a home is an important personal finance decision for every individual, particularly in view of the fact that a home is usually the biggest investment in one’s lifetime. And like anywhere else in the world, home loan or mortgage products have only made it easier for average salaried Indians to own a home they can call their own. One should, however, not forget the long-term liability that needs to be serviced and it would only help to keep some of the following things in mind when taking a home loan:
1. Impact of loan on your personal finance
Before opting for a home loan, it is always advisable to assess the impact of taking a loan and the subsequent EMI payments on the monthly cash out flows. It is a prescribed personal finance practice to get a new monthly budget in place which accommodates the new cash out flow in the form of EMI payments.
“The impact should be analyzed on the monthly available surplus and subsequent savings being done towards achieving other goals. This helps in determining the comfortable EMI payments one can make and respective loan amount one can opt for,” says Nitin B Vyakaranam, founder & CEO of financial planning portal Artha Yantra.
In other words, what you can afford should be determined by your ability to service the re-payments of the liability you undertake with a home loan. This would be governed by the loan amount and the interest rate applicable on your home loan. “You also need to remember that taking a loan with a view of selling the house a few years down the line at a higher price to help you settle your liability may not always work, especially if the property prices start moving downwards or even if they remain static – as we have seen over the last couple of years the world over,” observes Anil Sahgal, director, MAGI Research and Consultants, and co-founder of personal finance consulting portal ‘i-save’.
Therefore, it makes sense to access your affordability and the loan’s impact on your personal finance before opting for a home loan.
2. Know your maximum loan eligibility
As per the current market norms, banks can lend up to 60 times the monthly net salary of an individual. However, while assessing the income criteria, they do not consider some of the salary slip heads for calculating the net monthly income. They only consider the income heads which can be used to repay your loan.
“For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed,” informs Vyakaranam.
3. Check your CIBIL score
The home loan eligibility depends on credit worthiness of the individual. Credit Information Bureau India Ltd (CIBIL) provides a credit score on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any check bounces, existing loans, uninsured existing loans, loan repayments, how many times you have applied for loan or a credit card. Individuals with a CIBIL score greater than 700 are more likely to get a home loan. All the home loan lenders approach CIBIL for this score whenever you apply for a credit card or any sort of loan.
“Paying the processing fee to know the maximum limit at more than 3 or 4 banks is one of the common mistakes committed by many people. The more times you apply for loan, CIBIL considers it as being credit hungry. So the chances of getting a loan are minimized. CIBIL rating, net salary excluding some variable heads and existing loans and EMIs being paid towards existing loans are the vital components which decide the repayment capacity of the applicant,” says Vyakaranam.
What you can afford will also be reviewed by the bank that is providing you the loan. This would depend on your past and current financial position and ability to service the loan in the future i.e. ability to pay back the loan with applicable interest.
“In case you want a loan amount higher than what you are being offered as an individual, you may want to have your spouse or parents as co-applicants. This helps you increase the overall limit that the bank can offer since there is more than one person sharing the repayment of loan and the combined limit will obviously be higher. Needless to say, this can only work if the co-applicants have an independent source of income,” says Sahgal.
Having co-applicants can also make sense from a taxation perspective with each applicant being able to avail the tax benefit available on interest payment of an EMI.
Once again, keeping in mind how much you can afford to pay each month, try and keep the duration of the loan as low as possible. With a lower duration of loan, the EMI may be higher but what you would pay as interest over the term of your loan would be substantially lower. If you can’t afford the higher EMI and have to necessarily take a higher duration loan, it would help to try and manage your savings in a way that help you pre-pay the loan with intermediate payments in the initial years itself so as to reduce your overall interest burden.
6. Type of interest rate
The type of interest rate you choose has an impact on the monthly EMIs you pay. It is important that you know the difference between fixed rate home loan and floating rate home loan. For instance, if you opt for fixed rate home loan, the EMIs don’t vary over the loan tenure. So it is beneficial when the interest rates are expected to rise in the near future. In case of floating rate home loan, interest rate is determined based on the prevailing base rates, plus a floating rate. The EMIs vary based on the movement of base rates. It is beneficial when interest rates are expected to fall in near future.
But the choice on this one is not really easy. Fixed interest rate products are usually 1-3% higher than floating interest rate products, but bring a certain level of certainty to your financial planning since you are more or less certain of your monthly outgo. On the other hand, floating interest rate products, though cheaper, are linked to a base rate or benchmark rate and can go up or down with a change in the base rate.
“It would, therefore, make sense to go in for a fixed rate product only if you think the interest rates in the economy are bound to go up over the next few years. Even in this case, if the spread between the fixed and floating rates is fairly high, floating rate options continue to be better. For e.g. if the rate on fixed and floating rate products is 12.5% and 10%, respectively, then as long as the increase in base rates is lower than 2.5%, floating rate products continue to be cheaper,” says Sahgal.
You may also want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which in any case will defeat any assumption of certainty that you may want to build into your financial planning.
You should also remember that different banks offer different interest rates on home loans. Therefore, you must negotiate with them to get the best possible rate.
7. Pre-payment and foreclosure charges
One of the important features that you should consider in your home loan product is the availability of pre-payment facility. While some banks may not allow you to prepay your loans, others could be providing you the facility to prepay a certain percentage of your principal amount every year with or without a penalty charge.
“It would be worth your while to compare this feature across the product options you are evaluating since this flexibility can help you reduce your interest burden if you can manage to close your loan earlier,” says Sahgal.
8. Read the documents carefully before you sign
Don’t let the bunch of home loan documents bog you down and just sign on the dotted lines. Check the documents to ensure that the terms are same as what you negotiated and agreed upon. Read the documents carefully and know the different charges applicable. Importantly, know the processing fee, late payment fee and any charges that are applicable for pre paying the loan.
9. Take cover
Given the long-term nature of the liability, it also makes sense to protect yourself and your family from any unforeseen circumstances. In this case you can consider a life insurance plan.
“A life insurance plan that covers the re-payment of loan in the event of an unfortunate death of the borrower can at least help the family retain their home,” says Anil Sahgal.
10. Loan transfers
Having taken a loan, you may at some stage be tempted to transfer your loan to another bank or lending institution which is offering you a lower interest rate than you currently have. While taking this decision do make sure that you factor in any foreclosure costs associated with your existing loans (charges linked with an early closure of your loan). The bank you are transferring your loan to may also be charging you a processing fees. Do take these costs into account and ensure that the savings you make on lower interest rate are higher than the costs associated with the loan transfer.
11. Implications of delayed payments
Delayed or missed payments can impact you not only financially but can also affect your credit history. On the one hand, you may have to pay a penalty or fees associated with delayed or missed payments, while on the other your credit history will reflect these missed or delayed payments.
You should, therefore, always try to clear your EMIs in time because once you are declared a defaulter or your credit history turns bad, then it will become very difficult for you to take a home loan again from another bank or housing finance company. It will also become very difficult for you to transfer your loan to another bank or lending institution which is offering you a lower interest rate. Not only this, you also won’t be able to take even a personal loan in your entire life. Therefore, it is better to be safe than sorry.
Amit Shanbaug, ET Bureau Feb 18, 2013, 08.00AM IST
Thirty seven-year-old Sunil Nadkarni is facing a dilemma common to many a home loan borrower. He is wondering whether to prepay and save interest on the home loan or keep the money for a rainy day.
The urge to prepay at least a part of the principal is strong. In 2006, the Mumbai-based banking executive was paying an EMI of Rs 6,134 at an interest rate of 7.5%.
With the rate jumping to 12%, Nadkarni’s monthly mortgage payment has shot up to Rs 8,400, and his loan tenure is now 45 years from the initial 25.
At the same time, he is worried about the liquidity crunch he might face should any contingencies crop up soon after deploying his funds. Perhaps he doesn’t really have to make a choice. For all those wanting to have their cake and eat it too, banks offer a product called home saver loan.
What’s a home saver loan?
This facility allows the borrower to deposit his excess savings in a current account linked to his home loan account. While calculating the interest component, the bank deducts the balance in the current account from the borrower’s outstanding principal.
Typically, the average monthly balance in the account is considered for this purpose. Meanwhile, the money can be easily withdrawn in case of an emergency. The only drawback is that banks charge about 0.5-1% more than the rate on regular home loans. At present, this facility is being offered by leading players like the IDBI Bank, Citibank, SBI, Standard Chartered Bank and HSBC.
How does it work?
Assume that you need a home loan of Rs 25 lakh. At an interest rate of 10.5% for a 20-year tenure, the EMI for the plain vanilla home loan works out to Rs 24,959.
In the first month, the interest portion is Rs 21,875, while the balance, Rs 3,084, goes towards principal repayment, leaving Rs 24.96 lakh as the outstanding loan.
The second month’s interest will be calculated on this amount, and so on for the next 238 months.
On the other hand, if you were to opt for a home saver loan, the higher interest rate of 11% would initially translate to an EMI of Rs 25,805.
Now, suppose you receive Rs 5 lakh as your annual bonus, which you deposit in the linked current account.
In this case, your interest obligation would be calculated on just Rs 20 lakh. Not only does your loan tenure come down to 136 months (a little over eight-and-a-half years), you also save Rs 19.69 lakh on interest (see table).
What are the benefits?
The money in the linked current account not only helps reduce your interest burden, while remaining easily accessible, but is also safe from the taxman. Moreover, though this balance is treated as part payment, the bank does not impose any prepayment penalty for the same. Even if you do not foresee a windfall coming your way, you can choose to avail of this product by simply depositing a recurring amount in your current account, say, a part of your salary, and watch the power of compounding work its magic.
Who can make the most of it?
According to Pankaaj Maalde, head, financial planning, at ApnaPaisa.com, the financial services portal, the home saver loan suits everybody. Since it is advisable to maintain nearly six months’ worth of household expenses as a contingencies corpus, people can park this amount in the linked current account and acquire dual benefit. “The contingency fund could range from Rs 3-10 lakh, especially in households with dependent parents. We also include medical contingencies in this kitty,” says Maalde. Imagine the amount you could shave off your outstanding principal with this corpus parked in a current account linked to a home saver loan account.
What are the disadvantages?
As mentioned earlier, home saver loans are more expensive than regular home loans. Secondly, the deposit in the current account doesn’t generate any interest income. If you were to invest this money in mutual funds or equity, you’d earn much higher returns. So, this option is primarily for those for whom liquidity is a concern. As with any financial product, the rule of thumb is to shop carefully for the best deal since interest rates differ from bank to bank.
But be aware that the eligibility criteria will also vary. For instance, Citibank Home Credit requires a salaried individual to have a minimum gross annual income of Rs 1 lakh and at least two years of work experience to be eligible for this product. However, for Standard Chartered’s home saver loan, the threshold is Rs 2.76 lakh per annum. According to VN Kulkarni, chief counsellor at Abhay Credit Counseling Centre, a borrower must take the time to understand the math for home saver loans and the various charges involved before rushing to buy this product. “Some calculations might be a bit confusing, so don’t be hasty,” he cautions.
Source : http://goo.gl/EbaJ7
Vidyalaxmi, ET Bureau Dec 27, 2012, 05.54AM IST
A rate cut (or a series of cuts if you will) is imminent in the New Year, claim banking experts. And nobody wants it badly than the existing home loan customers. The second half of 2012 saw rate cuts by some banks. During the festive season, most banks and housing finance companies like SBI, HDFC, Bank of Baroda, ICICI Bank, among others, have slashed floating rate home loans in the range of 0.5-1%. This followed the Reserve Bank reducing the cash reserve ratio in its policy review.
However, it was no show for the existing borrowers, as they did not see any reduction in their home loan EMIs or the tenure of the loan. Now, they are waiting for the “imminent rate cut” in the coming year.
However, some of them are also a bit confused: they are not sure whether they should switch to a lower rate or opt for a balance transfer immediately after a policy rate cut by RBI, followed by reduction in home loan rates by banks. Or should one wait for a while to see if there are any further cuts in home loan rates?
This can be really tricky because every time interest rates come down, the old home loan borrowers will continue to pay a higher rate unless the bank lowers the base rate. And it won’t be possible for them to go through the same exercise of transferring or switching loans after every rate cut.
“Wait for the January policy review (already announced on 27th January 2013), as it is widely expected that banks will actually go ahead and reduce the base rate, which will have an impact on their home loan rates too. Once the base rate comes down, then the borrower should try and negotiate further with the existing lenders and try to get the rates at par with the rates quoted to new home loan borrowers,” says Vipul Patel, director, Home Loan Advisors, an independent mortgage consultancy firm.
Even though the Reserve Bank left the key policy rates unchanged in the policy review in December, it reduced the cash reserve ration (the percentage of deposits banks must keep with RBI) in the two earlier policy reviews. Most banks subsequently reduced their floating rate home loans. However, none of the banks lowered the base rate/benchmark rate. That means the existing borrowers continue to pay at least 0.5-2.5% more than prospective or new home loan customers.
“Today there are home loan borrowers who are paying an interest rate of 12.5% on their housing loans and the more recent borrowers are repaying at 10.15%. That’s a difference of 2.35%, which is very huge,” says VN Kulkarni, chief counsellor with the Bank of India-sponsored Abhay Credit Counselling Centre. In monetary terms, the difference between the EMIs paid by the old borrower and the new one would be around 162 per lakh. However, if a borrower is paying anywhere above 1% than the prevailing interestrates, he/she can consider a switch even before the policy review.
“Borrowers who are paying 1.5-2% higher should consider a balance transfer or switching to lower rates at the earliest. Even if the banks lower base rate, it would be around 0.25% and the home loan rates will alsolower by 0.25%. Still, old home loan borrowers will be paying at least 1.25% higher than others,” says Pankaj Mathpal, certified financial planner and managing director, Optima Money Managers.
“Subsequently, even if the bank lowers the home loan rate by 0.25% without tinkering the base rate, this difference works out to 17 per lakh. If the bank lowers the base rate, they will pay at par with new borrowers.”
An existing home loan borrower has the option of either switching to a lower rate within the same bank by paying 0.5-1% of the outstanding loan amount as one-time switching charges. Secondly, they can opt for balance transfer by shifting to another bank. This can also be considered a cost-effective option with the abolition of prepayment penalty.
However, this process has additional costs since it will involve documentation like a new home loan process. “If a borrower has taken a housing loan of 50 lakh, the legal and valuation charges, stamp duty processing fee etc should cost around 15,000-20,000. The borrower should get the exact cost break-up with the new lender before making the decision,” says Harsh Roongta, CEO, Apnapaisa.com. However, with the abolition of prepayment penalty, a borrower can consider this process if the one-time switching charge is more expensive than these charges.
TNN | Jan 6, 2013, 07.14AM IST
MUMBAI: State Bank of India has reduced processing charges on auto loans to a flat Rs 500 irrespective of the size of the loan. The bank has also decided to continue with its festival offer of lower processing fees on home loans, which was to end in December 2012.
On car loans SBI was earlier charging 0.5% processing fee. The fees were halved during a festival offer in October to 0.255%, which meant Rs 2,550 on a Rs 10 lakh car loans. “Now the charges will be Rs 500 flat irrespective of the size of the loan” said a bank official. He added that the charges were reduced in keeping with aggressive promotions by other lenders.
SBI’s car loans at 10.5% are the cheapest in the industry. It also offers loans of the longest tenure up to 7 years. However, one key difference between SBI and other private lenders is that SBI’s auto loans are on floating rate and will move along with the bank’s base rate. The loans can be pre-paid at anytime without attracting any penalty. SBI’s home loans are available at 10% up to Rs 30 lakh and at 10.15% for loans above Rs 30 lakh. The processing fees vary from Rs 1,000-5,000 depending on the size of the loan and Rs 1,000 for take over of loans from other lenders.
HDFC Bank had announced a 50-75 basis points reduction in its auto loans with effective from January 1, 2013. Following this, the bank’s auto loans are available in the range of 10.75% to 11.5%. HDFC Bank offers only fixed rate loans and there is a penalty for early closure of the loan. The third-quarter is the busiest quarter when it comes to auto loans because of the new year models that come into the market. Also, many buyers chose to make their purchase at the tail end of the financial year to get advantage of depreciation benefits.