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Wednesday, 24 August 2016
Taking on a mortgage for 25 years can be daunting but there are ways to get ahead.
Decades of low inflation and a steady economy mean we now have a generation of home loan borrowers who have never experienced double-digit interest rates – much less levels pushing towards 20 per cent.
But just as home buyers in the 1980s could only dream of interest rates below 10 per cent, smart borrowers today would be wise to consider ways to future proof their loans against potential future increases.
Build a Buffer
Chances are, if you’re one of the many borrowers making more than the minimum repayment on your mortgage, you’re already on your way to building a security buffer. Not only are you paying your loan off more quickly, and saving a swag of interest over the life of the loan, you’re building extra equity in your home that could come in handy later.
Let’s say you’ve just taken out a $400,000, 25-year loan at an interest rate of 4.5 per cent. Your monthly repayment would be $2,223, according to our repayment calculator. If you were able to lift your repayments to $2500 a month, you’d not only cut almost five years off your mortgage and save about $55,000 in interest over the life of the loan, you’d be squirrelling away a nest egg of almost $300 a month.
Making weekly or fortnightly payments could also get your mortgage down faster and is a simple change that you shouldn’t feel too much in the pocket.
If some time in the future you couldn’t pay your mortgage – because interest rates had gone up, or because you were taking time off work for a baby or to pursue a personal project – you have, in effect, pre-paid some of your Home Loan India payments. This could put you in a better position to negotiate a repayment “holiday” or reduced repayments for a period of time.
Use Windfalls Wisely
Putting unexpected windfalls into the mortgage can also be a great way to future-proof your loan. If you receive a bonus at work, why not put part or all of it on the mortgage rather than frittering it away. Ditto for inheritances, tax refunds and any other money you don’t normally use to live on.
Take Stock of Your Finances
It’s worth considering where you can find a few extra dollars a week to put into your mortgage too. Do you really need two skinny lattes a day when you’re working, or could you survive on one? Are you getting the best deal on costs such as electricity, home and contents insurance and your mobile phone?
Doing a stock take of where you’re spending your money, and where you could spend it better, is a great way to free up extra cash for the mortgage.
Getting a fixed interest rate on part or your entire loan can also help protect you against future rate rises by providing time and certainty to plan and get your budget in order. But remember, with fixed rates you can’t make additional repayments so it’s best to get an expert to help you work out what’s best for you.
Consolidate Your Debts
Another strategy to consider is consolidating your debts into your home loan. While it may sound counter-intuitive to be increasing your mortgage, repaying all your debts at the lower mortgage rate could help you reduce them more quickly than paying expensive interest rates on things such as credit cards.
The key to success here is paying off those debts as quickly as possible by maintaining or increasing your total repayments. Things can quickly go pear shaped if you go on a spending splurge or pay only the minimum amount so that you’re stringing those other borrowings out over 25 years.
What steps have you taken to ensure you’ve future proofed your home loan? Tell us about it in the comments below.
Tuesday, 23 August 2016
Monday, 22 August 2016
Saturday, 20 August 2016
You take a home loan for buying a house or a flat, renovation, extension and repairs to your existing house. Your bank assesses your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, and other factors like spouse’s income, assets, liabilities, stability of income etc.
The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.
Documents required for a loan approval are as follows
- · All legal documents of the house being bought
- · Identity and Residence Proof
- · Latest salary slip (authenticated by the employer and self-attested for employees) and Form 16 (for business persons/ self-employed) and last 6 months bank statements / Balance Sheet, as applicable.
- · Completed application form along with your photograph.
- · Please read the fine print of the bank’s scheme carefully and seek clarifications.
Loan options by bank
Banks generally offer either of the following loan options: Floating Rate Home Loans and Fixed Rate Home Loans. For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. The EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall.
Benefits to borrowers from monthly reducing balances method
Borrowers benefit more from a loan that’s calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.
Tenure of loan
The longer the tenure of the loan, the lesser will be your monthly EMI outflow. Shorter tenures mean greater EMI burden, but your loan is repaid faster. If you have a short-term cash flow mismatch, your bank may increase the tenure of the loan, and your EMI burden comes down. But longer tenures mean payment of larger interest towards the loan and make it more expensive.
Security you could have to provide
The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.
Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance.
Tax benefit on the loan
Resident Indians are eligible for certain tax benefits on both principal and interest components of a loan under the Income Tax Act, 1961. Under the current laws, you are entitled to an income tax rebate for interest repayment up to Rs. 1,50,000 /- per annum. Moreover, you can get added tax benefits under Section 80 C on repayment of principal amount up to Rs. 1,00,000 /- per annum.
If you have a complaint against only scheduled bank on any of the above grounds, you can lodge a complaint with the bank concerned in writing in a specific complaint register provided at the branches as per the recommendation of the Goiporia Committee or on a sheet of paper. Ask for a receipt of your complaint. The details of the official receiving your complaint may be specifically sought. If the bank fails to respond within 30 days, you can lodge a complaint with the Banking Ombudsman. (Please note that complaints pending in any other judicial forum will not be entertained by the Banking Ombudsman). No fee is levied by the office of the Banking Ombudsman for resolving the customer’s complaint. A unique complaint identification number will be given to you for tracking purpose. (A list of the Banking Ombudsmen along with their contact details is provided on the RBI website).
Complaints are to be addressed to the Banking Ombudsman within whose jurisdiction the branch or office of the bank complained against is located. Complaints can be lodged simply by writing on a plain paper or online at www.bankingombudsman.rbi.org.in or by sending an email to the Banking Ombudsman. Complaint forms are available at all bank branches also.
Complaint can also be lodged by your authorized representative (other than a lawyer) or by a consumer association / forum acting on your behalf. If you are not happy with the decision of the Banking Ombudsman, you can appeal to the Appellate Authority in the Reserve Bank of India.
Thursday, 18 August 2016
Tuesday, 16 August 2016
Owning your dream place in this modern era seems quite tough. The rapidly rising price of real estate has caused a lot of worry to all those people who were longing to buy their dream home. If high rates are bothering you, then you need not worry. You can always get a home loan to purchase your dream home. However, you need to be eligible for the home loan. Here we explain the home loan eligibility criteria in India, which is quite similar for all reputed Indian banks.
First and foremost, to be eligible for the home loan india, you will have to be either of the following:
- Salaried Individual
- Self Employed
This clears one thing that you will have to have a regular income source in order to meet the eligibility criteria. This is important because the bank expects the loan to be repaid and if the borrower is an earning person, he or she will somehow manage to repay the loan. In other words, the risk involved in lending money to an earning person is less, and that is why most banks offer loans to people with a steady income.
Now let us discuss the above listed categories in detail.
Salaried Individual - Under this category, you should be a permanent employee of a private or government based company. If it is a private company, the company must be a reputed one. Bank account details and salary slips can be produced in the form of documents. If you fall under this category, you can apply for the home loan. If your spouse falls under this category, the loan can be applied in his/her name.
Professional - Professionals; that is, doctors, engineers, dentists, architects, charted accountants, management consultants, company secretary, cost accountants only are eligible to apply for a home loan.
Self Employed - If you are running a business or if you have a different source of income, and if you have been regular in filling your income tax, you can apply.
Now that you are aware of the qualifying categories, let us discuss some other factors that determine your home loan eligibility.
Income - How much you rake in each month determines the amount of loan you are eligible for. Indian banks usually keep the EMI to income ratio between 50 and 60 percent.
Age - The applicant should be at least 24 years of age at the time of loan commencement and up to the age of 60 years or superannuation (up to 65 years or less in case of professionals and self-employed individuals) at the time of loan maturity.
Interest Rates - Loan eligibility is inversely proportional to the interest rate. If your applicable interest rate is low, your loan eligibility will be high and vice-versa.
Loan Tenure - The longer your loan tenure, greater the loan amount you would be eligible for.
Existing Loans - As a standard, Indian banks try to keep the EMI to income ratio between 50 and 60 percent. In case you have any existing loans, the eligibility amount for the new loan will be reduced to maintain that EMI to income ratio.
Credit History - Banks also check your credit history from CIBIL (Credit Information Bureau India Ltd.), which is India's first credit information bureau. They have a repository of information containing the credit history of consumer and commercial borrowers. This information is available in the form of credit information reports. To ensure that you meet the home loan eligibility criteria, you can access your own credit report by visiting the CIBIL website.