Switching Loans at the Right Time = Great Savings

Switching Loans at the Right Time = Great Savings

Home-loanA colleague at office approached me one day looking quite upset. Here was a young man, in a well to do job, a lovely family and a brand new home who seemed to be carrying the weight of the world on his shoulders.

Buying a home was all well and good he said, but the financial burden seemed to be taking its toll. He asked for advice on managing his home loan better and we sat down immediately to evaluate his case. It was quite apparent that my colleague had not contemplated switching home loans.

The largest outflow of cash for a household is a home loan EMI. It is a commitment made for a significant amount of time and one that dictates household finances as well.

With interest rate cuts yet to be implemented by the Reserve Bank of India (RBI), this may be a time when you may be considering shifting your home loan to another vendor.

The primary reason to shift your home loan is for a better interest rate that will ensure you savings in the mid and long term.

Like any other major task on hand, it is imperative that you research all the aspects of shifting your loan. Here is a detailed process that you may adopt for the job on hand.

1. Is the time right to move your home loan?

This is the first question that you must ask yourself. Conduct a cost-benefit analysis to help with the decision making. Some points to keep in mind are:

  • The focus must be on reducing the interest payable and a switch may be considered only in the difference in interest rates is 0.75% to 1%.
  • Lower your loan tenure, higher must be the rate cut and vice versa. If you have five or less years on your tenure, the new interest rate must be at least 1%. For a tenure of above a decade, 0.75% should be a starting figure. Anything over 15 years will benefit from rate cuts that are 25 to 50 basis points.

2. Consider an internal switch

If your calculations say that it is a good idea to make a switch, then check with your existing lender if they are willing to move you to a lower interest rate.

Most banks may consider this for a good customer, especially since they don’t want to lose you. The lack of paperwork involved is an added benefit for you.

3. Evaluate the terms and conditions of your new lender

Shifting a loan is not a simple task. Your credit-worthiness will be re-evaluated and your repayment record will be looked into. Even a single default can result in your application being denied. Also keep in mind that:

  • In case of a property being constructed, it has to be on the pre-approved list of the lender.
  • If the construction is not on schedule, the new bank may deny your application.
  • Evaluate the margin requirement (the share of the loan that you pay – 20 to 25%) – if it is high and your loan is a new one, you may end up spending more money to make the switch.
  • Fees involved will include processing fees (which may sometimes be waived), valuation fees, stamp duty and possibly others specific to your new bank

4. Switching your loan

Once you have gone through this part of the evaluation process and have decided to go ahead with the switch, you will need to:

  • Get a no-objection certificate (NOC) from your current bank.
  • Get a schedule of repayment of your outstanding amount.
  • Submit this documentation to your new lender for their evaluation.
  • On approval by the new bank, your outstanding principal will be paid to your current financier.
  • The bank in turn will hand over your property documents to your new lender.

You will now begin paying your home loan to the new vendor with better interest rate. Make the switch only if your calculations show that it worth the change.

 

Takeaways

  • An ideal situation to switch home loans is when the new interest rate is between 0.75% and 1% lower than your current rate.
  • Internal loan switches are a possibility.
  • Your switch will be subject to approval from the new lender. This is based on a complete re-evaluation of you as a credit seeker.
  • Switching loans involves a significant amount of paperwork.
2015: The Year of the Buyer

2015: The Year of the Buyer

Real Estate 20152014 was quite the interesting year for Indian real estate, much like several other sectors. The change in Government brought in the hope of a steady hand at the Centre and this positivity percolated down the ranks to various commercial establishments. New reforms brought in the promise of a better future and the positive sentiment spread among Indian and international investors alike. With all of this characterising the end of the year, 2015 has a great deal for the real estate industry and potential home buyer to look forward to.

A Mid-Range Buyer’s Market All the Way

With the positivity of 2014 spilling over, 2015 will see the tides turning and the sector turning into a buyer’s market. This will be triggered by the positive market sentiment and the expected cuts in interest rates this year. Other things you may expect to see are:

  • Many launches in the mid-end and low-end segments at introductory prices, which will have many takers.
  • Homes with basic, yet quality amenities at a value-based price point being in focus all through 2015.
    Innovation will be the name of the game this year, with builders working on innovative features to gain traction with potential customers, since price escalation is inevitable.
  • While the demand for premium housing will still be there, it may not see any increase.
  • Social media and online marketing will emerge as a strong means of wooing potential customers, thus helping brands reach out to a wide audience.

Suresh Hari, Secretary, CREDAI Bengaluru, speaks on buyer expectations and explains that there is a need for an attractively priced home, considering that there is huge gap between demand and supply. “I see the Smart City concept taking shape, thereby providing newer avenues of investment. I also feel that there is a need for a more user-friendly interface online to help deal with property related issues.”

A Decrease in Interest Rates a Possibility

Ganesh Vasudevan, CEO IndiaProperty.com, says, The drastic increase in the number of enquiries over the past two quarters indicates positive market sentiments amongst buyers.  The increase in the home loan exemption in 2014 was just the first step of the NaMo government towards its promise of providing houses to all by 2022. In the coming year, home buyers may expect more such buyer-centric policies. Project pricing will be the most critical aspect to attract home buyers this coming year.”

Suresh Hari reiterates this point saying that to ensure that the buyer is benefitted, there is need for home loan interest rates to be brought down to 8% or lower.

There is an expectation of tax exemption limits being increased under Section 80C of the Income Tax Act. This in turn will encourage savings and provide an impetus to buying new homes. The possible tax holidays to the making of affordable homes may result in monetary benefits that may be passed down to the end-user.

All this and more is what a potential home buyer may look forward to in 2015. Key areas in Bangalore that are likely to see development:

  • South Bangalore – thanks to better connect with Electronic City through the NICE Road
  • The ORR-Marathahalli-Whitefield area and beyond will be in demand
  • Kengeri
  • Varthur
  • Begur
  • Devanahalli are some of the areas to watch out for.

It would be a good idea to wait a while to see how the implementation of proposed reforms by the government plays out before making a decision to invest. Market sentiments are good and there is no reason to believe that this will not be a good year for realty, despite burgeoning prices of construction materials.

 

Takeaways

  • 2015 will be the year of mid-range housing projects with innovative features.
  • Financial reforms will come into picture, making it a buyer’s market.
  • Online marketing and interactivity will characteristic real estate transactions.
  • Key sectors in South and East Bangalore will be in demand.
Real Estate Ads – Look Beyond the Fluff

Real Estate Ads – Look Beyond the Fluff

Mahesh, a good friend of mine came to me with utter confusion written all over his face one afternoon. He has been looking for a good residential project to invest in and was completely overwhelmed by the number of ads out in the media on homes. Almost everything seemed to promise the sun, moon and stars combined.

As any discerning customer, he knew not to take things on face value, but being able to read through the fluff was proving difficult.

We spent a good while discussing the subject and came to the conclusion that real estate ads tend to claim a set of features that seem too good to be true.

While these claims may be true, it is important that you learn to read through the fluff that is expert ad writing. We narrowed down on a list of words/terms that you may want to look into more deeply when you are evaluating a potential home :

1. Centrally located

Centrally located is a subjective matter as far an individual buyer is concerned. The property may be centrally placed in terms of geographic location in your city, but you will have to look into distances to your work place, school and other important amenities, before this term actually applies to you.

Moreover, centrally located may be understood as a neighbourhood that may be at a good point in the city but it is the location of the property within that neighbourhood that matters. Take for example, Bannerghatta road which stretches for close to 50kms. Centrally located here becomes subjective to where the property is placed on this road and how interior it may be as well.

Another example would be distances mentioned on brochures – Often builders claim to be only a few kilometres from the city centre or important amenities, whereas reality is something quite different. Such false claims may be quite misleading to potential buyers, especially NRIs.

2. Upcoming neighbourhood

There are several new neighbourhoods coming up across Bangalore. You will have to evaluate how new the neighbourhood actually is.

Look around for the development taking place in the area; evaluate utilities available, distances to emergency services and the like. You will also want to know how far you are from entertainment options and the time taken to commute to common places in your daily life.

Upcoming neighbourhood is also often the reason cited for inflated prices on a project. Independently verify property prices in the area and see if you are getting a good deal.

3. Close to Amenities

Common amenities that you need are hospitals, schools, stores that provide you with everyday needs, entertainment options, restaurants and the like. Make a list of amenities that you cannot do without and check to see how far each of these is from the property.

With most things going online today, especially as far as shopping is concerned, you need to know if the area this property is in facilitates Internet connectivity. There are quite a few localities that are not yet conducive to Internet connectivity.

4. Water-front property

Considering the fact that Bangalore does not have coastline, this is a feature that has to be well understood. We have a number of lakes which have properties placed in close vicinity. In fact, there are even a few builders that are making the effort to revive a lake in order to provide their property with this feature.

What you need to look out for is whether the waterfront view will be visible from every apartment or from a select few. Will these have a premium price tag attached to them is also something to consider.

5. Lots of natural light

This is something that you will have to see for yourself. The floor plan and the exteriors of the building will determine to a large extent the amount of natural light coming in.

What you may also want to see is your surroundings. If there is a chance of another high-rise development coming next to this property, your exposure to natural light will reduce.

6. The .5 room

Many builders offer you what is called a 2.5 bedroom home, where you have 2 proper bedrooms and a smaller room that may be used as an office/playroom/gym or the like.

You will want to check the dimensions of this room and its placement to see if it actually may prove useful to what you have in mind for it.

7. Ample parking space

There are a few details of this that need to be made clear – is the parking closed or open and how many vehicles may be accommodated.

You may also want to look into whether there is a possibility for the allotment of an additional parking space if needed. The arrangements for two wheelers will also have to be seen.

These are the primary terms that you must not take at face value. A good amount of research will help you decipher ad talk in a much better way. This will help you make a good decision.

Takeaways

  • Real estate ads must not be taken at face value.
  • Each term in the ad may not give you the exact picture.
  • It is important that you evaluate in each in your own perspective and according to your needs.
Simple Considerations Before Applying for Your Second Home Loan

Simple Considerations Before Applying for Your Second Home Loan

two-white-housesToday was a happy day for a family friend – He and his wife have just been handed the keys to their new home. Having helped them through the process, the mix of happiness and relief on their faces was something I totally understood.

With the house warming ceremony done, we all sat down and were relaxing, when my friend suddenly asked me, “Do you think I will be eligible for a second home loan anytime soon?”  The question did not really surprise me as there are several young couples that are investing in a second home, as early as at 40 years of age.

If you are in the same boat as my friend, perhaps this article will help you plan your second home loan better. There are few factors that you will have to ascertain before you take the plunge:

Today was a happy day for a family friend – He and his wife have just been handed the keys to their new home. Having helped them through the process, the mix of happiness and relief on their faces was something I totally understood.

With the house warming ceremony done, we all sat down and were relaxing, when my friend suddenly asked me, “Do you think I will be eligible for a second home loan anytime soon?”  The question did not really surprise me as there are several young couples that are investing in a second home, as early as at 40 years of age.

If you are in the same boat as my friend, perhaps this article will help you plan your second home loan better. There are few factors that you will have to ascertain before you take the plunge:

1. Can you afford a second home?

The economy is a volatile one and this is the first questions you have to ask yourself. If you are currently paying the EMI on a home loan, a new loan will be an added financial burden. Ask yourself the following:

  1. Do I need a second home?
  2. Will my income over the next couple of years grow to accommodate this additional expense?
  3. Is my job secure?
  4. Will I be able to absorb the effects of taxation laws such as municipal tax and rental yield tax?
  5. Will my returns on this investment balance the financial burden of a second home loan?

2. Are you eligible for a second home loan?

Remember that the terms of a second loan may not be similar to your first. The upfront amount you have to pay will be higher since banks will back you up to 75% of the second home value only. The interest rates will be higher too.

3. What loan amount you will receive?

This will depend entirely on the bank’s discretion which will take your current EMI and your monthly income into consideration.

4. Can you handle the additional taxes?

When you buy a second home, it is assumed that it is not for personal use. Thus taxation laws are applicable.

Once you have your answers to these above questions figured out and are willing to go ahead, note that banks will examine your application for a second loan on the same criteria. There is a tax benefit from your second home loan as well, but this will be based on the calculations of income from this new property. The benefits will be:

  • Since the property is considered to be rented out, you will be allowed the full interest on the second home loan as a tax deduction. You will not have the ceiling limit applicable as with the self-occupied property.
  • With regard to the principal, all your properties together will be eligible for a Rs 1 lakh deduction.

These are the basics of getting a second home loan and are exactly the points of advice I gave my friend as well.

Major Take-Aways

 

  • You can consider applying for a second home loan soon after your first.
  • Question your intentions based on affordability, taxation implications and loan eligibility.
  • Benefit from second home loan taxation laws.
Gift Your Family a Secure Future with Home Loan Insurance

Gift Your Family a Secure Future with Home Loan Insurance

home-loan-insuranceUnexpected late night phone calls always carry a sense of foreboding.

When I received the call that my younger brother (in his early 40s) was hospitalized for a minor heart attack, I was understandably shocked. Here was a man, with a young family, good job, who had recently invested in a luxurious home, now lying supine in a hospital.

Of course, being young and overall healthy, he sprung back up pretty soon. With stern instructions from the doctor, he got back to his routine and took the trouble to reduce the stress in his life. But one of the first things he asked me when he got better was, “What will become of my family if something happens to me. I don’t want them to be financially burdened with this new home; what can I do?”

I was quite surprised that my brother had not opted to include home loan insurance as a part of the deal. Of course, he did get an admonishing from me on trying to cut corners, but I followed it up with advice on why this should be a New Year gift to his family!

What You Should Know About Home Loan Insurance

  1. The insurance is for the loan and not for the home and its contents.
  2. This insurance covers the family’s liability to pay EMIs if something happens to the principal borrower – you.
  3. If availed of – this insurance will cover all future EMIs that need to be paid. Some insurance providers also have a provision where the principal amount is returned to the family to make their future more secure.
  4. The cost of home insurance will decrease each time based on the amount paid to the bank.

Main Criteria on Which Premium is Arrived At

  1. Your age – the older the applicant, higher the premium.
  2. Your loan amount – higher the loan, higher the premium.
  3. Your loan tenure – longer the repayment period, higher the premium.
  4. Your overall health – Since my brother had a heart attack already, he will be considered a high risk and will have to shell out a higher premium now. If you are healthy, this will not be a concern.

Questions to Ask Your Home Loan Insurance Provider

  • Is the insurance applicable for death by any cause or only by accident?
  • How easy is the claims process?
  • Does my home loan amount have to be of a certain amount?
  • Can the EMI be paid in installments?
  • What are the exceptions?
  • Is a health check-up mandatory?
  • What happens in the case of pre-payment of loan?
  • Are there tax benefits?
  • Are there any implications if the loan is a joint one?

With these considerations, my brother has already got his home loan insurance taken care of. This New Year is going to be a much secure one for his family. Perhaps, its time you ensure the same for yours.

Major Take-Aways

  • Home loan insurance is often optional, but you must take it.
  • Home loan insurance covers the loan and not the home.
  • Some providers also give your family additional monetary benefits.
  • Home loan insurance premiums may be paid in installments or at one go, but there are implications with both.
What You Really Pay for When You Buy a Home

What You Really Pay for When You Buy a Home

B7-Hidden-costs-of-owning-a-homeBuying a home is a serious decision.

While you may be satisfied with the fact that you are paying a monthly EMI towards your home, there are several charges that go into the purchase of your home that may not be clearly discernible in the beginning.

 

These may catch you unawares and may derail your financial situation. A commonly known break-up of costs involves:

  • Stamp duty
  • Registration
  • Property tax
  • Service tax
  • Cost of furnishing
  • Miscellaneous charges related to parking, club house, maintenance, society charges and the like.

However, there are several other charges that add on to the basic value of your home that you need to be aware of:

When Buying Your Home From A Builder

Tax Deduction at Source (TDS)
Many home buyers are unaware of this charge that is a part of buying a home. If the value of the property exceeds Rs 50 lakh, you are liable to pay 1% of the value of the property in the form of tax. In this case, Rs 50,000.

Floor rise

Most high rises charge you a premium for each floor, going all the way to the top. This gets added to your base price. It is a price that varies depending on where the apartment is located, the floor of your choice and even the direction it faces.

These additions may be in 2 or 3 digits per sq foot and has to be discussed with your builder.

Cost Escalation

Most agreements include a cost escalation. Should the price of raw materials such as sand and cement increase, the builder reserves the right the increase base prices accordingly.

This is a cost you have to look for and understand in your agreement.

When Buying your Home from an Existing Owner

Brokerage fee

If you have hired a broker or a brokerage firm to help you find your home, you will have to pay him/the company a percentage of the transaction cost. This is a cost that is negotiable.

Transfer charges

Every large apartment complex has a society which functions on the basis of certain rules. When you buy an apartment from an existing owner, the society will charge you a transfer fee.

This will be decided by the general body and ranges between 2% – 5% of the total value of the property.

Fees Applicable to Both Forms of Purchase

Valuator fees

If you are planning on investing in a built-up bungalow you will need to factor in the fees of a property valuer which varies depending on your location. It generally begins around Rs 20,000 per property.

Legal fees

All papers related to your property must be vetted by a lawyer, irrespective of the reputation of the builder you may be dealing with. At this point you will incur expenses for a lawyer and a notary authority.

This will of course come at a price that has to be worked out in advance.

Moving costs

Whether you are moving from your rented home to your new one or one city to another, moving costs are going to be involved.

This will depend on the service you hire, the distance you cover, the floors that you are moving too, etc. Shipping charges may be added if you are moving across different cities.

Utility connection charges

Utilities such as water and electricity, as well as generator charges, etc will now be applicable to you. These are prices you will need to factor in as soon as you move in. In some cases, you may have to start paying it even before you move in.

These charges are not really hidden but rather are often disregarded as miscellaneous costs. Put together, they tend to add up to quite a bit and will make a significant difference to the final amount that you will be paying for your home. Do take these into consideration when planning your finances.

Top Takeaways

  • Costs often disregarded as miscellaneous tend to add up to a sizable amount. Include every expense incurred.
  • Cost such as transfer charges, cost escalation and moving charges are subjective. You will know the price you are paying only on enquiry. It is best to ask.