Loans of every hue come with certain pitfalls

http://economictimes.indiatimes.com/personal-finance/loan-centre/personal-loans/analysis/loans-of-every-hue-come-with-certain-pitfalls/articleshow/9829643.cms

Resale Flats may be Cheaper, Hassle-free

A resale property will cost 10% less than a new one, and you will get what you see. But, you will need to do proper due diligence

    House hunters are getting adventurous once again. The news of price corrections in smaller cities and some pockets in major cities has prompted some of them — browbeaten by the rise in both prices and interest rates and out of the market for a while — to restart the process of hunting for a house all over again. 

The search for a house can be tricky, especially when real estate agents show flats that are for resale along with new ones in apartments that are just about to be completed or have just been completed. 
And guess what, the resale flat, which may be in perfect condition, would be at least 10% cheaper than the newly-constructed flat — a valid enough reason to make most individuals wrestle with the choice of settling for a cheaper, old place or a brand new, slightly expensive home. 
Saving 10% is a huge relief when the prices are astronomical and interest rates are hovering around double digits. 
“Buying a resale property can be a prudent choice, provided you do your due diligence well,” says Rajev B Sharma, country head, Unicon Financial Intermediaries. 
The biggest advantage of a resale property is that you can move in immediately. The carpet area may be higher and there would be better clarity on your cash outflows. Last but not the least, you get what you see. 
With an under-construction property, the end product may not be what is promised to you. There have been several instances of builders promising to complete the project in a particular period, but failing to stick to the deadline. Also, there have been instances of buyers being cheated on the carpet area. 
Such things would take a toll on your finances as well as your mental health. 
“There is no delay in construction, service tax or VAT in a resale property, issues you could face while buying an under-construction property,” says K Ramalingam, director, Holistic Financial Planners. 
If these factors appeal to you, you can take a serious look at resale properties. 
ENGAGE A GOOD BROKER, LAWYER There is a stark difference in how you buy a new property and a resale property. 
New properties are generally sold by developers, who have offices to facilitate such sales. But, to locate a resale property, you need a real estate agent. Hence, start by hiring a good real estate agent. Agents are localised and are experts in their respective areas. They will tell you at what prices recent transactions have happened. They will also guide you on the finer aspects, like the water supply, transport system and the type of gentry that resides in the locality.
Very often, the agent also helps you with the paperwork, including registration of your property and payment of stamp duty. Of course, real estate agents will charge you a fee once the transaction is done. 
The fee, which is negotiable and depends on the quality of services, in usually in the range of 1% to 1.5% of the transaction value. “A good lawyer and real estate agent will ensure that your paper work is in order, which is very important, especially in case of resale flats” says Akshaya Kumar, MD, Park Lane Property Advisors. 
CLEAR TITLE This is one of the most important things you should check out. “This is the single-most important thing to check if one is buying a resale property,” says Akshaya Kumar. 
One also needs to check the entire history of agreements pertaining to that property. 
“Documents relating to that sale going back to the very first purchase from the original developer will be needed in original,” says Rajev Sharma. 
Always insist on the ‘chain of documents’ — all the agreements effecting ‘buying and selling of property’ till date since it was constructed. If you were to go for a housing loan, the bank will insist on all the documents, failing which your home loan may not go through. So if you are going for a loan from a bank, before paying the token amount, do ask for all documents. 
ALL CLEAR FROM HOUSING SOCIETY If a property is for resale, then it usually is part of a building managed by a society. You need to check if the seller has cleared his dues to the society. 
“To avail a loan, you will need a no-objection certificate (NoC) from the society, which will be issued only when all the dues are clear,” says Gulam Zia, national director, research and advisory services, Knight Frank. 
If the building is old and the society is collecting extra funds for maintenance purposes, then you ought to factor that in while making your purchasing decision. It would be wise to meet an officebearer of the society to make sure that things are in order. 
In addition, one needs to check if the electricity bills, phone bills and all other utility bills have been paid till the time you have taken possession of the property. Check out things like the plumbing and the quality of wiring in the flat. 
If you need to rewire the house again, that might drill quite a hole in your pocket. If you have a vehicle, check for parking space. Today, in metro cities, parking comes for a high cost. 
Many a time, a flat owner eager to sell the property may tell you that parking is not a problem. However, when you move in, you may find it to be otherwise. You may be forced to buy a parking space or may not get space to park your vehicle. 
Also, in cities like Mumbai, redevelopment is a common activity. It is better to check if the old building is considering any redevelopment proposal and study its implications before purchasing a flat in such an old building. 
Find out what the redevelopment agreement seeks: for instance, whether the old owners of flats will be paid or given flats in the new building to be built. You stand in a difficult position if you were to use the flat to stay in. Though you can always oppose such a proposal, it will not be in your best interest. 

Source :- (http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETM/2011/07/22&PageLabel=11&EntityId=Ar01100&ViewMode=HTML)

Loan pre-payments: Look before you leap

With inflation showing little signs of loosening its vice-like grip, the RBI raised its key policy rates again last week — the tenth rate such hike since March 2010. Borrowers are in for a double whammy. Along with a rapidly increasing cost-of-living bill, they may have to shell out more to service their borrowings too. With most loans these days being of the floating variety, banks and financial institutions are likely to pass on their increased cost of funds to borrowers, who have to brace themselves for higher outgoes or extended repayment periods, or both.

With an increased strain on the pocket, does it make sense for borrowers with surplus funds at their disposal to pre-pay loans? The psychological comfort of owning an asset free of debt, especially a big-ticket one such as a home, is undoubtedly high.

Doing away with the Damocles sword of the lender over one's head seems to have intuitive appeal. Particularly, when the interest meter on the loan is ticking away fast and furious. That said, it may not be prudent to rush into the decision without doing some simple math. Here are a few points to consider in the pre-close-versus-continue decision.

Can you deploy it better?

More often than not, interest rates on loans and those on deposits tend to move in tandem. What this means is while lenders begin squeezing out more from you on the loan, you too can possibly earn a little extra on your surplus funds. Check whether you can deploy your funds more profitably than by using them to close the loan. If the potential return from investing the funds is higher than the cost of the loan, it may not make sense to pre-pay. While making this comparison, it is advisable to consider returns from relatively safe investment options, such as bank deposits, PPF or bonds. And, importantly, make the assessment of both potential return on investment and cost of loan, on an after-tax basis.

Say, for instance, on a pre-tax basis, you could earn 10 per cent on a fixed deposit, while the rate of interest on your loan is 11 per cent. In such a case, the choice to pre-pay would seemobvious. But enter taxes, and the picture may change. Tax breaks available on some categories of borrowings, such as home loans, reduce the effective cost of the loan. Principal repayments on home loans are covered under Section 80C, which allows a maximum deduction of Rs 1,00,000, while interest payments are allowed as deduction up to Rs 1,50,000 on self-occupied houses and to the full extent on other houses.

For a person in the highest tax slab (30.9 per cent), who borrows a home loan at 11 per cent, the effective cost of the loan works out to around 7.6 per cent. The cost of the loan is reduced by around 3.4 per cent (30.9/100 * 11 per cent), thanks to the tax breaks. The higher the tax slab, the lower the after-tax cost of the loan. On the other hand, investment income may be subject to taxes too, which eats into returns. In the above instance, for a person in the highest tax slab, the after-tax return on the fixed deposit with a rate of 10 per cent is 6.9 per cent. In this case too, since the after-tax effective cost of the loan is higher than the after-tax effective return of the deposit, it may make sense to prepay the loan. However, if you consider an investment in PPF, which gives an 8 per cent tax-free return and is also covered under Section 80C (to the extent of Rs 70,000), then pre-paying the loan may not be such a good idea anymore.

In this case, you may be better off investing the surplus. The bottom-line is, make your decision to pre-close or not, based on the opportunity cost of the funds on an after-tax basis.

Pre-payment penalty

Another key factor to watch out for is the pre-closure penalty being charged. Several banks charge a penalty, which could vary between 1 per cent and 3 per cent of the amount being pre-paid, for settling a loan before its due date. This acts as a disincentive against pre-payment. Some banks currently do not charge a pre-closure penalty, if payment is made from the borrowers' own funds. However, if pre-payment is made by refinancing the loan with other banks, this waiver is not given.

The good news is that the RBI has repeatedly frowned upon pre-payment charges levied by banks, and the results are beginning to show. SBI, for instance, has waived off prepayment penalties on its loans. If other banks also take the cue, it will be a welcome step for borrowers, with one negative variable taken off from the pre-pay-or-not decision matrix.

Till such time this happens, don't hesitate to bargain with your banker regarding waiver of the pre-payment penalty. With interest rates rising, bankers would probably be willing to waive off these charges.

After all, they too would be on the lookout for funds to re-deploy at a higher rate. Another way to get around the pre-payment roadblock is through part-prepayment. Many banks do not charge pre-payment penalty for amounts settled up to a specified extent, say 25 per cent of the loan outstanding. A borrower may consider pre-paying the loan to such extent, and continue servicing the balance.

For borrowers intending to part pre-pay, it makes sense to do so in the initial stages of the loan. Under equated instalment loan repayment structures such as EMI, the interest component of the loan is much higher in the initial instalments than in the later ones. Since part pre-payment is adjusted directly against the principal outstanding on the loan, payment in the initial stages results in a significant reduction in the future interest outgo. A part payment at the later stages would be less beneficial, since the bulk of the interest would have been paid by then.

Target the big pocket-pinchers

This one is a no-brainer: If you have multiple loans, those which carry the highest rate of interest should be paid off first. Not all debts rank equal. Some are undeniably more detrimental to the borrower's financial health than others.

On top of this list are outstandings on credit cards, which carry exorbitant rates of interest and are a sure-fire way of falling into a debt trap. Before pre-paying relatively benign forms of debt such as home loans, make sure to settle higher-cost debt such as credit card outstandings and personal loans.

Emergency Funds

In your urge to liquidate debt, don't go overboard in cleaning out your bank account. Remember to keep a sufficient cash reserve (say, living expenses for six months), which will come in handy in case of emergencies such as layoffs and unexpected medical expenditure. There is little point in pre-paying a relatively low-cost home loan, only to go in for a costlier personal loan within a short period.

Source:- ( http://www.thehindubusinessline.com/features/investment-world/article2115944.ece )

Home Sales may Squeeze More...

...As real estate developers & bankers indicate increase in home loan rates yet again

A25 basis point increase in key interest rates by the Reserve Bank of India on Thursday is likely to further squeeze home sales across the country, some developers and bankers said, amid apprehensions that banks may increase home loan rates again. 

“Purchasing activity had already dropped visibly during the last tranche of interest rate hikes, and we will see a further drop in buyer interest now,” said Anuj Puri, chairman of property consultancy Jones Lang LaSalle India. Owing to the last 10 rate hikes by RBI, EMIs for housing loans have risen 25% to . 980 per . 1 lakh of borrowing, and consequently loan eligibility for homebuyers has declined 20%. “Housing finance companies have no wiggle room available and will necessarily have to pass on this 25 bps hike to the customer,” says Anil Kothuri, head of retail lending business at Edelweiss Group. 
Customers will now have to reconsider the size and locations of houses they wish to purchase and many buyers are expected to put off their purchases altogether till home prices come down and rates stabilise. 
“This is certainly bad news for existing home loan consumers as banks will certainly increase home loan rates,” said Akash Deep Jyoti, head of Crisil Ratings. For new home loan seekers, this will be big deterrent, not just because of the rate hike but also because of the frequency of the rate hike by RBI. “The only positive for a person who is looking to buy a home is the option he has, of buying or not buying. Existing home loan customers are stuck,” said Jyoti. 
Renu Sud Karnad, managing director of private sector lender, HDFC, is, however, of the opinion that this quarter percentage hike will not impact housing demand and loan off-take. 
Increase in policy rates push the cost of properties up as they increase the cost of funds for developers, who are already reeling under the pressures created by high input costs. “We then have to pass on the same to end user,” said Pradeep Jain, chairman of Parsvnath Developers. 
Some builders are hoping that this is the last rate increase by the central bank for 2011. “Any further increase will be debilitating for our sector,” said Sanjay Kabra, chief financial officer of the Sunil Mantri Group. 
Cost of funds for developers is already very high, ranging anywhere between 14.5% and 16%,depending on the credibility of the borrower, and banks have not been willing to lend to the real estate sector in the recent past. This has forced many developers to tap other sources of funds, which are much more expensive than bank lending. 
The situation is not likely to improve in the next few months as analysts and economists across the board expect the policy rate to be hiked by at least another 50 bps in FY12.


Source :- ( The Economic Times)

Are you eligible for a home loan?

Home loans are the most easily accessible means of funding support to purchase a house . To understand how you can ‘enhance' your eligibility to apply for a home loan, make a simple self-assessment. Here is how banks do it.

THE CREDIBILITY FACTOR

Credit appraisal is the process followed by banks to determine the borrower's ability to repay his loan and determine how trustworthy he is. A prospective borrower has to go through various stages of credit appraisal practiced by different banks.

The main factor commonly considered by banks before its decision to lend, is ‘proof' that shows that the borrower is capable of repaying the loan on time. For this, they will look into your income documents, personal credit history, current assets and liabilities, education, work experience etc.

Older banks and co-operative banks to certain extent rely upon an existing relationship or the previous experience with a bank client while deciding on eligibility. A common pattern they follow is the sanction of a loan amount which will be a fixed multiple of the annual income. However, the new generation banks strictly follow other distinct parameters.

The loan eligibility in this case may be calculated by applying Fixed Obligations to Income Ratio (FOIR). Most banks restrict FOIR to a maximum 45-50 per cent of the client's monthly income.

LOAN-TO-VALUE

Loan-to-value is also a factor in eligibility calculation. Banks finance up to around 80 per cent of the property value determined by the bank's evaluator. For those who have not yet decided on the property, there is an option to sanction an in-principle amount, which helps to know the amount a bank would be able to give out.

For businessmen, banks will analyse the financial statements to see how the business has been faring for the past 2-3 years considering the Income Tax returns, Balance Sheets and Profit & Loss Accounts (audited and certified).

Before deciding to sanction a loan, banks also look into your credit history for your record on existing loan repayments, mishandled accounts or delinquent credit cards. This can be checked through a database of past loans and repayments available with the Credit Bureau of India Ltd (CIBIL). Cross checking of the income with documents like bank statements or initiating credit verifications is also part of the process.

A couple of factors could lend to enhancing your loan eligibility:

Clubbing an income - The income of your spouse also can be considered towards eligibility if you apply jointly.

Increasing tenure - Higher EMIs reduce the eligibility for the loan. The longer the tenure is, less the EMI will be. So, opt for a higher tenure. Usually banks offer a maximum of 20-30 years tenure.

Additional income - Your salary income may not be the only criteria to consider. Any source of consistent additional income like rental income may also qualify. Expected rental income from the property and any performance linked pay can be considered to enhance your loan eligibility.

Step-up loans- A step-up loan is a loan wherein an individual pays a lower EMI during the initial years and the same is enhanced periodically on conditions put by the banks. This is made after factoring in the individual's expected future salary hikes.

Pre-closure of existing loans - Existing loans like car loans or personal loans may reduce one's loan eligibility. As per norms, only existing loans with over 12 unpaid instalments are taken into account while computing home loan eligibility. So, prepaying the existing loans in full or part will help expand your eligibility.

Employer-bank relationship - A lower interest rate will naturally increase your eligibility.

Check with the banks if there are any schemes where the bank is tied up with your employer. Banks usually categorise companies based on their profiles and offer different schemes that could get you special interest rates, processing fee waiver etc . People working in MNCs can usually wrangle favourable terms.

Always remember, taking too many loans will reduce your credit worthiness and increase borrowing costs. Keep your credit score in good shape. Good and steady repayments keep you out of debt problems and keep your credit profile in great shape to use the power of leverage.

(The author is CEO, BankBazaar.com)

Source :- Business Line 

Is there a housing bubble?

House prices in six cities have registered double-digit increases since 2007, similar to the US, Ireland and Spain.

Regulators across the world are beginning to realise there is a link between financial crises and real estate prices. Considering banks had a big role to play in the sub-prime crisis, regulators are now concerned about spiraling home prices in India too. While banks and home owners refuse to acknowledge that home prices are near bubble levels, data seems to suggest otherwise.

Analysis shows some six cities have seen home prices go up in double digits since 2007, indicative of a bubble. In fact, in the second half of 2008, after the global financial crisis had begun, prices corrected in some markets but home prices in Mumbai, Kolkata and Faridabad continued to rise.

The National Housing Bank (NHB) has been tracking home prices across 15 Indian cities since 2007. The NHB-Residex shows prices have risen in most cities over the last four years. Prices in Hyderabad and Jaipur are lower than 2007 base level. In Bangalore, prices have jumped 37 per cent in one quarter alone. The Bangalore index jumped to 101 in October-December 2010 from 74 in July-September 2010. In four years, indices have doubled in Kolkata and Chennai.

In a report, STCI Primary Dealer has compared the increase in NHB’s Residex with that of housing indices in other bubble markets like Ireland, USA and Spain. In US, Case Shiller Index gives the price trends across 20 US cities. In January 2000, the index was at 100.59. It doubled in April 2006, marking a compounded annual growth rate (CAGR) of 12.1 per cent. The index has declined 31.4 per cent since the peak. In Ireland, too, housing prices index was around 33.6 in 1996, which peaked to 139.4 in 2006, marking a CAGR of 15.3 per cent. Prices have declined since then.

So, how have prices moved in India? Out of 15 Indian cities, eight have seen double digit CAGR increases since 2007. Kolkata and Chennai have registered higher growth than cities in three bubble economies of Ireland, Spain and the USA. Faridabad, Bhopal and Mumbai are very close to Ireland average as well.

Compared to growth in US Composite 20 Index, growth is seen higher in six Indian cities — Kolkata, Chennai, Faridabad, Bhopal, Mumbai and Ahmedabad. Clearly, double digit increase in home prices is indicative of a bubble, and regulators need to take cognizance of this, before it’s too late.

Source :- ( http://www.businessstandard.com/india/news/is-therehousing-bubble/437489/)

Five Home loan myths that you should bury

With the rising interest rates , the equated monthly instalments , or EMIs, have again a worrying factor for HOME LOAN customer.
The impact has been telling on many household's finances, which are already under strain due to the rising living expenses . While higher EMIs are a cause for consternation for borrowers, there could be relief in the form of certain clauses in the home loan contract.
Without understanding the clauses, you could fall victim to some general misconceptions about loans and shut out ways to lighten the EMI burden. Here are five myths regarding home loans that you need to be aware of:-

MYTH 1: HIKE IN INTEREST RATE MEANS INFLATED EMIs :-

The immediate reaction of many borrowers to an upward revision in a bank's base rate - and as a result the home loan rate - is that it will push up their EMIs, wreaking havoc on their monthly finances.
This, perhaps, is the biggest myth of all, especially when the rates are hardening. In fact, most banks, subject to conditions, usually extend the tenure of the loan and keep the EMI amount unchanged.
"Over an interest rate cycle, the tenure could go up and down, in line with the changes in the applicable interest rate," says Suvrat Saigal, consumer banking director, Barclays Corporate India.
"However, the decision depends upon factors like the age of the borrower and the property, his/her income and so on."
By default it's the tenure that is extended and the EMI amount sees no impact. Therefore, if you do not wish to prolong your loan repayment, you need to inform the bank about your willingness to service a higher EMI.
Remember, you are not helping your finances by extending the tenure.
"You actually pay a lot more in interest," suggests Vipul Patel, Home Loan Advisors. "It is generally recommended that you should try and part prepay, refinance or increase the EMI amount to ensure that the loan tenor can be reduced. Loan extension should be considered only in exceptional circumstances," he says

MYTH 2: PRE-PAYMENT ALWAYS ATTRACTS A PENALTY :-
Not always. "Typically, it is levied during the initial 3-5 years of the loan. The charge levied declines over time," says Saigal of Barclays India. "The nature, of course, varies as per the bank or the financial institution. Some banks may choose to charge it, some may not."
If you choose to repay the loan out of your own funds, you will have little to lose. As long as you have not opted for a home loan refinance from another lender, most financial institutions waive the prepayment penalty. "Most institutions allow up to 25% of the outstanding loan amount to be part prepaid in a financial year, but will charge anything from 2% to 4% for any amounts paid over the specified limit of 25%," says Patel.

"This is not aligned to the NHB circular dated October 18, 2010, which clearly says that there should be no charges in case prepayment/part prepayment/foreclosure is done with own funds." So, go through your sanction carefully to ascertain your lender's position.

MYTH 3: LOAN WITH LOWEST INTEREST RATE IS THE BEST DEAL :-
It may mean lower EMIs, but it may not serve your purpose if the loan amount sanctioned to you does not meet your requirement.
If your loan eligibility as per the lender's evaluation norms falls short, the low interest rate will be little consolation. Also, you need to go deeper to ensure that the bank is indeed offer-ing you the best deal. "I would urge customers to study charges like processing fee, inspection and valuation charges, etc, carefully," says Saigal.
While some banks charge a flat consolidated fee, others break it up into several categories. "At the entry point, the rate might look attractive, but there could be a number of strings attached such as higher fees, penalties on pre-prepayment and lower or no flexibility," says Patel.
"The key is to work out what product type and features best suit your financial needs and objectives first and then focus on the cost."

MYTH 4: BANK ISN'T CONCERNED ABOUT EMPLOYMENT STATUS:-
On the contrary, it is. "The home loan agreement stipulates that the borrower should keep the bank informed about change in employment, job loss, retirement, etc, within seven days," says VN Kulkarni, chief counsellor, Abhay Credit Counselling Centre.
The relevant, although rarely used, clause states: "Upon the borrower opting for retirement or ceasing to be in employment for any reason, then, notwithstanding anything to the contrary contained in this agreement or writings or any documents, the entire amounts payable under the said loan shall, at the bank's option, become forthwith due and payable by the borrower from the amount/s receivable by him from the employer."
"While the clause exists, usually the bank and the borrower, through negotiations, arrive at a revised repayment schedule based on the borrower's financial behaviour and repayment pattern," says Saigal.

MYTH 5: PROPERTY INSURANCE IS NOT BORROWER'S RESPONSIBILITY :-
You could be in for serious trouble if you believe so. A standard clause, yet often overlooked, in most home loan contracts is that the mortgaged house should be insured against fire and other natural calamities.
"If the borrower shall make any default in insuring and keeping insured the said property, the bank may without prejudice to its rights and without being bound to do so, insure and keep the same insured by debiting the loan account of the borrower. Such amounts shall also carry interest at the rate aforesaid," reads the clause.
"However, if you live in a co-operative housing society, which has insured the entire complex, you may be exempted," says Kulkarni. Those who live in individual units like bungalow or a row house should ensure that they carry out this task.

Source :- ( http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/analysis/five-home-loan-myths-that-you-should-bury/articleshow/8594987.cms)

Home-Loan tips: TAX Savings As per section 80C ( A Bird's Eye view)

Home-Loan tips: TAX Savings As per section 80C ( A Bird's Eye view)

TAX Savings As per section 80C ( A Bird's Eye view)

To encourage savings/investments government gives tax breaks on certain financial products under Section 80C of the Income Tax Act to Tax Payer ( Any Individual , Hindu Undivided Family) . Section 80C will help to you save taxes on investments up to 1 lakh.

Below are the different options available under this section:

PF & VPF: Provident Fund (PF) is deducted from your salary. Your employer also contributes to it. While the employer's contribution is exempt from tax, your contribution is counted as investment under Section 80C. You can also contribute additional amounts to Voluntary PF (VPF).

Public Provident Fund (PPF): A PPF account can be opened with a nationalized bank or a post office. The rate of interest earned is 8%, which is tax-free, and the maturity period is 15 years.

National Savings Certificate (NSC): This is small-savings instrument for a period of six years. The rate of interest is 8%, compounded half-yearly. The interest accrued every year is liable to tax, but the interest earned is also deemed to be reinvested and, thus, eligible for tax deduction.

Equity Linked Savings Scheme (ELSS): ELSS schemes are tax-saving mutual funds. The returns are not guaranteed, since an ELSS invests in equities. The money invested is locked in for three years.

Life insurance premiums: Any amount you pay towards life insurance premium for yourself, your spouse or your children can be included for tax deduction. If you are paying premiums for more than one insurance policy, all the premiums can be included. Besides, investments in unit-linked insurance plans (Ulips), which offer life insurance with investment benefits, are also eligible for tax deduction.

Home loan:

(a) any installment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or

(b) any installment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or

(c) repayment of the amount borrowed by the assessee from—

(1) the Central Government or any State Government, or

(2) any bank, including a co-operative bank, or

(3) the Life Insurance Corporation, or

(4) the National Housing Bank, or

(5) any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under clause (viii) of sub-section (1) ofsection 36, or

(6) any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or

(7) the assessee’s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or

(8) the assessee’s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society; or

(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee,

but shall not include any payment towards or by way of—

(A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member; or

(B) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or

(C) any expenditure in respect of which deduction is allowable under the provisions of section 24 of Income Tax Act ( Interest paid in lieu of Housing Loan taken)

Fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are entitled for tax deduction.

Others: Expenses on children's education can be claimed as deduction under Section 80C.

Scanning the fine print of a home loan

Buying your dream home can be very exciting, but don't rush through the paperwork so you can get your hands on that title deed. Remember your home loan may eat up a lion's share of your salary over many, many years. Scan your loan agreement thoroughly to understand what each clause implies before you sign on the dotted line.

Look out for

Rate of interest: The rate of interest determines the EMI or equated monthly instalment. The rate of interest, generally, can be of two types - fixed and floating though the latter is the most common these days. There is another addition to this category now called teaser loans which costs you less in the first few years.

Changes in Base Rate: Base rate is determined by an individual bank depending on various internal parameters including RBI's changes in repo and reverse repo rates. Banks cannot lend at a rate lower than the base rate. The floating interest rate would be the base rate plus a spread. The spread is the premium the banks charge from customers. The base rate is an important tool in a bank's armoury and often makes changes to it in response to the market conditions. The consumer is impacted due to this as interest rate changes with change in the base rate.

Reset clause: In the case of a fixed interest rate, the rate is usually fixed but there is a reset clause which allows banks to reset the fixed interest rate in relation to base rate at particular intervals.

Force majeure: This phrase means ‘greater force'. This implies that banks can raise the interest rates in exceptional conditions, even in a fixed rate loan. However, defining such a condition is left to the discretion of the bank.

Pre-payment penalty: The pre-payment clause explains the penalty that is charged if you decide to close the loan early by paying the amount due. Some banks do not impose any penalty while others differentiate this according to circumstances. For instance, when you refinance the loan through another bank opting for a lower interest rate such a pre-payment may involve a different and heavier penalty from the bank where you currently hold your loan.

Defining a Fault: For you a ‘fault' could simply mean not paying your EMI at some point in your loan tenure. However, some banks specify a fault as a case when the borrower expires, the borrower is divorced and stops paying (in case of more than a single borrower), or the borrower is/are involved in any civil litigation or criminal offence. Therefore, you must be clear about what your lender means by the term ‘fault'.

Security cover : This clause states that a bank is eligible to demand additional security when property prices fall. Such a demand could exist even if you are very regular with your EMIs. In such a scenario, if you are unable to provide a security cover in addition to your loan amount chances are that you could be declared a defaulter by the lender.

Interpreting the clauses

Remember that a borrower's goal is to get the loan at the least expensive interest rate while a bank's goal is to lend at a profit. Keeping this objective in mind, we will discuss the meaning of these clauses.

Teaser loan features: Teaser loans charge you less interest first and then increase it to the market rate.

If you are opting for this, make sure you understand the interest rate you will pay for the life of the loan. Most of the borrowers look at the next 1-3 years EMI and decide accordingly. The right way is to see the projected EMI after 3-5 years when the teaser rates are done with.

Floating rate loan: The banks increase floating interest rate as soon as RBI raises rates but do not lower it with the same enthusiasm.

Fixed rate loan: Though fixed rates are fixed over the period of the loan, banks insert a clause for resetting the fixed rate based on market conditions. Considering this aspect, it could be better to opt for a floating rate as you might get the benefit when market conditions turn favourable for a lower interest rate.

Pre-payment penalty: Discuss upfront with your bank about the prepayment penalty they charge and whether it works differently when you opt to prepay and refinance the loan.

Make sure everything is in writing. Currently RBI has already insisted on implementing a measure to do away with prepayment penalty completely.

Discuss this with your bank and see if you can avoid paying a prepayment penalty at all.

Points to note

- Try to arrive at a rough estimate of the effective interest rate you will need to shell out for your teaser loan and see if that can fit into your long term budget easily. Teaser loans can work to your advantage if you plan to close the loan in the short term i.e. 5-6 years.

- Though banks reduce interest rates as per the reduction in base rate it could still be applicable to new borrowers only. Again the RBI has stressed that the benefits should be passed on to existing customers as well, so figure out with your bank if that could be possible in your case.

Last but most important, document the discussion and take everything in writing. A home loan is too important to be taken on the basis of verbal assurances.

Source :- ( http://www.thehindubusinessline.com/features/investment-world/personal-finance/article1682663.ece?homepage=true)

Hyderabad — the emerging megapolis

V. RISHI KUMAR

Vision 2020 plans for Hyderabad. — P.V. Sivakumar

Fast forward to 2020, Hyderabad will be one of the finest cities to live in once the plans of Andhra Pradesh Government and Hyderabad Metropolitan Development Authority (HMDA) are implemented.

Various elements of a mega plan include a Rs 6,696-crore Jawaharlal Nehru Outer Ring Road project, 33 arterial roads, two logistics parks, beautification of lakes and river bed and support infrastructure backed by a metro rail project and rapid bus transport system.

The HMDA is spread over 7,100 sq.km comprising Greater Hyderabad Municipal Corporation (GHMC) with a total spread of 625 sq.km, and Sangareddy and Bhongir municipalities (13.60 sq.km and 9.60 sq.km), 849 villages in districts of Rangareddy, Medak, Nalgonda and Mahbubnagar totalling 6,451 sq.km.

Mr Rajeshwar Tiwari, Commissioner of HMDA, said that in order to get a balanced development of such a large area, the demands of a growing city and increasing population, HMDA is in the process of finalising a Master Plan for Hyderabad up to 2031. The plan is likely to be announced by month-end.

Main objective

As a part of the integrated development plan, HMDA is working on creating a mega Nehru Outer Ring Road (NORRP) project connecting Gachibowli-Patancheru-Medchal-Shamirpet-Hayatnagar-Shamshabad, State Highways and three National Highways (NH 7, NH 9, NH 202) around Hyderabad and serve as a bypass to the city.

This will be backed by circular linkage to radial and arterial roads by providing quick access to the International airport from strategic locations. All the vital city nodes such as Hitec City, Games Village, IIIT, ISB, Hardware Park, Singapore Township at Pocharam, IT Park at Adibatla, FAB City and Nano Park will be connected.

The 159-km Nehru ORR project designed for speeds in excess of 120 km has a right of way of 150 meters with four lanes on each side, apart from two service lanes, with facility for the metro rail and bus rapid transport system.

The Phase I of the NORR between Gachibowli and Shamshabad close to the new airportis ready. Phase II-A covers Pedda Amberpet to Shamshabad and Narsingi to Patancheru with an outlay of Rs 2,349 crore. This has been taken up under BOT (Build, Own and Transfer) mode.

The NORR project will be backed by 33 radial ring roads. Of this six have been taken up with an investment of Rs 350 crore, three are being improved with an outlay of Rs 170 crore.

The Rs 12,136-crore Hyderabad metro rail project which seeks to decongest three dense corridors and two mega bus terminals are being developed, one at Miyapur on the highway towards Mumbai with a capacity for over 100 buses and two logistics parks a 22-acre facility at Magampally , and another of 40 acres at Batasingaram will come up under public-private-partnership mode.

Source :- ( http://www.thehindubusinessline.com/todays-paper/tp-investmentworld/article1532643.ece )

Home-Loan tips: Stay With Your Banks/Housing Finance Companies For...

Home-Loan tips: Stay With Your Banks/Housing Finance Companies For...: "Stay With Your Banks/ Housing Finance Companies For Lower Loan RatesCustomer loyalty and good payment record could help reduce the interest ..."

Stay With Your Banks/Housing Finance Companies For Lower Loan Rates

Stay With Your Banks/ Housing Finance Companies For Lower Loan Rates

Customer loyalty and good payment record could help reduce the interest rate on your home loan

AMIT SHANBAUG

Vivekjyoti Gupta (40), a graphic designer based in Malad, Mumbai, was determined to do something about his home loan as he had seen the interest on it go up by around 5% in the recent past. He went to his bank to enquire about the outstanding principal amount on his home loan, as he was thinking of making a part-prepayment to bring down his monthly outgo. However, Gupta was in for a pleasant surprise: the bank official offered him an option to reduce his monthly loan payout. The official told him that though his current interest rate was around 12.5%, he had the option of reducing it to 11% by making a one-time payment of 0.5% on his outstanding loan amount.
“I had taken a loan in 2005 end when the rate of interest was something around 7.5%. But over time, the bank had increased it to 12.5%. Even when the bank was offering home loans with lower interest rates to attract new customers, our rates were never lowered,” Gupta said.
Gupta informed that just by paying a small sum, he would be able to save a huge amount which would help him in prepayment of the loan.
“When I asked the official why is the bank being so kind to me. The official told me that since I was one of their prompt customers, they are trying to reduce my interest burden,” he said.
Gupta also added that another customer who was present in the bank had told him that many of the existing customers have been shifting since the past few months to other banks offering lower rate of interest, hence the bank could be offering the incentive to retain them.
According to Satkam Divya, chief executive officer and managing director of rupeetalk-.com, a financial portal, there are lots of reasons for the banks to adopt such initiatives.
“Banks adopt these schemes as apart of their retention strategy for old customers. One strong source of funds for the banks is the repayments made by the existing customers,” he said.
Also, with the interest rates going up, there is also an increased propensity of these old customers defaulting on their monthly payments. “This could lead to an increase in the non-performing assets for the banks, which they would not want. So, by reducing the interest rates, they are, in fact, reducing the chances of default by these customers,” he pointed out.
Divya also stated that there is a possibility that rival banks could lure these same customers with attractive lower interest rates. “So the bank may as well offer to reduce the borrower’s interest burden and retain him,” he said.
According to Ramesh Bhojwani, a banking consultant, not everyone is eligible for such a reduction in the interest rates, as banks generally keep a criterion for the same and the reduction in rates too differs from banks to banks.
“Firstly, borrowers with large ticket sizes generally get in a larger reduction in the interest rates which may range anywhere from 1.25% to 1.75%. The customers with lower loan size may have to be satisfied with a lower reduction, which could be anywhere between 0.75% to 1%,” he said.
Bhojwani also added that customers who are paying a higher rate of interest are generally offered substantial relief as compared to the rest.
“Another criterion is the credit history of the customer. A customer who has been regular in his interest payments and has a good payment track record gets in a decent reduction in the interest rates,” Bhojwani informed.
Also, if the bank feels that there is a possibility that the existing customer has the potential to generate more business for them in the future like top-up loans or other loans, then the bank may prefer to pamper such a customer with lower interest rates, he said.
According to Bhojwani, the processing fees that the banks charge for such a reduction differs from bank to bank. “While some banks charge around 0.5%, others charge around 1%. There is no fixed rule on how much the bank can charge, if the customer wants, he can even try negotiating on the processing charges and if he is lucky, he can get a decent discount, there too,” he pointed out.
Bhojwani added that at most of the times, the reduction in the rates may not get him at par with the new borrower but however ensures that in case he decides to shift to some other bank, it could be a costlier proposition for him. “For example, if other banks offer around 10.5% to new customers, and the borrower is getting his interest rates lowered to just 11 or 11.5%, it still makes sense for the borrower to stay at the current bank as he would have to incur lots of expenses for shifting like foreclosure charges of the current bank and processing and other charges for the new bank,” he said.
Even the Reserve Bank of India in the past had called for greater transparency in dealing with the existing customers and even advised passing on the new loan rates to its existing customers, rather than restricting it just for new clients. It had in the past even send in an advisory to Indian Banks Association.
A senior official from the State Bank of India (SBI) informed that it is not possible for the banks to offer such options to all the old customers.
“A product pricing at any given point of time is decided with factors like the position of asset and liability in the bank at the time and cost of funds. However with time, the product could be cheaper or costlier to the new customers. If we offer such incentives to old customers with the reduction in the interest rates, then even old borrowers who are enjoying higher interest rates on their deposits as compared to new ones would need some tweaking,” he said.
The SBI official, however, informed that their bank also has a policy where in they can also offer to reduce the rates of interest of old customers. “If a customer has a very good payment track record, and has been a loyal bank customer for more than 15 years, we can be selective and offer him some reduction in his interest rate burden. But however it is not open for everyone,” he said. According to Kamlesh Rao, executive vice-president and business head of personal finance & mortgages, Kotak Mahindra Bank informed that their bank doesn’t have any scheme offered to customers wherein he can reduce his interest rate burden.
“However if the customer is genuine and has been banking with us for a very long time and had all his savings and business accounts transacted through us, we think we can make an exception for such a customer as a one of a case,” he said.
amit.shanbaug@timesgroup.com

(Source :- http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETM/2011/02/25&PageLabel=11&EntityId=Ar01100&ViewMode=HTML&GZ=T)