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Saturday, November 22, 2014

6 tips to get the best mortgage experience

6 tips to get the best mortgage experience

There is nothing as pleasurable as having a roof over one’s head that one can call his own. To make the decision to buy a house, is a huge one. So, if you have decided to buy your first property the first step you will take is shopping for a mortgage.
While you may think that you will be spoilt for choice with so many lenders and products galore, but shopping for a mortgage is trickier than you think. However, it does not have to be a complicated process. Here are six steps that will help you through the process:
Your Cibil report
The first thing that any bank will look at is your Cibil score and the Cibil report to assess your home loan eligibility. It will also determine the kind of interest rates you are eligible for. It is therefore of utmost importance for you to check your Cibil report well in advance (at least six months prior to making an application for a loan) to see that everything is in order and if anything can be done to better your Cibil score. You must also check whether there are any errors in the report. For instance, there may be a loan that may be paid off from your end but does not reflect on your credit report because the lender may not have reported the closure of the same. In case of such errors your Cibil score could be negatively impacted.
Your debt to income ratio
This is an important consideration that a lender will take into account while assessing your loan eligibility. Simply put, your debt to income ratio is the amount of debt you handle in proportion to how much money you make. Before you apply for a mortgage you should make an attempt to either reduce your debt or increase your income. Some ways to boost your ratio, is to start making bigger payments on your credit card or by paying off some long standing loans on which the interest outgo is large.
Plan a large down payment
Before you shop for a mortgage, you should have ideally saved for a large down payment of 20 per cent of the property value. The larger your down payment, the cheaper it will turn out in the long run because of a smaller EMI. Besides, paying a higher down payment will qualify you for better rate of interest and will tilt the deal in your favour as you will be perceived as a less risky customer.
Research the lender
A mortgage is a long term financial commitment that you make. It is therefore, necessary to choose the right bank who will give you the best mortgage experience. Check the credentials of the prospective banks you want to approach and research online about the kind of mortgage experience others have had with them. You may also consider taking the opinion of friends or relatives who have recently taken home loans and ask for their recommendations. Choosing the right bank will ensure your mortgage experience is smooth.
A thorough application
Make sure you submit a complete application with all accurate information that the bank will require to process your loan. Along with the fully completed application form, ensure that all the papers such as salary slips, IT returns, bank statements etc. are in order.
Lock in your interest rate
The interest rate is an important factor that is primarily in the mind of any  home loan borrower. After having discussed various implications of interest rate options with your lender, you must make a commitment and lock-in your rate of interest. You can choose from a loan with a floating rate of interest, a fixed rate of interest or a hybrid loan. The floating rate will be linked to the base rate of the bank and will change as per the economic cycles. The floating rate may seem cheaper, but there will be an element of uncertainty attached to it always.
If you want certainty in your monthly outgo you may consider a loan with a fixed rate of interest. However, it will always be 1-2.5 percentage higher than a floating rate. Depending upon your financial position and the volatility in the market, you may also decide to take a hybrid loan that is a combination of fixed and floating rate loans. In this type of loan, the bank will offer you a fixed rate of interest for the first 3-5 years of the loan tenure and then shift it to a floating rate regime.
Applying for a home loan may seem scary if you go into the process unprepared, but if you have braced yourself well in advance and  follow these steps you will find that getting your home loan application approved is a breeze.
Rajiv Raj, co-founder and director,

Property as an investment option

Property as an investment option

A house is a dream purchase for most Indians. What many don't realize is that it can be an excellent investment as well. Here are a few reasons you should consider parking your money in a property.

Capital appreciation and liquidity:

We all know property is a lasting asset and you would rarely lose money in this asset in the long-term. However, for the past few years real estate has been a rewarding asset class even if you look at the short-term appreciations. The National Housing Bank's Residex, a residential housing index, shows a 6.75% year-on-year (y-o-y) in the September quarter in the top 8 cities-Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad and Pune. Investing in Nifty, which is a pure equity high-risk asset, would have fetched only a marginally higher return of 7.75% for the same period. Also, this is one asset class that remains solid despite the global as well as domestic economic uncertainties. Although it is a large asset, real estate enjoys high liquidity.

Regular cash flow from rent:

Guaranteed return from bank deposit interest is fixed only for a certain period of time. Monthly income plans in mutual funds are market linked and there is a chance of exhausting your principle one day. Assets like gold will give you a lump-some on sale. Rental income, on the other hand, gives you regular and inflation-protected cash flow without. That is, along your maintenance costs the rental income will also go up compensating any additional outgo. Also, you can claim tax deduction for maintenance cost of property at flat rate every financial year.

Tax advantage: 

A house, especially your first one, makes you eligible for significant tax breaks as well. You can claim deduction up to Rs 1 lakh for repayment of home loan principal under the overall limit of Section 80C of the Income Tax Act. Moreover, if you have taken a loan, you can claim an additional deduction of up to Rs 1.5 lakh under Section 24B for interest payment once you get possession and occupy the house. Any pre-construction interest is allowed for deduction only if your project gets completed within 3 years of starting of the construction. Once the house is ready, you can claim the deduction for it within five years from possession in equal installments within the Rs 1.5 lakh under Section 24B. However, if you rent out the property, you can claim the entire interest component as deduction from the rental income.

The financial year 2013-14 was even especially beneficial some for first-time home-buyer. The finance minister in his budget speech announced an additional tax deduction of Rs 1 lakh for interest payments on new loans up to Rs 25 lakh. So, the total deduction under section 24B for 2013-14 will be Rs 2.5 lakh. If your interest component is less than the deduction limit, the balance can also be claimed in the next financial year. Since affordable housing is one of the top agendas of the government, we can expect such special sops in future as well.

Tax deductions are also available on second homes. If you have paid your municipal taxes in the current year, you can show them as deductions from your total income. A flat 30% of the annual value can also be claimed as deduction is for maintenance expenses such as repairs, insurance, etc., irrespective of the level of actual incurred expenditure.

Back-up plan for retirement: 

In worse case scenario, one has the option to reverse mortgage their property if the retirement corpus falls inadequate in your sunset years. Unlike a traditional loan, under a reverse mortgage loan, can borrow money against the value of his or her home. However does not have to repayment of the mortgage (principal or interest) until the borrower dies or the home is sold. Any home owner above 60 can reverse mortgage a self-occupied house and either get a one-time lump sum payment or a regular income from lenders. What makes the facility more attractive for senior citizens is a tax break on installment earned by pledging his residential property.

After the death of the home owner, their heirs get the first opportunity to repay the mortgage and get the ownership of the property. If the heirs can not repay, the bank recovers its money by selling the property. Any money left after the settlement of the loan is returned to the legal heirs. If the proceeds of the sale are less than the accrued principal plus interest, the bank takes the loss.

Relief for buehtilders in land Act

Relief for builders in land Act

In a relief for developers in Mumbai, the SC on November 10 issued a notice to the Maharashtra government and restrained the state from cancelling development schemes due to violations by developers to the repealed urban land ceiling law.
The SC was hearing an appeal by MCHI against a recent judgment of the Bombay High Court, which held that developers and landowners could not escape liability despite the repeal of Urban Land (Ceiling & Regulation) Act in 2007. The HC order came to the aid of the state and empowered it to recover excess land for public housing from private landowners for violations under the defunct Act.
The HC had, by a majority view, essentially allowed the state to “cancel the schemes” if developers were found to have violated mandatory conditions while the 1976 Act was in existence.
Under Section 20 of Ulcra, developers could get their lands exempted if they handed over 5% of flats to the government for public housing. An individual could hold land not more than 500 sq mt in size and the remaining had to be surrendered to the government for public housing.
The claim of real estate developers is that the state cannot take the excess land because the law no longer exists.
Source: The Times of India, Mumbai

Commercial real estate: The perfect choice for investment

Commercial real estate: The perfect choice for investment

Bangalore - Investment in real estate is considered to be the best form of investment for any asset. The returns are highest and it is an asset which cannot be stolen. With this view, Indian market has always been driven to buy property more than invest in deposits, gold or any other form. The Indian mind set of investment in real estate has been inclined more towards residential due to the fact that there is an option of second home for buyers. Although most reports, experts and statistics are against this fact. Developers and experts from the sector express that commercial property as an investment motive is way better than residential. 

For any investor, there are two most important things; initial cost of acquisition and return on investment. A good residential property may be lesser in pricebut is unable to yield higher returns. For instance, an average cost of a good 2 BHK unit in a good project in NCR will be around 30 - 35 lakhs and would fetch a rental of 25 - 30 thousand. Whereas, a 600 sq. ft. commercial property at a good location will cost around 40 - 50 lakhs and will provide a return of around 75 thousand monthly. This goes to show that the returns are higher in commercial properties over residential properties, even if cost is taken proportionally to the return. 

M. K. Gupta, Chairman, KPDK Buildtech says "In commercial real estate it is more common for investors to pool their capital together and syndicate deals, you will also find that smaller private equity firms and finance companies are more inclined to do joint venture projects and provide the needed capital to complete the deal if the deal makes sense. So as a commercial real estate investor you have the potential to raise capital for a deal from the same traditional sources as residential real estate i.e. Traditional Financing and Hard Money, but in addition to that you can have access to capital through smaller private equity firms, hedge funds, private REITs, investment groups, etc.". 

Today, the trend of development has also started to drift a bit. As more and more buyers are interested in buying commercial property for investment, development in NCR is gaining momentum for commercial projects. Almost every region in NCR today has several commercial projects located in key places and offers various commercial spaces, some with assured returns as well. The concept of assured returns began with commercial real estate which ensures a buyer to buy and start earning. Therefore, a buyer earns before possession and also multiplies through capital appreciation with time. KushagrAnsal, Director, Ansal Housing says "There are three very prominent things with commercial real estate. One, the commercial real estate is valued differently. The income that a piece of commercial real estate produces is directly related to its usable square footage. 

This isn't always the case with residential. Secondly, commercial property helps diversify risk. For example, if you own an apartment building and you lose one of your 10 tenants, you only lose one-tenth of the income for that property, instead of the entire rent as you would if you lost a tenant in a single-family house. Finally, the cash flow is often greater with commercial real estate. The yield is often higher per square foot and on an initial investment basis than it is in residential. If you lease or rent a multi-unit commercialproperty, you have more tenants to generate income than you do with a single-family dwelling.

CCI Newswire

Tax incentives on home loans to ensure housing for all

Tax incentives on home loans to ensure housing for all

NEW DELHI: Union Budget 2014-15 sprang a pleasant surprise on home loan borrowers by hiking deduction on home loan interest under Section 24 from Rs 1.5 lakh to Rs 2 lakh. Enhancement of Section 80C limit is also a positive for those paying large EMIs but not getting full tax benefits on repayment.

According to Gaurav Karnik, tax partner, real estate practice, EY, "Increase in these two deduction limits by Rs 50,000 each will act as an incentive for home buyers."

According to calculations available from EY, total tax saving home loan borrowers stand to make due to these two changes, if their gross total income ranges from Rs 9-15 lakh, will be Rs 20,600-30,900.

According to Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors, "Couples can enhance benefits by buying a house in joint name, taking loan jointly, and making the down payment contribution and EMI repayments also jointly."

The third big benefit to retail investors keen on realty was granting pass-through status to REITs.

Finally, easing of FDI norms may encourage fund flow, allowing completion of cash-starved 

A fixed or a floating rate home loan, which is better?

A fixed or a floating rate home loan, which is better?

Shilpa Sharma, 44, is a mother of two and works with an IT firm. She earns a modest income and has been living with her parents since her husband died three years ago. Sharma feels it is time she bought her own house. She has approached lenders to inquire about home loansand is caught between choosing a fixed rate and a floating rate loan. Which one should she opt for?

It is important for Sharma to bear in mind that predicting the future interest rate is tougher than deciding the EMI she can pay. A fixed rate home loan, in which the interest rate is pre-fixed for the tenure of the loan, provides a known cash outflow for a known period. The risk for Sharma is that she might lock in at a high rate for a long period in the future.

In a floating rate home loan, the interest rate changes as per the market rates over the tenure of the loan. Sharma will be affected by the change in the reference rate of interest indicated by the bank, which, in turn, is linked to market rates of interest. Lenders typically adjust the tenure of the loan and keep the EMI constant in floating rate loans.

If interest rates were to fall in the future, Sharma will benefit from a reduction in her repayment tenure.If the rates move up instead, her repayment tenure can increase. In both the cases, Sharma should focus on the monthly instalment and make sure that she is able to pay the EMI comfortably and is left with enough money to meet her other needs.

The key difference is that in a fixed rate loan, the bank bears the risk of the rates going up in the future, while in a floating rate loan, Sharma bears this risk. Except in a fortunate situation, where Sharma is able to lock in at a very low fixed rate, a floating rate loan is a better option as it does not try to guess the future rates.

Sharma should understand that her bank may have a better view of interest rates than her. A good clue may lie in the pricing. Fixed rate loans may be priced higher than floating rate loans if the bank believes that the rates will rise. It helps the banks to earn more as rates increase through the floating rate option.

If the fixed rate is priced lower than the floating rate, the bank is anticipating a fall in interest rates. It helps the bank to lock in at a higher fixed rate. It is also important to find out whether the fixed rate home loan is for the entire tenure or partial term of the loan since most lenders offer a loan that is fixed for the initial two to five years, after which it is converted into a floating one.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

HDB, Subsidiary of HDFC : Rude, Rigid and Regressive

HDB, Subsidiary of HDFC : Rude, Rigid and Regressive

vector-skyline-3By Accommodation Times News Services
HDB Financial Services, a subsidiary of HDFC Bank Ltd is no different than a typical Direct Selling Agent (DSA) behaving in housing finance market. DSA get their role over once the disbursement happen and they raise their bill for commission every month. A typical DSA and its agents lure clients and do documentation to get the home loan sanctioned. To this, DSA had also started giving cash back commissions to staff of Builders and Developers from commission they earn. Sales Staff of builders work hand in glove with DSA and get kick backs on every loan sanctioned. Recently, HDB FS, who process home loans for HDFC Bank Ltd had a rude and socking behaviour with one of the leading broker house who had given them a 3.5 crore loan file to process for his client. The broker was shocked with the behaviour and unprofessional working of the staff of HDB.
In his letter to HDB he said “I am sorry to say that the few employees whom we are currently interacting with in your current team based at your Mumbai office which deals into Loan against property in Mumbai is not at all customer centric / associate centric. My earlier experience of dealing with your institute for last two decades years have been wonderful every time and every time it was pleasure doing business / discussion with all employees.” He further added to his email “Secondly Mr Yadav wanted the newpromissory note of Rs 3 Crores to be signed by the customer so he was calling up for the same in August end after RTGS was done on which we said get the old promissory note and customer would sign the new one. Today when Mr. Jain visited the office and when I asked for the old promissory note so that the new once could be provided on which I have been told that Mr Yadav has managed the same for the audit on which I fear that the dummy signature of the customer would have been done. I see a serious lapse as why the false signature has been made of the customer and this is not a fair practise as promissory note is very critical document.”
While receiving such emails, this paper approached HDFC senior officials who took the matter with HDB but without result. The official said that HDB should be contacted directly for this and he has nothing to say on this after many exchanges of emails. The well drafted reply of HDB to this broker said that it was according to the Sanction process which HDB had carried out.
HDB FS were not available for comment. National housing bank though having code of conduct for such type of cases but a standardised code of conduct needed for DSA and subsidiaries that are not directly in the control of the authorities. Lack of Documentation resulted in affidavits and indemnity by the homeloan borrowers but manufacturing documents for clients is serious concern.