Making the most of home loans
Home loans require a basic understanding of money matters and regular monitoring to ensure you always get the best deal. Visitors to the MCHI PROPERTY 2011 are sure to find home loan options that fit this definition,
Buying a home is usually a challenge of bridging the financial gap, but working out which Home Finance option is best suited to the home seeker is more of a challenge. Paras Gundecha, President, MCHI says MCHI Property 2011 is ideal for this situation. '' Competition among banks and Home Finance Companies (HFCs) leads to competitive interest rates on home loans, which makes it possible for most 'home seekers' to go ahead and get a house of their own. For those still waiting to make their 'buy' decision, it is important to understand the implications of various home loan options before taking a decision, the wide array of choices will make a visit to MCHI Property 2011 a win-win experience.''
Home loan options don't just help bridge the gap between 'own homes' and 'cost of the flat' - a family looking at a spacious one-bedroom hall kitchen flat could consider a compact two-bedroom flat instead, thanks to a home loan. Stretching yourselves or taking a joint home loan could increase eligibility to upgrade your apartment size during the first transaction itself rather than scale up in installments over the years. This enables you to save on the stamp duty and registration charges and other such expenses that would be otherwise have to be borne while upgrading to a larger flat later on.
The home loan eligibility of a home seeker is determined by two aspects, the loan repayment tenure and your income levels. If one expects a substantial increment within a few months by all means mention this while discussing the home loan. Similarly, people at the initial stages of their career can take a longer tenure home loan as their repayment capability is much longer, says Paras Gundecha.
If you need to take a personal loan to cover up the deficit if any, ensure the amount is not too high. Pay it off quickly as the interest rate on personal loans is much higher than that for home loans. If need be take a home loan for a longer tenure but avoid personal loans or raising money informally at 'market' rates, explains Boman Irani, Hon Secretary, MCHI.
The home work to be done for buying a new home has increased substantially. The smart thing is to opt for a lending institution or bank that does not charge a pre-payment penalty. If that is the case, start putting aside a specific amount at regular intervals and clear the loan within a shorter timeframe.
One could also opt for a higher quantum of repayment during the initial years and then reduce it after say, three or five years, when you need to divert more funds for household expenses, says Boman Irani.
Several banks also offer a facility that reduces your outstanding amount based on the time for which you keep a minimum amount deposited in a savings account before withdrawing it. The ultimate combination is to raise as much money as you can during the initial years, keep a short tenure and also try to prepay the loan in advance, so that you have no EMI worries a few years down the line!
Installment to Income Ratio is generally expressed as a percentage, says Bandish Ajmera, Exhibition Committee Chairman, MCHI. ''This percentage denotes the portion of your monthly installment on your Home Loan,'' he says. This figure is normally pegged at 40 per cent but can vary on the basis of actual salary details, qualifications, employer / business, years of experience, growth prospects and sources of other income. Fixed Obligation to Income Ratio is where the HFI takes into account the installments of all other loans previously availed including the Home Loan applied for. This includes all the fixed obligations that you pay every month, not including statutory deductions like PF, Profession Tax, etc. and deductions for investment like Voluntary PF, LIC Premium, etc, explains Boman Irani.
Home loan repayment consists of a portion towards the accruing interest, with the remainder being applied to the principal. Initially the repayment is more towards the interest and less towards the principal amount. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time. An amortization schedule is a table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero, adds Boman Irani.
If you have a fixed income and fixed period of employment (typically Government employees) and the home loan installment forms a significant portion of your post tax earning, take a fixed rate loan even if it seems expensive today. This is because such people will not have the ability to pay EMI beyond their retirement age.
In case if the home loan installment is easily manageable for you (typically less than 40 per cent of your post tax earning - this is mainly applicable for self-employed people), take a floating rate but whenever the financier increases the rate and gives you the option of increasing the installment, do so. This way, you know for sure that the loan will get over in the original contracted period of time, explains Bandish Ajmera.
If you do not see this to be your final house (typically salaried people in private service) and look at upgrading your house after four to five years, then it is advisable to take a floating rate, says Paras Gundecha. ''Under normal circumstances, the upside in the property price will more than compensate for the upside in your interest rate,'' he concludes.
Home loans require a basic understanding of money matters and regular monitoring to ensure you always get the best deal. Visitors to the MCHI PROPERTY 2011 are sure to find home loan options that fit this definition,
Buying a home is usually a challenge of bridging the financial gap, but working out which Home Finance option is best suited to the home seeker is more of a challenge. Paras Gundecha, President, MCHI says MCHI Property 2011 is ideal for this situation. '' Competition among banks and Home Finance Companies (HFCs) leads to competitive interest rates on home loans, which makes it possible for most 'home seekers' to go ahead and get a house of their own. For those still waiting to make their 'buy' decision, it is important to understand the implications of various home loan options before taking a decision, the wide array of choices will make a visit to MCHI Property 2011 a win-win experience.''
Home loan options don't just help bridge the gap between 'own homes' and 'cost of the flat' - a family looking at a spacious one-bedroom hall kitchen flat could consider a compact two-bedroom flat instead, thanks to a home loan. Stretching yourselves or taking a joint home loan could increase eligibility to upgrade your apartment size during the first transaction itself rather than scale up in installments over the years. This enables you to save on the stamp duty and registration charges and other such expenses that would be otherwise have to be borne while upgrading to a larger flat later on.
The home loan eligibility of a home seeker is determined by two aspects, the loan repayment tenure and your income levels. If one expects a substantial increment within a few months by all means mention this while discussing the home loan. Similarly, people at the initial stages of their career can take a longer tenure home loan as their repayment capability is much longer, says Paras Gundecha.
If you need to take a personal loan to cover up the deficit if any, ensure the amount is not too high. Pay it off quickly as the interest rate on personal loans is much higher than that for home loans. If need be take a home loan for a longer tenure but avoid personal loans or raising money informally at 'market' rates, explains Boman Irani, Hon Secretary, MCHI.
The home work to be done for buying a new home has increased substantially. The smart thing is to opt for a lending institution or bank that does not charge a pre-payment penalty. If that is the case, start putting aside a specific amount at regular intervals and clear the loan within a shorter timeframe.
One could also opt for a higher quantum of repayment during the initial years and then reduce it after say, three or five years, when you need to divert more funds for household expenses, says Boman Irani.
Several banks also offer a facility that reduces your outstanding amount based on the time for which you keep a minimum amount deposited in a savings account before withdrawing it. The ultimate combination is to raise as much money as you can during the initial years, keep a short tenure and also try to prepay the loan in advance, so that you have no EMI worries a few years down the line!
Installment to Income Ratio is generally expressed as a percentage, says Bandish Ajmera, Exhibition Committee Chairman, MCHI. ''This percentage denotes the portion of your monthly installment on your Home Loan,'' he says. This figure is normally pegged at 40 per cent but can vary on the basis of actual salary details, qualifications, employer / business, years of experience, growth prospects and sources of other income. Fixed Obligation to Income Ratio is where the HFI takes into account the installments of all other loans previously availed including the Home Loan applied for. This includes all the fixed obligations that you pay every month, not including statutory deductions like PF, Profession Tax, etc. and deductions for investment like Voluntary PF, LIC Premium, etc, explains Boman Irani.
Home loan repayment consists of a portion towards the accruing interest, with the remainder being applied to the principal. Initially the repayment is more towards the interest and less towards the principal amount. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time. An amortization schedule is a table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero, adds Boman Irani.
If you have a fixed income and fixed period of employment (typically Government employees) and the home loan installment forms a significant portion of your post tax earning, take a fixed rate loan even if it seems expensive today. This is because such people will not have the ability to pay EMI beyond their retirement age.
In case if the home loan installment is easily manageable for you (typically less than 40 per cent of your post tax earning - this is mainly applicable for self-employed people), take a floating rate but whenever the financier increases the rate and gives you the option of increasing the installment, do so. This way, you know for sure that the loan will get over in the original contracted period of time, explains Bandish Ajmera.
If you do not see this to be your final house (typically salaried people in private service) and look at upgrading your house after four to five years, then it is advisable to take a floating rate, says Paras Gundecha. ''Under normal circumstances, the upside in the property price will more than compensate for the upside in your interest rate,'' he concludes.
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