Home Loan Loans

How to compare Home Loan quotes for your dream home

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Compare Home Loan quotes for your dream home

Compare home loan quotes

How to compare Home Loans

Choosing the dream home is a difficult and an important task in one’s life and an equally important one is choosing and comparing your home loan. There are many websites which offer this tool to compare home loan interest rates. But comparing home loan interest rates is not the only thing that a potential home loan borrower should look at. There are many other aspects of comparing a home loan and choosing the right one for you. In this article we cover what aspect of a home loan comparison should you look at, because ultimately it is really long term decision and the interest burden can jeopardize the financial planning. Sometimes the money saved on interest cost and other allied costs can make a huge difference in your well being at later stages in your life.

Why should you compare home loan online?

First step in home loan comparison would be to take the first cut rates and applicable charges. Most of these rates and processing fee displayed by these websites for comparison purposes is the applicable card rates. And most of the times the banks / housing finance companies offer a discount to the applicable card rates to good quality borrowers. Therefore the applicable home loan rate and processing fee could be much lower than the one displayed on the website.

What should you look beyond for home loan comparison?

Once you have the best home loan rate arrived after the comparison, the next step would be to look at the suitability of the bank to the transaction. E.g. banks like SBI, IDBI Bank and other PSU banks don’t fund the premium portion of the transaction in under construction properties. To take an example, suppose the original allottee booked an apartment with the final cost at Rs 75 lacs 4 years ago. His cost as per the builder buyer agreement would be Rs 75 lacs. Now during the last 4 years the price of this property appreciated and is now available for Rs 1.60 Crs in the resale market. A private bank like ICICI bank, HDFC Axis, PNBHFL etc can fund upto 75% of the market value of this property. Which means that to fund this purchase to a buyer in resale, a buyer if takes home loan from one of the above would have to pay Rs 40 lacs out of his pocket and the bank would be able to fund upto Rs 1.20 Crores. Whereas if the same customer approaches SBI or IDBI for home Loan, the SBI or IDBI would be able to fund only 80% of the original cost (as per the builder buyer agreement). Which means to buy this property in the resale market and taking a home loan from SBI would mean that the buyer would have to shell out Rs 1 Crores from his own pocket and the bank would only be able to fund upto Rs 60 lacs. Therefore even though the compared home loan quote from these banks could be lower, but these banks wouldn’t be able to fund this transaction. If a buyer would have approached any of these banks for a home loan then in that case he would have wasted a considerable amount of time chasing the home loan and would have less time to remedy this transaction.

Similarly in case of ready to move in property banks also fund Furniture and Fixture as a part of the transaction. The banks like ICICI Bank or HDFC would have a much higher flexibility compared to a PSU banks which have conservative yardsticks to fund additional costs. Therefore comparing home loan and getting the lowest quote is not the last solution, the funding arrangement should suit your type of transaction as well.

What are the features offered by the bank to look at while comparing your home loan?

One of the important features available these days is a linked current account with the home loan which can work as an overdraft account and save a borrower lot of interest. How this feature works is the bank opens a current account and whatever money is kept in that account, on a similar amount the interest is credited back to this account. Which means the interest is charged only on the net amount. I.e. the disbursed amount minus the amount available in the linked current account. The example below is for a home loan of Rs 1 Crores for 20 years at and ROI of 10.25%.  In this case the borrower would keep only Rs 2 lacs in the linked current account and would end up saving Rs 8.66 lacs which is equal to approx 9 EMIs and this is easy for a regular borrower.

Interest Savings on Linked Account, Home Saver etc

Interest Savings on Linked Account, Home Saver etc

What are additional costs to consider while comparing home loans?

Other than the comparing the ROI and processing fee, the other important factor would be to look at the date on which bank debits the EMI and what is the adjustment for interest and principal. Some lenders charge the EMI in the immediate next monthly cycle and the interest is adjusted for the whole month in advance. The borrower ends up paying more even if the same ROI is charged as compared to a bank which does the adjustment for interest towards the end of the month. In addition to this lenders also have a list of charges E.g. document retrieval charges, cheque bouncing charges, reset clause etc are other important factor to compare in a home loan from two different lenders.

How to choose the best home loan for you?

How to compare and choose the best deal for you? Having done the above analysis, and some studies online you should approach a multy brand service provider. Even if you are approaching the bank branch directly, you should do this for at least 2-3 lenders. Because generally the salesperson from lender would want you to avail the facility from his institution and wouldn’t give you adequate information about others even if the transaction cannot go through this lender. And ultimately besides you got the best deal but got stuck ultimately. Therefore choose wisely choose the right one for you.

Disclaimer:The contents of this article aren’t intended to serve as professional advice or guidance and the publisher takes no responsibility or liability, express or implied, whatsoever for any investment decisions made or taken by the readers of this Article based on its contents thereof. You are advised to verify the contents before taking any investment or other decision based on the contents of this Article. The article is meant for general reading purposes only and is not meant to serve as a professional guide for investors.

Financial Acumen Investments Mutual Funds

Terminology income fund – debt fund

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Terminology used in Debt Funds

Debt Funds jargon made simple

Debt Funds jargon made simple

As a first time investor when you consider investing in a debt mutual Fund or even an existing investor having a look at the mutual fund Factsheet; comes across certain terminology he doesn’t understand. This article focuses on the terminology that an investor comes across while investing in a debt fund. This easy to understand explanation of the complex terminology helps you to understand various terms described in the fact sheet of a mutual fund.

Fixed income funds/ securities

A security that pays a certain rate of returns such as a bond but do not offer an investor much potential for growth. This usually refers to government, corporate or municipal bonds, which pay a fixed rate of interest until the bonds mature, or preferred stock, which pays a fixed dividend. A mutual fund investing in these types of securities may also be referred to as a fixed-income investment or security.

Gilts / Government securities

Securities that are sold to the public by the government to raise money to finance its requirements. These securities are also called as dated papers and issued by the RBI on behalf of the Govt of India.

Coupon Rate

The interest rate that the issuer of a bond agrees to pay the bond-holder until maturity of the bond is called as the coupon rate. Some people also refer to this as interest rate in common parlance. Usually the coupon rate is expressed as a percentage of the face value of the security.

Compounding

Interest earned not only on the initially invested principal but also on accumulated interest during the period of bond is called as compounding.

Face Value

The original issue price of one unit of a scheme is called as face value. E.g. in case of a scheme of a mutual fund, mutual fund issue units at a face value generally Rs 10 during the initial offer period. Similarly when a bond is issued to the general public for the first time, the price at which it is issued at is called as the Face Value.

Discount

In case of securities listed on the stock exchange, the discount refers to the selling price of a bond when it’s price is below its maturity value.

Maturity date

Date on which the principal amount of a debt instrument or bond becomes due and is payable in full.

Maturity value

Maturity value is the amount the issuer agrees to pay out when the bond reaches it’s maturity date.

Fixed rate

A loan in which the interest rates do not change during the entire term of the loan. Therefore securities with a fixed rate and longer term fluctuate more with the interest rate changes compared to a floating rate security.

Floating Rate

The floating rate is linked to a benchmark rate and arrived at by adding a premium or discount to the benchmark rate. Most Floating rate bonds in India are bench-marked to 10 year Govt Security of MIBOR.

Cumulative total return

Usually calculated in the same manner as standardized average annual total return, except that these figures represent the total change in value of an investment over the stated periods and do not reflect any sales charges.

Credit Rating

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Credit rating reflects on the Bond issuer’s ability to repay a loan. Simply put it is the creditworthiness of a company issuing a bond that a mutual fund invests in. E.g. Govt securities have sovereign rating and a company with a very high creditworthiness would have a triple A (AAA) rating. As you go from AAA to AA or to A the creditworthiness goes down. The credit rating in India is provided by independent rating agencies like CRISIL, ICRA and CARE etc.

Credit analysis

The process of analyzing information of companies issuing bonds or other securities where mutual fund s invest in; in order to estimate whether the issuer will meet its future obligations to pay back the investor is called as credit analysis.

Credit Risk

Credit Risk is the possibility that a bond issuer will default, and fail to repay principal or interest as promised. Credit risk is also known as “default risk”. The collective risk of a debt mutual fund portfolio is called as the credit risk.

Year to Date (YTD)

A time period in a calendar year starting from the first of January and ending on the first of January.

Yield to Maturity (YTM)

The yield earned by a bond if it is held until its maturity date is called as yield to maturity or YTM. Similarly the yield for a Debt fund portfolio would be called as YTM if such portfolio held till maturity.

Yield

The annual rate of return on an investment is called as yield and is usually expressed as a percentage.

Yield Curve

A graph depicting yield vis-a-vis maturity. If short-term rates are lower than long-term rates, it

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is a positive yield curve, if short-term rates are higher, it is a negative or inverted yield curve. If there is isn’t much difference, it is a flat yield curve. In a debt fund the yield curve refers to the y graph of the yield of a debt fund portfolio.

Average Portfolio Maturity

Average portfolio maturity is the average maturity of all the bonds in a bond fund’s portfolio. Simply put average time to maturity of all fixed-period investments in the portfolio of a scheme. This is an important measure and investor should look at investing in a debt fund whose average portfolio maturity matches his investment horiqon.

Duration

Duration is a measure of a bond’s lifetime that accounts for the size and timing of the bond’s cash flows. Generally, the shorter the duration, the lower the price volatility, all other things being equal. In a debt fund the duration is implied for the mutual fund portfolio.

Disclaimer:The contents of this article aren’t intended to serve as professional advice or guidance and the publisher takes no responsibility or liability, express or implied, whatsoever for any investment decisions made or taken by the readers of this Article based on its contents thereof. You are advised to verify the contents before taking any investment or other decision based on the contents of this Article. The article is meant for general reading purposes only and is not meant to serve as a professional guide for investors.

Alternative Investments Investments Real Estate Investment Trusts

Real Estate Investment Trusts in India REITS

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Real Estate Investment Trusts in India - REITS

Real Estate Investment Trusts in India – REITS

Real Estate Investment Trusts (REIT)

Real Estate Investment Trust (REIT) is an important asset class which has been thrown open to the High Net Worth Individuals ( HNIs) currently and can be opened to other small investors as the market matures. To begin with, though, only wealthy individuals or institutions will be allowed to invest in REITs. REITs invest primarily in completed, revenue-generating real estate assets and distribute a major part of the earnings among their investors. Typically, the income of these trusts comes from the rentals received from such properties. REITS offer a less risky alternative to investing in under-construction properties and also provide a regular income.

What is a Real Estate Investment Trust ( REIT)?

Globally, REITs invest primarily in completed, revenue generating real estate assets and distribute major part of the earning among their investors. By the very nature of REITs, it is beneficial to both the investors and the industry in different ways. On one hand, REITs provide the investors with an investment avenue, which is comparatively less risky than investing in under-construction properties and provides regular income. On the other hand, REITs provide the sponsor (usually a developer or a private equity fund) avenues of exit thus providing liquidity and enable them to invest in other projects.

Salient Features of a REIT

Globally, framework for Real Estate Investment Trusts exists in several countries including United States of America, Australia, Singapore, Japan, France, United Kingdom, etc. In most of these countries, REITs appear to have the following

  • REITs are managed by professional managers which usually have diverse skill set in the field of property development, redevelopment, acquisitions, leasing and property management.
  • Countries where REITs are available for retail investors, they provide an avenue to such investors for investment in properties. These investments are otherwise not possible and are outside the capacity of retail investors.
  • REITs are also a popular investment option for long term investors, such as pension funds and insurance companies. Since the regular stream of income helps them in managing regular outflow to their investors and policy holders.
  • Listed REITs provide liquidity thus providing easy exit to the investors.
  • REITs bring in transparency and accountability in the real estate sector, which otherwise suffers from the lack of transparency and trust factor.
  • All these reasons have made REIT one of the preferred investment vehicles around the world.

How Would a Real Estate Investment Trust (REIT) Work in India

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All REIT schemes, to begin with, will be close-ended real estate investment schemes that will invest in property with the aim of providing returns to unit holders. The returns will be derived mainly from rental income or capital gains from real estate. REITs will be allowed to invest in commercial real estate assets, either directly or through special purpose vehicles (SPVs). In such SPVs, a REIT must have a controlling interest of at least 50% of the equity share capital. Further, such SPVs have to hold at least 80% of their assets directly in properties. All Sponsors desirous of launching a REIT would have to register with SEBI

  1. After registration, the REIT shall raise funds initially through an initial offer and once listed, may subsequently raise funds through follow-on public offer.
  2. Listing of units shall be mandatory for all Real Estate Investment Trusts. The units of the REIT shall continue to be listed on the exchange unless delisted under the Regulations. Provisions for delisting have also been specified in the SEBI Regulations.
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    For coming out with initial offer, it has been specified that the size of the assets under the REIT shall not be less than Rs. 1000 crore which is expected to ensure that initially only large assets and established players enter the market.

  4. Further, minimum initial offer size of Rs. 250 crore and minimum public float of 25% is specified to ensure adequate public participation and float in the units.
  5. General procedure for initial or follow-on offer, filing of offer document, allotment and listing of units has been specified in the SEBI Regulations. Detailed disclosures required in the offer document and follow-on offer document have also been specified in the SEBI Regulations.
  6. The REIT may raise funds from any investors, resident or foreign. However, initially, till the market develops, it is proposed that the units of the REITs may be offered only to HNIs and institutional investors. Therefore, it has been proposed that the minimum subscription in a REIT would be Rs. 2 lacs and the unit size shall be Rs. 1 lac.

For More Details read SEBI Regulations regarding the Real Estate Investment Trusts here.

Disclaimer:The contents of this article aren’t intended to serve as professional advice or guidance and the publisher takes no responsibility or liability, express or implied, whatsoever for any investment decisions made or taken by the readers of this Article based on its contents thereof. You are advised to verify the contents before taking any investment or other decision based on the contents of this Article. The article is meant for general reading purposes only and is not meant to serve as a professional guide for investors.

Home Loan Loans

15 Home Loan terms you must know

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15 Home Loan terms you must know before applying for a home loan

15 Home Loan terms you must know before applying for a home loan

15 Home Loan Terms you must know before applying for a home loan

The jargon of various home loan terms used by the home loan sales people sometimes becomes confusing. This is a list of 15 questions that you would come across during the home loan process that you must know before applying for a home loan. These terms have been put in simple easy to understand language from the layman’s perspective.

What is a pre – approval of Home Loan?

In case a customer wants to get a pre-approval of the loan done without first finalizing the property; he can do so by making the application in a similar fashion as a normal housing loan application. However some companies require a declaration from the customer that he is applying under the pre-approval and hasn’t identified the property. Wherever such declaration is not there; one can always write in bold letters that this application is for a sanction of the loan without finalizing the property.

What is an EMI?

EMI (Equated Monthly Instalment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of interest due as well as a portion repayable towards the principal, therefore EMI is principal plus interest. The interest is charged on the outstanding principal at the end of every month. There is a myth; many people tend to believe that the banks charge high interest in the beginning and low interest towards the end to charge more interest. The fact is if you calculate the interest charged at any given point in time would simply be the interest charged on the outstanding principal for that month. Since the principal outstanding during the first 6-7 years of a 20 years loan is very high the portion of interest in the EMI is also high.

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What is pre EMI?

In case of under construction properties; where  the possession of the property would be offered at a later date, to avoid the extra burden on the borrower, who is on a rented accommodation and is also simultaneously  paying the rent. The banks / HFCs offer the facility of deferring the EMI till possession or for a particular period. The payment of interest for such a period is called as the pre emi interest.

What are Daily Reducing, Monthly Reducing and Annual Reducing?

Annual reducing: In this system, the principal, for which you pay interest, reduces at the end of the year. Thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender through EMIs paid during the year. This means the EMI for the monthly reducing system is effectively less than the annual reducing system. EMI as a concept is based on monthly reducing only.

Monthly reducing: In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.

Daily Reducing: In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system.

What is a fixed rate of interest?

Fixed rate of interest means that the rate of interest remains unchanged for the specified duration of the loan. This means you do not benefit, if rates of interest drop in the market. Similarly you do not lose if rates of interest increase. Under fixed home loan rates also, banks/HFCs retain the right to increase the rate of interest after the prescribed interval. This provision is mentioned in the loan agreement. This is known as reset clause in the fine print.

What is a floating rate?

This is the rate of interest that fluctuates according to the market lending rate. This is also called as the adjustable interest rate in some cases. The adjustable interest rate is bench-marked to a Base rate by the banks and to PLR by the HFCs.

The benchmark base rate or the PLR changes as the interest rate changes by the RBI.

What is the reset clause?

Reset clause in a loan agreement is a clause which defines the interest rate reset time and other terms & conditions. This reset clause is generally set in fixed rate loans.

What is Base Rate?

Banks in India link all the lending to Base Rate. Base rate of a bank is the bench mark rate and all the lending is pegged to this rate. The base rate of a bank is determined by the cost of funds plus an interest margin. The cost of funds is supposed to be lower for a bank which has high current account & savings account balance (CASA balances). Banks charge a margin on the base rate for different products. E.g. SBI home loan upto Rs 75 lacs are available at 10.15% and the base rate of SBI is 10.00% currently. This means SBI is charging a margin of .15% for home loan on base rate. This margin would remain constant throughout the term of the loan.

What is Prime Lending Rate?

Housing Finance companies like LICHFL, HDFC & PNBHFL etc lend on Prime Lending Rate. Each HFC would have a different name for its PLR, but it means the same. E.g. LICHFL calls its PLR LHPLR and HDFC calls RPLR. The PLR is generally a high number and these companies give a discount to the PLR to arrive at the effective rate of interest to be charged to the customer. This discount is the single most important factor and the reason why the loan to an existing customer is at a higher rate and loan to the new customer would be at a lower rate. Because these HFCs have adopted this practice that they don’t reduce the PLR so quickly and give a higher discount to the new customers.

What is better PLR or Base Rate?

Base Rate is better for two reasons: 1) Banks have access to low cost funds in the form of CASA balances and 2) the margin charged on the Base Rate is generally a small number, and there is less flexibility with the bank to tweak it too frequently.

What is construction linked plan?

Under the construction linked payment plan, the buyer of the property is required to pay money in installments as the stage of the construction progresses. The Home loan so taken is also disbursed in stages and doesn’t put pressure of EMI on the borrower immediately. Therefore people living in rented accommodations can opt for this type of plan.

What is approved project funding?

For facilitating individual borrowers and to avoid inconvenience to the individual property purchasers the banks don’t ask for the complete set of the property papers of a particular project from individual borrowers, instead the builder is asked to provide such documents to the bank. The bank after doing its due diligence approves the project for funding. This is called as Approved project funding or generally referred to as APF. The builder generally approaches only 4-5 banks to get the project approved. However it doesn’t mean that the other banks cannot fund the project. The only difference would be that the individual borrower would have to run around and provide the documents to the banks. It would be ideal that a borrower approaches a bank which has already approved the project for funding to avoid the running around.

What is prorated Home loan?

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For young individuals in the early stage of their career, it is difficult to pay a large lump sum as a part of their contribution at the time of booking an under construction property. Therefore they can opt for funding their contribution in the same proportion as the bank’s contribution as the construction stage progresses. However some banks ask for a minimum 15% of the cost of the flat is too paid by the borrower upfront. The bank starts disbursing afterwards. However at any time the share of the HFC / Bank cannot exceed the percentage share by the borrower.

What is the Security required for home loans?

In most cases, the property to be purchased itself is the accepted as the security and is mortgaged to the lending institution till the entire loan is repaid. In case there is a problem with the creditworthiness of the customer or the property being financed is not fully technically compliant, the lending institution may ask for additional collateral as well. Some institutions may ask for additional security such as life insurance policies, FD receipts and share or savings certificates.

What is second charge?

In some cases employers such as banks / Govt institutions offer loans to their employees at very subsidized rates. However such loans don’t suffice; since the value of the property is much higher. Therefore the borrower requires a loan from some other bank / HFC as well. The property which has already been mortgaged to one institution if accepted as collateral by the second lender is called as the second charge. Banks / HFCs accept second charge from the central Govt Departments and some PSUs as well. One should clarify in advance before applying for a second home loan on the same property.

 

L & T Mutual Fund Mutual Funds

L&T Business Cycles Fund NFO

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L & T Business Cycles Fund

L & T Business Cycles Fund

L & T Business Cycles Fund

 L & T Mutual Funds launches its new fund offer,L&T Business Cycles Fund – NFO from 30th July 2014 and the offer ends on 13th August 2014

“Business cycle approach focuses on riding business cycles by strategically changing allocation between various sectors and stocks at different stages of business cycle in the economy” is how the fund has been described in its marketing collateral.

About L&T Business Cycles Fund: L&T Business Cycles Fund is an open – ended equity scheme with an 18 months exit load of 1% and NIL post 18 months. The fund has a unique business cycle approach to investing. Unlike a typical diversified equity fund which maintains a diversified portfolio spread across sectors at all times, this fund from L & T Mutual Fund will have complete flexibility to shift between cyclical and defensive sectors. L & T Business cycle fund is being promoted as all-season fund with an ability to shift between sectors depending on medium term economic / business cycle trends. L & T Business cycles fund portfolio would be concentrated across fewer sectors compared to a typical diversified equity fund. Industrials, auto, banking, real estate, infrastructures, materials, consumer durable etc have been defined as sectors with varying business cycles. Whereas healthcare, consumer staples, Information Technology, Utilities, Telecom etc are considered defensive sectors. L & T Business cycles fund would have the complete flexibility to shift between these sectors depending upon the changes in business and economic scenario.

L & T business Cycles Fund will allocate 65%-100% of its assets in equity and equity related securities (including Indian and foreign equity securities as permitted by SEBI/RBI) with high risk profile and invest upto 35% of its assets in debt and money market instruments with low to medium risk profile.

Fund Manager : Mr Venugopal Manghat & Abhijeet Dakshikar (Foreign securities)

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NFO Start date : 30th July 2014 & Closes : 13th August 2014.

Benchmark: S&P BSE 200.

L & T Business Cycles Fund

Have Questions as here Download more information here:L&T Business Cycles Fund flyer

L & T Business Cycles fund has been categorized as Brown color, which means High risk.

Disclaimer:The contents of this article aren’t intended to serve as professional advice or guidance and the publisher takes no responsibility or liability, express or implied, whatsoever for any investment decisions made or taken by the readers of this Article based on its contents thereof. You are advised to verify the contents before taking any investment or other decision based on the contents of this Article. The article is meant for general reading purposes only and is not meant to serve as a professional guide for investors.

The Article contains information, statements, opinions, statistics and materials that have been obtained from sources believed to be reliable and the publishers have made best efforts to avoid any errors and omissions, however we make no guarantees and warranties whatsoever, express or implied, regarding the timeliness, completeness, accuracy, adequacy, fullness, functionality and/or reliability of the information, statistics, statements, opinions and materials contained.

This article is for information purposes only and doesn’t solicit any business.

“MUTUAL FUNDS INVESTMENTS ARE SUBJECT TO MARKET RISK, READ THE SCHEME OFFER DOCUMENT CAREFULLY BEFORE INVESTING.”