Home Loan and Mortgage

Wednesday, December 23, 2009

Cushion of credit line may work to your advantage

Close on the heels of its peers introducing hybrid housing loan schemes, Citibank has jumped on to the bandwagon by launching CitiHome One, a mortgage product that is a combination of a conventional term loan and a credit line. The facility allows borrowers to determine the amount they wish to take as credit line, and the balance will be structured as a simple term loan. However, the credit line will be subject to an overall limit of 30% of the total facility, or Rs 1 crore, whichever is lower.

Let’s take an example of an individual who is buying a house worth Rs 50 lakh. He puts in Rs 10 lakh and applies for a home loan of Rs 40 lakh. In an ordinary loan, he would have to pay an EMI of around Rs 36,000 from the first month onwards (assuming an interest rate of 9% for 20 years). Here, he will have the flexibility to structure his home loan — up to a maximum of 30% — as a credit line where he needs to pay monthly interest. If he avails of a loan of Rs 40 lakh, structured as a credit line of Rs 12 lakh and a term loan of Rs 28 lakh, he pays an EMI of nearly Rs 25,000 (assuming similar interest rate and tenure) on the term portion of the loan and a monthly interest of Rs 9,500 on the credit line. Later, he can deposit any surplus funds into the credit line to save on interest (and pre-payment charges) and has the flexibility to withdraw this money in the future. For instance, if he deposits Rs 2 lakh in the credit line, he saves an interest of Rs 1,600 every month.

A maximum of Rs 5 crore is allowed to be borrowed under the loan facility. The loan will be subject to a variable interest rate linked to the Citibank Mortgage Prime Lending Rate, which currently stands at 13.5% per annum. The loan tenure of the term loan component can go up to 20 years while the credit line is subject to a maximum tenure of 10 years, post which, the borrowers have the option of either making a one-time repayment, or converting the credit line into a term loan and paying back the amount in EMIs.

In addition, upon availing of this scheme, the borrowers will be enrolled into the bank’s ‘feature-rich’ current account. This will serve as an umbrella account and will allow borrowers to consolidate all their banking requirements into a single CitiHome One Account. However, the cushion of credit line may not be a great idea for those who find it difficult to resist the temptation of utilising credit that is easily available for a 10-year period. Besides, the loan is offered under a floating rate structure, and considering that interest rates are expected to harden in the coming months, it acts as a drawback, particularly when compared to some other banks that are competing to offer fixed interest rate as low as 8-8.25% in the initial years.

Save Upto 50% on interest payments with smart Home from HSBS

Save with Smart Home

At HSBC, we understand that buying a home is a long-term financial commitment. Smart Home is a simple way to use your savings smartly, by letting you decide how much interest to pay. Repay your loan sooner. Smart Home offers competitive home loan interest rates and more.

Know more

Smart Home Features & Benefits

Save up to 50% on interest payments

With every Smart Home, you get a current account. All you need to do is put your usual savings, from other accounts, into the Smart Home Account. Depending on the savings you put into the Smart Home Account, you can reduce the quantum of interest paid by up to 50%.

Here's how Smart Home works to save you money

Your home loan interest is calculated, on the principal outstanding minus the savings deposited in your Smart Home Account every month, over and above your EMI. Calculate your savings:

The example below shows how much interest is reduced, with a monthly saving of just Rs. 6,000, over and above your EMI.

	Standard Home Loan	HSBC's Smart Home

Home Loan Amount (Rs.)	25 lakhs	25 lakhs
Interest Rate	8.50% p.a.^*	9.00% p.a.^*
Original Tenor	20 years	20 years
Actual EMI's	240	143 (40% less)
Total Interest (Rs.)	27,06,939	16,11,087
Saving in Interest (Rs.)		10,95,852 (40%)
Savings in Tenor (months)		97 (40%)

* Interest rates are merely indicative which can change from time to time depending on market conditions.

The shortened loan tenor and savings require monthly payments and the accumulation of monthly savings of Rs. 6,000 in the Smart Home account.

The interest rate on your Smart Home is linked to HSBC's Retail Lending Rate (RLR) and any revision in the RLR would impact your interest rate. The RLR is 13.75% effective from July 03, 2009.

Tax benefits

Smart Home customers are eligible for certain tax benefits on principal and interest components of a housing loan under the Income Tax Act, 1961*.

* Please consult your tax advisor/C.A. for specific details.

Exclusive Smart Home banking privileges for you

You can even use the Smart Home Account as your main bank account for depositing and withdrawing money
Along with your Smart Home, get access to an HSBC PowerVantage Account, with the following benefits:

Free access to 15,000 VISA ATMs across India, with your PowerVantage debit card ⁺
Free cheque payable at par facility
Dedicated service desks and counters at branches
Financial planning services to help you plan your financial goals

⁺ Not Applicable to NRO accounts.

Tuesday, December 22, 2009

Home loan? Keep EMIs low

Home loan EMIs can be a nightmare.

While you do have the satisfaction of knowing you will eventually own your home, you also have to grapple with having to spend less money, with fewer treats, with giving up on luxuries that you would otherwise have enjoyed.

We asked Get Ahead readers to share their EMI stories and advice. Here's what Sunil Agarwal from Kolkata has to say:

I am a 28-year-old chartered accountant working as a functional consultant with a top IT company in India [ Images ]. Prior to this job, I had worked as an operations manager in a leading housing finance company in India.

Recently, I took a home loan of Rs 16 lakhs in Kolkata. With my past job experience with home loan customers -- besides, this is what I personally believe as well -- I feel it's always better to keep the monthly EMI as low as possible.

Our salary comes only once a month, but we spend that money for 30 days. So, if you has the option, the monthly EMI commitment should not be on the higher side.

It is true that increasing the EMI will reduce the term of the loan. But, if a single EMI cheque bounces, you will have to pay a hefty penalty. Besides, your credit history goes for a toss. Click here to find out why your credit history is important.

So, how you will divide your monthly salary between your EMIs and other important expenses (like your child's tuition fees, grocery bills, electricity and phone bills, society charges, etc)? You also need to consider what other liabilities you may have in the near future.

Are your EMIs working to your advantage?

If you feel that your money won't stay in your savings account because you tend to spend, here's a simple solution:

~ Open a recurring deposit account in your bank for a short term, say one year.

~ Give a standing instruction to your bank to transfer a fixed sum every month from your salary account to this deposit account.

This way, you will reap multiple benefits:

~ The idle money in your account will be earning you a higher rate of interest (it will at least earn you some interest and it is better than spending it impulsively on a gizmo or some such thing).

~ By the time your deposit account matures, you will have a lump sum amount, and also an option -- whether to prepay part of your home loan or use the money otherwise.

~ If you decide to prepay part of the loan, you can reduce either the tenure of your loan, or the amount you pay each month as EMI.

Is your home loan burning a hole in your pocket?

Believe me, this will help you overcome your home loan woes.

DON'T MISS!

How to cope with your home loan EMIs

Are you facing a similar problem? Have EMIs crippled your life as well? If yes, how are you coping? Are you cutting down on your monthly expenses? Are you borrowing to repay your loan?

What solution have you developed for your home loan problem? Share it with other Get Ahead readers.

We will feature the best and the most imaginative/ practical solutions to home loan woes right here. Make sure you include your FULL NAME, AGE, OCCUPATION, HOME LOAN AMOUNT, THE INTEREST AT WHICH YOU HAVE TAKEN THE LOAN and the CITY you are based in.

Your advice could help others manage their home loan problems. Write in now.

How to cope with your home loan EMIs

Is your home loan burning a hole in your pocket?

If you want to prepay your loan to reduce your EMI, you will definitely have to liquidate some of your existing investments. In which case, you need to compare the probable returns you would get by staying put with your investments with the benefits of selling them to reduce your EMI.
If the expected returns from your investments are falling below, say eight per cent for 10 years, then it is better to sell them and prepay your home loan. This is because you will be paying more as interest on your home loan EMI than getting returns from your investments.
However, a common man only has two options (because I do not have the funds to prepay my loan): increase EMI or increase tenure.
If you are young, with sufficient years remaining for your retirement, it would make sense to increase the tenure, especially since the interest rates are likely to fall in the future.
Thus, you can still pay the same EMI amount and get benefit of falling interest rates in the future. However, most banks put a cap on the maximum possible tenure.
It is generally up to 20 years, but some banks go up to 25 years as well. So, if you have taken the loan very recently, then the possibility of the bank's approval for tenure increase would not be possible (depending on the number of years remaining before you retire).
In that case, the only option is to take the hit and increase of EMI. As a result, your monthly outgo will increase. Which would mean less of outings or movies or dining out or shopping.

Is your bank amortising home loan correctly?

Careful budgeting and fixing the date of your EMI as early in the month as possible will automatically force you to cut down on your spends.
All said, what you decide to do with your increasing EMI depends on the stage of your life, career and existing investment portfolio.
Are you facing a similar problem? Have EMIs crippled your life as well? If yes, how are you coping? Are you cutting down on your monthly expenses? Are you borrowing to repay your loan?
What solution have you developed for your home loan problem? Share it with other Get Ahead readers.
We will feature the best and the most imaginative/ practical solutions to home loan woes right here. Make sure you include your FULL NAME, AGE, OCCUPATION, HOME LOAN AMOUNT, and the CITY you are based in.
Your advice could help others manage their home loan problems. Write in now.

Anil Mishra

Tips for the first-time home loan borrower

Home loan EMIs can be a nightmare.
While you do have the satisfaction of knowing you will eventually own your home, you also have to grapple with having to spend less money, with fewer treats, with giving up on luxuries that you would otherwise have enjoyed.
We asked Get Ahead readers* to share their EMI stories and advice. Here's what London-based Sarvesh Saxena would advise if you are a first time home loan borrower:
I have some advice I'd like to share with people who are considering a home loan. I have helped someone in this capacity, so I thought some suggestions are worth mentioning.
Home loan
Home loans are a way through which every employed person can realise his/ her dream of owning a home.
This is a great product because it allows you to own something that ultimately increases in value, giving you financial stability.
Important things to consider when going for a home loan
~ Ensure you calculate the total loan payments yourself. You need to know the exact amount you will be paying at the end of your loan term. You also need to know the penalty you will be charged if you prepay the loan. Sometimes, such penalties can be substantial.
~ Loan repayments are tricky to calculate, so make sure you know how the payments are worked out on a compound interest basis.
~ The kind of interest rate you choose is also very important. Are you going in for a fixed rate loan or a floating rate loan? If you are a first time buyer, make sure that, whatever option you choose, your EMI remains fixed even if the interest rate goes up for the first few years of your loan term. This will enable you to plan ahead and feel safe that your payments will not increase like they would with a pure floating rate home loan.
~ Before you go in for a home loan, make sure you have a good credit history. Banks and other financial institutions use credit checks. To have a good credit history, you should pay your credit card bills on time and not change your house address frequently.
~ Try and set aside a solid deposit, say 15 per cent of your property price, so you can make your monthly payments even if you are without a job for a brief period.
~ Ask your lender if they will allow you to make more than your allocated payments. If they agree, you can pay more money whenever possible, so that you pay less interest at the end of your loan tenure.
~ Before applying for a home loan, you should know for sure you have a permanent job to pay your EMIs on time. If you are holding a temporary job and you lose your contract and fail to make payments on time, it may result in the bank taking away your home.
~ Use money wisely and gradually. Don't expect sales persons from banks to educate you. Do your research thoroughly and then make a decision.
~ Finally, any form of credit does carry its risk. But, if it is managed in a methodical manner, you will be in a comfortable position in the future.
DON'T MISS!

Are you facing a similar problem? Have EMIs crippled your life as well? If yes, how are you coping? Are you cutting down on your monthly expenses? Are you borrowing to repay your loan?

What solution have you developed for your home loan problem? Share it with other Get Ahead readers.
We will feature the best and the most imaginative/ practical solutions to home loan woes right here. Make sure you include your FULL NAME, AGE, OCCUPATION, HOME LOAN AMOUNT, THE INTEREST AT WHICH YOU HAVE TAKEN THE LOAN and the CITY you are based in.

Your advice could help others manage their home loan problems. Write in now.

* This is a reader-driven feature. The views expressed by the readers on this Web site are their own, and not that of Rediff.com. Rediff.com does not in anyway endorse any contents of the expression of the readers. Please therefore verify the veracity of all content/information on your own before undertaking reliance and actioning thereupon.

Loan Against Property vs. Personal loan

You may have a lot on your mind when it comes to sending your children for education abroad or maybe finance your business or even finance your child's wedding.

The first thing that would come into the mind of most of us is, 'Where would I get the money from?'

There are many ways you could arrange for money, and one of those ways is taking a loan. You could take a personal loan for the amount required, or you could take a loan against your property.

Check with CIBIL if loan rejected dued to credit history

VN Kulkarni, chief counsellor, Abhay Credit Counselling Centre Guides in matters relating to banking and finance.

Last month, I had applied for an education loan with a private bank. My application was turned down citing ‘unfavourable’ credit history. I found out that this was due to a disputed credit card transaction with another bank, for which I paid a part of the amount under a compromise settlement with the bank nearly seven months ago. What is the recourse available? M Sandeep

It is clear from what you have stated that you have paid the credit card dues through settlement. This means that you are no longer a defaulter. You need to check with CIBIL whether your credit report has been updated by your credit card issuer or not.

If not, you may take up the matter with a credit card issuer, if need be by quoting the relevant paragraph from the code of commitment to customers, according to which the credit card issuer/banker is supposed to update the records maintained by the credit bureau.

The relevant code reads as under: “If your loan account has been in default, and thereafter regularised, we will take steps to update this information with the CRA (credit reference agency) in the next monthly report.”

You may also bring this to the notice of the banker who is to grant the education loan stating that the disputed matter now stands settled. If need be, you may furnish a copy of the letter issued by credit card issuer who must have stated that the amount to be paid by you is towards full and final settlement of the amount due to them.

I have switched jobs twice in the last three years and hence, have three salary accounts with three banks. Of these, I don’t use two, but I haven’t closed these accounts yet. There is no balance in these accounts. Should I close the accounts? What are the implications of not doing so? Prasad Batra

Since you are not operating the other two accounts, it is better to close them. Else, you may end up paying certain charges unnecessarily.

Although salary accounts are generally zero-balance accounts, if the bank comes to know that you are no longer an employee of the company, your account could be converted into a usual savings account and applicable charges will be automatically debited.

Here are a few examples of charges being levied by some banks: Charges for non-maintenance of minimum quarterly average balance; cash transactions at branch in the event of non-maintenance of QAB-nil for the first specified number of transactions per quarter and thereafter, and penal charges per transaction; cheque books in the event of non-maintenance of QAB-specified amount per cheque leaf and debit card fees for the first account holder as well as joint account holder separately as specified by the bank per annum.