How to utilise your mortgage loan

Posted on September 5, 2010 by Reserch team

The home is a valuable asset that most home owners acquire over time. Trading it for cash with a mortgage can be a less expensive way to avail of a loan, but it should not be used lightly. It makes sense to shop carefully for mortgage loan quotes before borrowing, and to prioritise the use of the mortgage loan. After all, a mortgage loan uses the property as collateral, so it should only be used to finance purchases that are worth that risk.

In general, a mortgage loan should be used when the following conditions are met:

  • The purchase is long-term in nature.
  • Loan quotes show a distinct interest rate advantage compared with other methods of financing.
  • A repayment plan has been carefully budgeted.

Given below are some examples of possible utilisation of your mortgage loan:

  • Debt consolidation: This is a common reason why a mortgage loan may be availed of, since such loans generally carry lower interest rates than other loans like personal loans. Debt consolidation allows borrowers to pay less interest by securing their debt with their home.
  • Home improvements: With the festive season around the corner, home improvements can be a way of adding value to a home or increasing its marketability. Using a mortgage loan to add space may be cheaper and involve less hassles than taking an unsecured loan. As in unsecured loan The term of repayment for an unsecured loan is shorter, as compared to mortgage loans, which in turn results in a high EMI.
  • As a general rule of thumb, the best matches for long-term financing are long-term purchases. It may be anything from a boat to a medical procedure, as long as the home owner has reasoned that the item justifies using the home as collateral.

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Cibil launches Mortgage Check to level out home loan market

Posted on September 3, 2010 by Reserch team

Fraudulent home loan seekers and habitual defaulters will have a tough time now as lenders have a ready pool of information available on them, with the launch of the country’s first electronic centralised database of mortgage information called Cibil Mortgage Check. Cibil Mortgage Check would help banks and financial institutions share and access mortgage information, exercise better due diligence, and thus help reduce fraudulent property transactions. This will also bring in more transparent and a factual mine of information about loan seekers, and more importantly about the property being sought to be mortgaged. Cibil Mortgage Check, launched jointly by the country’s largest credit information service provider Cibil (Credit Information Bureau of India) and TransUnion–a global leader in credit and information management services–in consultation with property market regulator National Housing Bank (NHB). Launching this new tool here today, NHB chairman S Sridhar, who is also the CMD of Central Bank of India, said, “Cibil Mortgage Check will help contain a lot of fraudulent activities in residential property marketplace that has been growing at a CAGR of 40 per cent since the past five years.” Sridhar further said, as the sectoral regulator, NHB has been working with Cibil to create this platform so that the lenders have access to ready and credible information on loan seekers as well as their properties. Sridhar also informed that NHB is working on bringing out a property price index which will help contain excessive speculation in the marketplace. On the proposed standards for residential property valuation, he said, NHB has already finalised a draft and sent it the Indian Bank Association for comments

ibnlive.com

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What does personal guarantor means in loan

Posted on August 30, 2010 by Reserch team

Some banks and housing finance companies insist on a personal guarantor. The guarantor is required to meet norms specified by the bank. It is difficult to re-possess the property of a borrower in case of default.

In order to safeguard its interests and to ensure the repayment of the loan is made in time, banks insist on a guarantor. Although the liability is secondary, it is always there. One should act as a guarantor only if he is satisfied with the credibility of the borrower.

Usually, only individuals can act as guarantors. The guarantor basically provides a sort of security on behalf of borrower to the bank, that in case the borrower fails to repay the loan amount or other dues to the bank the guarantor will make good that shortfall.

The guarantor has to enter into a deed of guarantee, where he agrees to make the payment in the event of applicant failing to pay the dues by the due date.

A guarantor should satisfy all the norms relating to age and income applicable to a borrower. With a guarantor, the bank puts some sort of a moral obligation on the borrower to repay the loan. An immediate relative may act as a guarantor in case the policy of the bank permits it.

Although usually a guarantor may be insisted on for loans above a specific amount, the more conservative banks insist on a guarantor irrespective of the loan amount involved.

Some require a guarantor in all cases while others insist on a guarantor only if certain criteria are not met by the borrower. Some of the conditions when a guarantor is required:

If the borrower is residing in a city different from the city where he intends to purchase the property. If the income of the borrower is variable in nature.

Absence of professional qualification in case of a self-employed borrower. Borrower with a transferable job. If the borrower works in an industry where he may have to go abroad for long.

In future, a guarantor can apply for a loan if he is capable of repaying both the installments, on the guaranteed loan and his loan.

If his repayment capacity does not make him eligible for a loan, the borrower may have to arrange for a replacement guarantee. This has to be done by releasing the current guarantor and providing the bank with another guarantor who meets all specified norms. In the event of the guarantor’s death, the borrower has to get another guarantor. Many banks insist on only close relatives such as wife, father, sister, earning children etc as guarantors.

ET

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No loan can be advanced below the new benchmark rate

Posted on August 25, 2010 by Reserch team

The Reserve Bank of India has said a bank will have to honour a fixed rate contract, even if interest rates move up in future. The clarification has removed doubts that some banks had over introduction of fixed rate home loans.

Customers of some banks feared that if the lender’s base rate rose above the contracted fixed rate, the bank might increase the loan rate citing RBI guidelines even though the loan was termed as ‘fixed rate’ . The central bank has said no loan can be advanced below the new benchmark rate.

No change for customers

Banks like Punjab National Bank, State Bank of India and ICICI Bank are offering fixed rate home loans, but customers were worried that they may be charged a higher rate of interest rate if the base rate goes up since no bank is allowed to lend below the base rate.

However, RBI has said at the time of contracting a fix rate loan if the lending rate (under the special scheme) is higher than the base rate, banks do not need to charge higher rate even if the lenders raise their base rate in future

Rise in base rate won’t affect your repayments

For instance, PNB has decided to offer a fixed rate loan of 8.5% on home loan for the first three years. In case PNB decides to raise its base rate, which is now at 8-9 % after a year, RBI has said they cannot charge customers (who have opted for 8.5% three-year fixed rate scheme) an interest rate more than 8.5% in the first three years.

SBI scheme offers 8% for the first year and 9% for the second and third year. While SBI’s scheme is up to September, PNB’s scheme is till December 10

RBI clarifies the special home loan scheme

However, RBI has also told banks that if they hike or lower base rate, that increase or cut in rates will have to be passed on to the new customers under the special home loan scheme.

Therefore, if PNB raises its base rate, to say 9% in October, those special schemes cannot continue at 8.5%, however, the customer who have already availed loan at a fix rate of 8.5% before October, need not pay more.

A bank will have to honour a fixed rate contract

Sources from the industry say PNB had asked for a clarification from RBI on this issue since they recently launched the festive offer and were keen to offer a fix rate scheme.

The PNB fix rate offer is on loans up to Rs 50 lakh and from the fourth year onwards, the bank will charge home loan rate that is prevailing at that point of time for all its customers.

ET Bureau

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Insurance: How much is your requirement?

Posted on August 23, 2010 by Reserch team

An individual buys life insurance to get financial security, in monetary terms, for his dependents in case of his death. This money is called sum assured. Fixing the correct amount of sum assured is a crucial activity at the time of getting a life insurance policy. Taxsavers brings to you some details, which you must have before opting for insurance:

What is Sum Assured?

At the time of signing a life insurance contract, the buyer and the insurer agree upon a certain amount of money payable upon the death of insured to his nominee.  Sum Assured depends upon different factors such as the total net asset of the individual, his family’s current and potential fixed annual income and expenditure, his age, the age of his dependents and any loans or liabilities due.

Basically the amount should be enough to see his dependents through till the time they are able to fend for themselves. It is suggested that the sum assured should be 5 to 10 times your annual income.

Premium and Sum assured

Insurer pays premium because of the sum assured. Different types of insurance policy have different relations. Traditionally, Sum Assured determines the premium. The sum is broken into small amount which is paid by the insurer monthly. This amount is known as premium.

Riders on Sum Assured

Riders is a special provision in an insurance policy that can expand the benefits or the Sum Assured that is payable. In case an individual has a rider for accidental death or disability, apart from being eligible for the death benefit, his policy will also pay out an additional amount if his death is due to an accident as defined in he rider. In case if the accident disables him, while the life policy might not compensate him, the rider will compensate him up to his pre-determined amount.

Why is it necessary to revisit the sum assured regularly?

It is always advisable to review the Sum Assured regularly, especially if there is a major change in an individual’s financial situation. For example:

  • If there is a change in the marital status.
  • Birth and death in the family that adds or reduces the number of the financial dependents.
  • If a home loan has been taken to buy a house.
  • If there is a salary hike.
  • When children become financially independent.
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