Fineprint - Guarantor for loan

When a person or an entity takes a loan, then the bank giv- ing the loan builds various safeguards into the process. One of them is to have a margin limit by taking a security, so that there is a way in which they can recover the money if the borrower defaults on the loan. Another route adopted is that of asking for a guarantor so that in case the borrower does not pay, then the guarantor will be called upon to make the payment.
A good check is made of the guarantor and their financial position before completing the transaction. Many people do not know but their acting as a guarantor also shows up in their credit scores so that banks will take this factor into mind while lending to them. The situation is impacted in case the borrower defaults for which a person is a guarantor. One has to be careful while agreeing to act as a guarantor because this can have a double impact. First of all them might be asked to repay the loan and at the same time there will be an impact on their credit position also and care should be taken on both fronts.

Hot Deals, FLAT Offers - Are they real?

Developers have found a new way to beat slowing demand. They reduce the basic selling price but load a host of other charges later. Buyers need to read the fineprint before signing any deal

    WHEN Nalini Gupta bought a house in Manesar from the biggest developer group in the country, she was attracted by the affordable prices quoted for an apartment there. The Rs 39 lakh for a threebedroom apartment seemed extremely manageable on a construction-linked plan and new Gurgaon had the potential to grow, she was told. There were many brokers marketing the same property so she went to a carefully chosen broker who secured the deal for her.
    That was her first mistake. While her choice of the builder was based on his past projects, she did not know that to counter slowing demand, developers were evolving new formulas to lure the buyers. When she was asked if she wants a preferential location for which she would have to pay extra charges, she turned down the offer saying she was happy with any flat that came to her in the allotment. To her surprise the final bill she received was with Rs 5.5 lakh as preferential location charges (PLC). When she protested, she was told it must be at the instance of the broker and that the company would be pleased to take back her apartment and return the money. A thinly veiled threat that made her hastily back off as she was keen to purchase.

Take the case of an upcoming developer in Gurgaon Sector 37. The apartments were sold at a throw-away price of Rs 1,250 per sq ft. Except that it is a semi-completed apartment and the users have to pay an additional Rs 500/ sq ft as completion charges.
    It is the Wild West phenomenon operating in the property market today. India is in the unique situation where end users need to purchase apartments and are looking at buying the home at any cost. They are scouting for attractive deals and developers are not willing to come down on their profit margins. This means that the end users have to be lured with attractive price points. To make the price attractive without losing on profit margins, developers are now reducing basic selling price but loading a host of other charges on the property
    that the user will have to shell out
    when he buys.
    Another leading Noida developer has resorted to an even more innovative means of keeping brokers happy while selling in the slowing market. The plots along the Taj Expressway were sold at a certain price and were declared sold out very soon. However, the entire stock was underwritten by its own selected brokers. The company now claims it has no plots for sale directly. The price of the apartments have been raised to Rs 1,15,000 per sq yd but the company facilitates purchase from its underwriters in the name of the buyer as a first purchase and even secures commissions on the same.
    The lack of transparency in this market has both buyers and brokers gasping for breath. At a recent convention of accredited brokers, most complained that it was a risky market as they were often misled into selling the stock aggressively by the developers and buyers would then be slapped with many additional charges. This leaves the brokers in the frontline of firing.
    Banks too are making a killing out of this situation. Buyers are offered loans. The buyer pays 15-20% out of his own resources and the bank finances the retail unit by paying the down payment to the developer. However, they allow the buyer to start paying only after the possession is received. The banks are thus able to keep its money moving in a slowing market. The developer gets his full money upfront for development. However, the consumer who begins paying the EMIs only after the construction is complete, does not get the down payment discount.
All these clearly point to the need for a regulator. Brokers are all in favour of an Act that lays down the ground rules and provides a redressal mechanism. Explains one broker who does not want to be named, "We are slapped with a double whammy. The consumer shouts at us and the developer could not care less as there are any number of people offering broking services. Today you don't need to register to become a broker." The consumer is now floundering as he tries to negotiate a host of charges that constitute the fineprint of any property deal. Consider the following:

• Preferential location charges range from Rs 300-500 in the NCR region

• Finishing charges range from Rs 300-500/sq ft in the NCR region

• Car parks are mandatory — the norm in the NCR region is Rs 3,300-4,000/sq ft per car park. A 2 BHK house of up to 2,500 sq ft has to purchase a car park at these rates. A 3,000-3,300 sq ft apartment buyer has to purchase two car parks while a 4,000-5,000 sq ft apartment owner has to purchase three car parks.
    Not that all developers are happy with the existing situation. Explains GP Savlani, resident director of Confederation of Real Estate Developer's Associations of India (CREDAI), the association believes that the developers should be transparent and
    tell the customer all about the charges at the time of sale. Any charges added subsequently are not according to the code of conduct drawn up by CREDAI. In many places, explains one member, where the local CREDAI branches are powerful, peer pressure is a powerful deterrent to malpractices. This is true of Maharashtra, Gujarat, Kerala etc. That is one form of self regulation that the developers have evolved.
However, the biggest deterrent to such malpractices would be increased supply, which is only possible if development authorities start releasing land not in small parcels but sufficiently to meet demand. That can only happen when development authorities themselves stop speculating on increased land value. Will the real regulator please stand up?

MONEY MANTRA - User Queries

I-T EXEMPTION ON SECOND LOAN
I built my first house (self occupied) on loan and availed the I-T exemption due on the interest and capital of the EMI paid against the loan. I have now availed a second loan to buy a flat. However, I am yet to take possession of the flat. I would like to know if I am eligible for I-T exemption on the principal and interest element of the EMIs being paid against the loan till the time I have taken possession of the flat. If yes, to what extent? Is there any regulation regarding the time limit within which the flat is to be taken possession of from the date of sanction of loan to be eligible for exemption of tax on prepossession interest? For I-T exemption, what is the upper cap on the interest element of loan?
-----------------------
The income-tax deduction for the interest paid on the housing loan during the pre-acquisition period (i.e. up to March 31 preceding the financial year in which the property has been acquired) can be claimed from the financial year (April to March) in which the acquisition is completed. One-fifth of the total interest can be claimed as deduction starting from the year of acquisition of the property till the next four years.
If the house is self occupied for residential purposes, a deduction of up to Rs 150,000 is available, provided the property was acquired or constructed with capital borrowed on or after April 1, 1999, and the acquisition is completed within three years from the end of the financial year in which the loan was taken. However, if the property is let-out or deemed to be let out, actual interest paid (without any upper limit) could be claimed as a deduction. As you have two houses, you will have to make a choice in respect of which property to be considered as self occupied and which one to be treated as deemed to be let out, unless you actually let out one house. The incometax deduction for the repayment of principal amount could be claimed from the financial year in which the property is acquired and not for the pre-acquisition period.




‘GIFT’ FROM ABROAD
What are the implications of getting money from abroad as gift from a friend/relative (who will take a loan in a foreign country) which I will be investing in FDs in Indian banks. At the end of tenure, I will repay the amount equivalent to his loan plus interest plus 50% profit. I want to know the profit/loss due to forex rate and high Indian interest rate. Further, I want to know if this is against FERA/FEMA?

------------
As per the provisions of the Income-tax Act, 1961, any money received as a gift by an individual without consideration from any person, in excess of Rs 50,000, in a financial year (April to March), is taxable in the hands of the recipient as ‘income from other sources’. However, if the money is received from the specified persons (like a relative, as specified under the I-T Act), or under specified situations (like marriage etc), the amount received is not taxable. As per the FEMA Act, a resident individual is permitted to receive foreign exchange as a gift from a close relative, subject to certain conditions. The interest earned on the FDs in an Indian bank would be taxable in India. If the money is to be sent back then a question would arise — whether it would be a gift when it is received or should it be treated as an overseas loan.

TOUGH TIMES-Loans to get costlier as RBI ups rates

Mumbai: Get ready to pay more on your home loans, car loans and consumer loans. For industry too, the cost of funds is set to rise. Late on Tuesday, the Reserve Bank of India hiked two key policy rates — the repo rate and the cash reserve ratio — by a steep 50 basis points (100 basis points = 1%). The intensity of the hikes appears to have caught a lot of people by surprise, and leaves little doubt that for the Manmohan Singh government, runaway prices represents clear and present danger.
    Financial sector players say banks will raise interest rates by half a per cent or more, and the stock market could take another knock when it opens on Wednesday.
    Aimed at reining in an inflation rate that is now at a 13-year high of 11.05%, RBI raised the repo rate to 8.50% from 8% with immediate effect. It also decided to increase the CRR from 8.25% to 8.75% in two stages. From July 5, the CRR will be set at 8.50% and from July 19 at 8.75%.
    This is the second time in less than a fortnight that the RBI has raised the repo rate to contain inflation. It’s the rate at which banks borrow from RBI. A hike in the repo rate will make it more expensive for banks to get money from RBI, which is likely to force them to charge customers a higher interest rate. On June 11, the RBI had raised the repo rate by 25 basis points. Last month, it had raised CRR by 50 basis points.
    RBI’s decisions are expected to force banks to raise interest and deposit rates. Higher interest rates will affect those who wish to borrow to buy a house, a car, or consumer durables like fridges and TVs, and it will also hurt those who have taken home loans on a floating rate basis. Higher rates also mean that corporates now have to pay more as interest costs. ‘‘The question is not whether rates will go up, but by how much,’’ said a senior official with a domestic financial house.

 

To rein in inflation, RBI hikes repo rate and cash reserve ratio by 50 basis points. Repo rate raised to 8.5% from 8%, and CRR to 8.75% from 8.25%

 

Co-ops may find it easier to offer home loans

CO-OPERATIVE banks will find it much easier to extend home loans in the future, if the loans are for only a small portion of the property value. The Reserve Bank of India (RBI) has linked the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
    Hence, for home loans up to Rs 30 lakh and below 75% of the value of the property, banks will need to set aside only 50% of the capital they are required to maintain earlier.
    If the loan is for more than Rs 30 lakh in absolute terms but still less than 75% of the property value, the capital requirement will be 75% of standard requirement. However, if the bank provides loans for more than 75% of the value of the property, there is no relief in capital adequacy requirement.
   
CO-OPERATIVE banks will find it much easier to extend home loans in the future, if the loans are for only a small portion of the property value. The Reserve Bank of India (RBI) has linked the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
    Hence, for home loans up to Rs 30 lakh and below 75% of the value of the property, banks will need to set aside only 50% of the capital they are required to maintain earlier.
    If the loan is for more than Rs 30 lakh in absolute terms but still less than 75% of the property value, the capital requirement will be 75% of standard requirement. However, if the bank provides loans for more than 75% of the value of the property, there is no relief in capital adequacy requirement.
    For banks, the amount of capital they are required to set aside for each loan is decided by the minimum capital adequacy ratio prescribed by the central bank. Capital adequacy ratio is the ratio of a bank's net worth to its risk-weighted credit exposure. The risk weightage, in turn, is the ratio which determines the credit risk in a particular loan asset. Although capital adequacy ratio is fixed at a flat 10% for banks, RBI reduces the capital requirement by increasing or reducing the risk weightage for loans in certain sectors. For instance, for home loans up to Rs 30 lakh, the risk weightage on the loan is 50%. What this means is that banks will need to set aside only 50% of the capital they keep aside for loans with a 100% risk weightage.
    RBI increases or reduces the risk weightage depending on its perception of risk in a particular sector. The higher risk weightage reduces the banks loss in the event of a default. It also discourages lending to that sector by making it more capital intensive.
    The central bank has also relaxed branch and ATM licencing for co-operative banks, subject to their maintenance of a minimum CRAR of 10% on a continuous basis. The co-operative banks also needs to have net NPAs of less than 10% and should have made a profit in the preceding year.

For banks, the amount of capital they are required to set aside for each loan is decided by the minimum capital adequacy ratio prescribed by the central bank. Capital adequacy ratio is the ratio of a bank's net worth to its risk-weighted credit exposure. The risk weightage, in turn, is the ratio which determines the credit risk in a particular loan asset. Although capital adequacy ratio is fixed at a flat 10% for banks, RBI reduces the capital requirement by increasing or reducing the risk weightage for loans in certain sectors. For instance, for home loans up to Rs 30 lakh, the risk weightage on the loan is 50%. What this means is that banks will need to set aside only 50% of the capital they keep aside for loans with a 100% risk weightage.
    RBI increases or reduces the risk weightage depending on its perception of risk in a particular sector. The higher risk weightage reduces the banks loss in the event of a default. It also discourages lending to that sector by making it more capital intensive.
    The central bank has also relaxed branch and ATM licencing for co-operative banks, subject to their maintenance of a minimum CRAR of 10% on a continuous basis. The co-operative banks also needs to have net NPAs of less than 10% and should have made a profit in the preceding year.

Fill that life insurance form with care

IN an age when shares can be purchased at the click of a mouse, filling a life insurance proposal continues to be a major chore. More often that not it is the insurance agent who, in his eagerness to sell, fills in the details on behalf of the insured.
    What the proposer doesn't realize is that such a casual approach can make a crucial difference when it comes to pricing, and in ensuring that claims are not prejudiced. Unlike other transactions, insurance is based on faith. Since the insurance company cannot verify every bit of information, it accepts in good faith whatever details the proposer provides. The flip side is that this gives the company the right to reject claims if there is non-disclosure of a fact that is material to the pricing of premium.
    If there is a vague or incomplete entry in the proposal, the underwriter may play it safe and bracket the insured in a higher risk category. This is more applicable in case of policies where there is a high sum insured.
    Taking a little more trouble in filling the proposal form can, however, help the insured save premium money. Here are some disclosures that make a difference in price:
Age proof
    Proposers may be tempted to give a self declaration, in the absence of certificates. take this route when their age certificates are not readily available. However, it makes more sense to make available photocopies of birth certificates, passports or school leaving certificates, especially if you are above 40 years of age. The underwriter may raise the premium to accommodate the possibility of the applicant being older than the declared age. Sometimes, the increase can lead to a premium payable for a life five years older than that for the declared age.
 
Income
    Indians often fight shy of disclosing their full income. But there is a legitimate reason for an insurance company to seek the proposers' income, particularly if the proposer is seeking a high sum insured. Insurance companies usually accept the sum insured as a multiple of present income. Under-declaring income could result in the company declining the proposal for a high sum insured.
Occupation
    It's best if the occupation is not left vague. For instance, when you mention your occupation as 'engineer' with ABC Construction, the underwriter wants to know if you are a design engineer or a site engineer or an IT engineer maintaining the company's systems. Do mention if you toil in an environment with high safety norms. This reduces premium hike on the grounds of "occupational extra."
Medical history
    Here again, most applicants are reluctant to share information, and agents misguide proposers by asking them not to declare some medical procedures.
    The information, however, need not increase your premium. If a claim has arisen out of any pre-existing condition not disclosed in the proposal form, the insurer has a ground not to pay it.
Family history
    Being clear on this front works in your favour if the family is seen enjoying higher life expectancy with good health. It makes a stronger case for cover at a higher age.
Other details
    List all the life insurance policies you have. Give details of the cover you enjoy under those policies along with the policy numbers, name of the insurer, sum assured and the date on which the policy started. If you have bought a policy from the same insurer at a standard rate in the recent past, you may get a favourable underwriting treatment. A lethargic attitude here can deprive you of better underwriting treatment. Mention the reasons behind the purchase of life insurance. If you don't have any insurance and are going in for a large sum assured due to a fresh home loan, mention it. Employment, wedding and child birth and are some valid grounds.

Should you prepay your home loan?

With the fuel price hike, costs are rising. So, many with some cash in hand ponder over prepaying their home loan. It seems like you will be better off if you get rid of this debt. Kavita Sriram analyses

    Most homeowners began their home loan journey with a modest seven percent in the year 2003. Today, the interest rate hovers around 12 percent with most banks. Now, if you have a huge loan, a long tenure ahead and some extra cash, should you prepay? Borrowers must analyse a variety of factors before jumping to a conclusion.
    Here are some factors you must take into account:
Prepayment penalty
    Is there a penalty associated with prepayment? Some lenders are happy getting their money back sooner. Others charge a fixed percentage like two percent or allow you to repay some fixed amount every year without penalty. Evaluate the penalty and see if it is worth prepaying.
Pay off more expensive loans first
    If you have other higher interest commitments like car loan, personal loan or the more critical credit card debt, consider if it is feasible paying them off. This is because home loan rates are supposed to be cheaper than these and additionally provide you with income tax benefits.
Invest for higher returns The more aggressive can explore investment options that yield returns greater than the home loan rate. If your excess money is coming from breaking such an investment, prepayment does not make sense. However, keep in mind that high return investments come with high risks.
Prepay a fraction
    While prepaying a loan entirely may be a prudent decision, prepaying small amounts of the loan can be attractive in the long run. In a home loan, as the years roll by, the interest component decreases and principal component goes up as a proportion of the EMI. Some borrowers prefer not to prepay the loan after more than half the tenure has elapsed. Most borrowers are seen to repay their loans in eight years.
Evaluate job and salary
    Are you close to retirement? If so, prepaying may be an excellent choice.
    Is your job situation jittery? In case the borrower fears that he will lose his job, it is better he repays his loan with the extra cash he has. This ensures that unpaid EMIs dues don't pile up and he doesn't default. There will lesser pressure and some peace if he is without a job.
    It is better for new borrowers to opt for short home loan tenures. The EMIs will be huge, but you can pay off the loan faster.
HOW PREPAYMENT WORKS
    Let us assume a person has purchased two houses for Rs 30 lakhs each, five years ago. He lives in one house and the other house has been rented out by him. Let us consider the income tax implications on prepaying one of the two houses after five years.
    When computing tax savings on the rented property, a rental income of Rs 8,000 per month is assumed. This amount is assumed to increase at a rate of five percent per annum. As much as 30 percent of the rental income can be deducted towards expenses incurred on periodic maintenance and property taxes.
Details of loan
Initial loan amount: Rs 30 lakhs Interest rate: 10 percent fixed Loan tenure: 15 years Years elapsed: 5 Years left: 10 Outstanding principal at the end of 5 years: Rs 24,39,500
If the self-occupied property is prepaid, the net tax savings (combined for both the loans) for the years 6 to 15 is Rs 1,05,097. If rented property is prepaid, net tax savings (combined for both the loans) for years 6 to 15 is Rs 3,26,470 Hence, it is prudent to prepay the loan on the rented property, provided all factors and parameters are similar between the two home loans.

Can't Repay your loan

Can't Repay your loan?? Talk to your lender at the very earliest opportunity. They willl want to consider your individual situation. If they reasonably believe your financial situation may improve, they may be prepared to suspend loan repayments for a while, or extend the term of the loan.

In the final instance, a lender can insist on the debt being repaid. They will want to determine whether you 'can't pay' at this time, or whether you simply 'wont pay'. If your loan is secured on a major asset such as your home, you could be forced to sell it to repay the debt. Even if the loan is not secured on a specific asset, the lender could nevertheless sue you to recover the debt. If you lose, the net result might be the same - you may have to sell your property.

Ashok Kargutkar, a counsellor at Abhay, a debt-counseling centre,  says, "If someone can’t repay because they are genuinely short of funds, we help them to try for a settlement with the banks. Many a time, banks have settled genuine cases."

The operative word is 'genuine' and if you prove that your case is so, then banks may settle. So, how do you prove this?

1. You need to show relevant documents to prove that you are bankrupt, and cannot pay the outstanding amount. Also, submit an affidavit that states you have no assets that you could use to pay back.

Declaring that you have gone bankrupt in the court (after consultation with your lawyer) could also prove to be helpful.

2. Your entire debt will not be foregone even if you file for bankruptcy. You will have to pay a mutually agreed (between you and the bank) amount, which can be less than the initial outstanding amount because.  

“The settlement amount will largely depend on your ability to pay as well as the bank’s policy towards such cases,” says a senior bank official.

3. In some cases the bank may extend your repayment period and break the outstanding amount in equal monthly installments to facilitate repayment.

4. If you have credit card debt where the interest rates are 45% per annum, you could go for a cheaper loan -- a personal loan.  

5. If you bank agrees to a 'settlement', you could further request for an  extension of the duration of repayment.

If the bank won't settle
Despite declaring bankruptcy if recovery agents and banks continue to harass you, you can approach debt-counselling centres, like Abhay (a trust funded by Bank of India) and Disha (supported by ICICI Bank).

These centres have a three-fold focus: financial education, credit counselling and debt management. Kargutkar says, “Most people are in debt because of reckless spending habits. We ask them to discipline their spending and manage assets to pay off debt."

" For those with genuine problems, we first guide them. If banks and financial institutions are unresponsive, we take it up with respective authorities.”

“The best option,” Ashok suggests, “is to stick to your budget, never spend beyond your means and be financially aware.” 

The contact details for these centres.

Abhay 

- In Mumbai

Address:
61 A, Sadanand, 1st floor
Above Bank of India, Gokhale Road North
Dadar
Mumbai -- 400 028

Contact person : Shri V N Kulkarni
Phone: (022) 24221843

- In Chennai

Address
C/o Bank of India
104, Sir Theaogaroya Road
Pondy Bazar, T Nagar
Chennai -- 600017

Contact person: Shri M K Raghunathan

Phone: (044) 28152669

Working hours: 6 pm to 8 pm on every Friday, Saturday and Sunday

Web site link: http://www.bankofindia.com/home/abhay.asp

Disha

- In Mumbai

Prince Apartment
Ground Floor, Karani Lane
Ghatkopar (West)
Mumbai -- 400 076

Phone: (022) 65971815/ 16/ 17

e-mail: info@dishafc.org

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Dream Home: Gift of the Finance Sector through easy funds

If you are thinking of buying a home, then, do not worry if you lack in funds. There are many lenders who are providing home loans in India to cover housing needs of almost all types of borrowers. However, you are required to meet certain conditions laid down by the lenders, in order to get smoother approval. Home loans are being offered for variety of purposes in India. Through these loans you can purchase a home, which is a common use of the loan. The loan can be used for any alteration to the home you already own. You can construct a new home or the loan can be used for purchasing a piece of land for investment or construction purpose. These loans are also used for paying stamp duty. Interest rates on home loans vary from lenders to lenders. But, public sector banks charge interest at lower rate than the private lenders. If you take out the loan from banks, then ensure that first you have made an extensive comparison of their rates. Note that there is a vast difference of rates amongst the public sector banks. So, if is advisable to make an extensive comparison of these bank rates first in order to pick up a suitable deal. Government of India (GOI) is actively considering to provide a subsidy of 5% on home loan interest rates to the economically weaker sections of the society in the next year's budget. Being considered by major political outfits as a buildup towards the 2009 elections, this subsidized home loan scheme might go a long way in fulfilling a long cherished dream of the common man - owning a house. The home loan interest charged by banks and other housing finance institutions (HFCs) will be subsidized and government will bear the costs. This step will put an extra  burden on the the exchequer at Rs. 1600 per year. Expressing concerns over the benefits of the real estate boom being limited to the affluent and upper echelons of the society, the urban poverty alleviation minister Kumari Selja said, "The objective of the interest subsidy scheme is to ensure the economically weaker section gets the opportunity to own houses." Presently the housing sector for the economically weaker section (EWS) of the society is facing a shortfall of 31 million dwelling units and with this scheme GOI is expecting to meet the requirements of more than 50% of this segment in the next five years. The modalities of this scheme are being worked out and this subsidy scheme is likely to fix a loan ceiling of Rs 80,000 for EWS and Rs 1.50 lakh for the low income group (LIG). People who earn up to Rs. 3,300 per month are classified as EWS whereas those earning between 3,301 and 7,300 are classified as LIG. Earlier the National Housing Bank (NHB), which used to refinance housing loans especially to the weaker sections of society, withdrew the concession of 0.5 % offered on refinances and industry experts believe that this step by the NHB has affected the credit flow. In the absence of a suitable incentive from NHB, the HFCs in India have not been able to extend affordable loans to the weaker sections of the society. With the GOI extending a 5% subsidy it looks like the weaker sections will finally get their due from the HFC's.

Boom in Real Estates leads to growth in Home Loan

The key factors on which the growth of real estate sector in India is dependent are easy finance options, ample job opportunities and availability of good properties. The availability of finance options have been made possible by easy home loans provided by the banks and financial institutions. The huge job opportunities created by the IT and IT-enabled industry India has created purchasing power in the market. These service class people avail home loans to buy properties for their own use and investment. With the availability of both finance and job opportunities the demand for properties has been shooting up. The developers are also motivated to invest and develop even more properties.

There are various kinds of home loans available which can be used to purchase property, construction, home improvement, home equity loans etc. The finance can be availed for all kinds of properties like residential, commercial, and industrial. These finance options are open for all salaried individuals, self-employed individuals, partnerships and even NRIs. There is different documentation requirement for each category of borrower. The details about the loan options are also available on the web which also has online financial calculator to assist in cumbersome calculations.

The home equity loan is a comparatively a new offering from banks, here the borrower can mortgage his existing property to avail loan which can be used for the purpose as various purposes like marriage, education or medical expenses. The equity loan amount that can be disbursed is as per the bank policies. Normally it is about 60 percent of the value of the property. A lot would depend on the credit background of the borrower. The banks are able to offer the loans at such competitive rates due to refinancing facility available from the apex body of Reserve Bank of India (RBI) or the overseas market

India's finance minister has called on banks to lower interest rates to keep Asia's third-largest economy expanding strongly amid fears aggressive monetary tightening could slow growth.

P. Chidambaram urged state-run banks to reduce lending rates by half a percentage point to spur consumption and investment as signs emerge of a slowdown in consumer spending.

"I would like... that banks cut lending and deposit rates by 50 basis points so it stimulates investment and consumption," he told reporters late Friday after meeting heads of state-run banks.

He said he wanted banks to boost lending for consumer goods at the same time as reducing loans to the housing sector, which analysts warn could overheat.

Red Hot market cooling down for Home Loans

Home Loans given in last 3 years (2004-2007) form 71 % of total home loans.

During 2001-2006 the home loans have grown 35%. During 2006-2007 home
loans are growing at 18%. For 2007-2008 it is expected at 10%.

"In 2006-07, the proportion of monthly income being paid out as home
loan installments grew to more than 50 % for an average home buyer
from around 32 % in 2003-04. "

Interest rates in past 3 years have gone up by 4%.

"There could also be a risk of default if the rise in EMIs outstrips
the growth in salaries. For a 400 basis point increase in interest
rates, EMIs on 15-20 year loans taken in 2003-04 would have to go up
by 10-26 per cent to fully absorb the impact of hike in interest
rates."

Now couple this stats with a growing trend. "The rupee is appreciating
against dollar".

What u get a deadly mix for loan takers.

1) Since the rupee is appreciating, there is little scope of higher
salary increments for IT guys. (Or people in export oriented biz.)

2) Anticipating the demand, builders are releasing new flats. These
new building , which will have fewer takers will bring down the cost
of flats. The home-loan takers do-not stand to make big profits by
just selling their flats.

3) Foreign capital is pouring in india. The effect of this would be
that local companies (services, infrastructure,banks) will have good
growth. And people working in these firms will now be the new-buyers.
So there is little chance that will be a major drop in interest rates.
So for an average IT guy (a risky sector), sitting on fat-loan is a
real issue.

Home loan rate going south? Forget it

Currently there does not seem to be an early signs of Home loan rate going
southwards.
Home loans are unlikely to turn expensive too despite the increase in cash
reserve ratio (CRR) of the banks, which will make money scarce for banks.
The Reserve Bank of India (RBI) has raised CRR by 50 basis points to 7% for
the banks, but a large section of bankers told ET that they do not expect
lending rates, including home loan rates, to go up.
At the same time, bankers are unlikely to lower the home loans rates for
now. This comes as a bad news for a large number of borrowers who had
expected interest rates to come down post credit policy. Earlier, Deepak
Parekh, chairman of HDFC bank, the largest home loan provider, had said HDFC
would consider a lower lending rate if RBI does not hike CRR.

Are floating rates better for Auto Loans?

What do you think, should I go for Fixed loan or the floating loan?

This is the question that many ask from me. So I thought about this and here is the answer.

 

The government's liquidity tightening measures this year have pushed up interest rates and slowed down offtake of auto loans. While interest rates have not fallen significantly yet, most experts say they will in future. Typically, the price of an auto loan is set for the entire loan tenure. But now some banks, such as State Bank of India and ICICI Bank, have started offering floating rate loans too. When interest rates are going down, floaters allow you to reduce your liability. Should you then

go for them?

The floater rationale

ICICI Bank's auto loans head, N.R. Narayanan, says: "Many customers told us that they were not going in for car loans now since they were expecting the interest rates to get better (fall). We thought we should offer them the floating rate scheme so that they also get the benefit if at all the rates fall." He says ICICI Bank's rates are linked to floating reference rate (FRR), the benchmark used for its home loan floating rates.

 

Investment schemes for NRIs

For NRIs/ PIOs/ OCBs there are broadly two categories of investments - repatriable (investments than can be taken back) and non-repatriable (investments that cannot be redeemed). Repatriable investments allow for investment up to 100% equity by NRIs in specified industries and also cover portfolio investments. Equity investment up to 100% is also permissible for non-repatriable investments.

Portfolio investment scheme

NRIs can acquire shares/ debentures of Indian companies or units of domestic mutual funds through the stock exchanges in India. There is an overall ceiling of 5% of paid-up equity share capital of the company/ paid-up value of each series of convertible debentures for purchase by NRIs/ OCBs. An application for this has to be submitted to the Reserve Bank though a designated branch. These designated branches are the main branches of major commercial banks located close to the stock exchange(s). An NRI can operate through only one selected branch for this purpose. The Reserve Bank approval is valid for a period of five years after which it may be renewed by a letter.

This scheme also allows for

Sale of shares/ bonds/ debentures by NRIs to residents Transfer of rupee securities by non-residents as gifts Transfer of rupee securities to non-residents as gifts Loans abroad against securities provided in India Loans in India to NRIs against shares/ securities/ properties held by them in India Loans in India to NRIs against security of NRI Bonds issued by State Bank of India Loans in India against guarantees by non-residents Loans to residents against shares/ securities/ properties in India from non-resident relatives.

Procedure for sale/ transfer

In case of shares/ debentures/ bonds acquired by NRIs through the portfolio investment scheme, a general exemption is provided by RBI if the sale is arranged through the same designated branch through which they were purchased. In other cases, necessary permission has to be obtained from RBI. For sale/ transfer of shares/ debentures to residents by private arrangements, permission has to be obtained from RBI. General permission from the RBI is also available for transfer of shares, bonds and debentures by way of gifts to resident close relative(s). For sale/ transfer of shares/ debentures of Indian companies to other NRIs, no permission is required from RBI. The transferee NRI would need permission for purchase of the shares. Government securities/ units can be transferred through an authorized dealer while the units can also be repurchased directly by UTI. Repatriation possible if the remittances were made from abroad of from NRE/ FCNR accounts; sale proceeds from securities purchased out of NRO accounts can only be credited to the NRO account. Interest earned after the financial year 1994-95 onwards can be remitted as permitted by Reserve Bank.

Remittance of income on non-repatriable investments

Income/ interest accruing during the financial year 1994-95 and onwards on bank deposits and investments held on non-repatriation basis can be remitted in the following manner. i. Upto US $ 1,000 or its equivalent in full and one-third of the balance income earned during the financial year 1994-95 ii. Upto US $ 1,000 or its equivalent in full and two-third of the balance income earned during the financial year 1995-96 iii. Entire income earned during the financial year 1996-97 and onwards iv. Entire income earned during the financial year 1996-97 and onwards The NRI will designate a branch of an authorized dealer; the designated branch will allow the remittance of the funds to the NRE/ FCNR account. General permission is available on transfer of shares/ debentures/ bonds held on non-repatriation basis to residents; sale proceeds are credited to an NRO account.

Investment in immovable property

Non resident Indians can acquire/ hold/ transfer/ dispose of immovable property. No permission is required for this purpose. They cannot purchase agricultural land, farm houses and plantation property. However, on acquiring foreign citizenship, permission from RBI is required. RBI has also granted general permission to Persons of Indian Origin to acquire immovable property in India. The general permission is also applicable for transfer/ disposal of the properties (other than agricultural land, farm houses, plantation property). Under this, Persons of Indian origin can acquire immovable properties in India: i. on non-repatriation basis for residential purposes - The purchase consideration has to be made by way of remittance from abroad or NRE/ FCNR account. The sale proceeds cannot be repatriated. ii. on repatriation basis for residential purposes as well as commercial properties - The purchase consideration has to be made by way of remittance from abroad or NRE/ FCNR account. Repatriation facility is limited to sale proceeds of two residential properties; there is no such restriction in respect of commercial properties. iii. by way of gift/ inheritance - The gift should have been received from a relative who may be an Indian citizen or person of Indian origin; general permission is available only in respect of two houses. iv. out of rupee funds - Prior permission of the Reserve Bank of India is required. Residential or commercial properties can be let out for rent if not for immediate use, The rental proceeds or proceeds of any investment of such income has to be credited to the NRO account.

Repatriation of sale proceeds

The general permission is also available in case of disposal of the immovable properties. Sale proceeds equivalent to the original amount of purchase consideration remitted can be repatriated after a lock-in period of three years. The balance amount has to be credited to the NRO account of the seller. The period of lock-in is applicable from the date of final purchase deed or from the date of payment of final installment of consideration amount, whichever is later.

Procedure

Persons of Indian Origin are required to file a declaration in form IPI 7 with the Central Office of the Reserve Bank. This must be filed within 90 days from the date of purchase of immovable property or final payment of purchase consideration. A certified copy of the documents evidencing the transaction and bank certificate regarding the consideration paid is to be filed along with the form. Application for permission for remittance is to be filed in form IPI 8 within 90 days of the sale of the property.

Can NRIs obtain housing finance?

Can NRIs obtain housing finance? Certain financial institutions grant housing loans to NRIs for acquisition of houses/ flats for self-occupation. Authorized dealers can grant loans to NRIs for acquisition of house/ flat for self-occupation on their return to India. Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or from funds in NRE/ FCNR accounts. Indian companies can grant housing loans to their employees deputed abroad and holding Indian passport. All these loans are subject to specific loan covenants; details can be obtained from banks/ institutions.

 

Loan is always not the right answer

we have already discussed preparations for obtaining a business loan, whether from a traditional bank or an alternative lender like The Loan Fund. While paying cash is often the best option for covering the expansion needs of your business, sometimes - like when you are looking to buy new, very expensive equipment or to double the size of your plant - paying cash may not be an option.

Both of these examples include the purchase of hard assets and banks will often lend a large portion - 70 to 80 percent - of the purchase price. But non-collateral needs such as working capital to hire more salespeople, often can't be met by traditional lenders.

The key word is successful. It is extremely hard to get anyone, even your Uncle Louie, to lend you money, let alone invest equity in a business if it is not profitable. If your business has lost money for the last two years, if you are struggling to meet payroll, if you have little or no backlog of orders, or if your product or service is just ordinary, the chances of attracting any kind of capital becomes more difficult. Lenders and equity investors want to do business with someone who has been or will be successful.

The advantages of a loan are that you know how much it will cost each month and how many months of payments there are. At the end, you tear up the note and own the asset. Based on the quality of the asset, the amount of money you want to borrow, and your credit history, the rate should be fairly low. A rate of eight to ten percent may seem expensive, but it is reasonably priced debt based on historical rates.

Even if your business is successful, there are several very good reasons that a lender may say no to a loan.

You may have too much debt or your debt-to-equity ratio is too high. You may not have enough retained earnings in the business.

Your interest and principal may be too high relative to your income, resulting in a low debt-to-service ratio that could affect your ability to make timely payments.

Your proposed collateral may be insufficient to support the loan, or your business may simply be growing too fast.

While all are legitimate reasons for a lender to say no, having more equity might allow the lender to say yes.

This was probably the case with growing companies that have been in the news lately - companies like Eclipse Aviation, Advent Solar and Miox, Inc. All three are growing rapidly and have needed new or expanded facilities and manufacturing equipment. Money has been needed for marketing and employee hiring. All three have raised equity capital, and in the case of Eclipse Aviation, it has been a lot of equity capital.

While these companies probably have sizeable loans outstanding, none of them would have arrived at the point they are without attracting equity capital. The founders of all three probably now own less than 50 percent of their businesses, but the value of their remaining ownership has increased significantly.

Attracting an equity investor is not easy. Getting $250,000 to $750,000 from a professional investor is even more difficult. Managing and growing your business through debt is often the right way to go. However, the New Mexico Small Business Investment Corporation (NMSBIC), through its equity partners, has invested in 29 New Mexico businesses over the last three years. While many of these are technology businesses, our partners have invested in chili producers, specialty bird-food manufacturers, an oil field service company, a home security company and several other more traditional businesses. To date, all but one has been successful. Most, if not all, have increased revenues, developed new products, expanded their marketing, hired new employees, attracted board members, and experienced varying degrees of success. None could have grown as quickly without equity from outside investors.

 

No Tension With Loans

Do you know about Unsecured personal loans?
Unsecured personal loans are the loan plans for all (legally) correct needs
without any residential property security. These loans have easy repayment
pattern and other borrower-friendly natures.
Loans are always the double edged weapons. In one hand they fulfill the
monetary requirements of the borrower. On the other hand in case of delay in
repayment they create several financial tough situations.
UK loan market offers you scores of loan plans. However you should go
through the nature of these loans before applying for them. You should query
about the risk factor associated with the loans and opt for that loan plan
which has least risk factors.
Unsecured personal loans are risk-free in nature. You do not need to place
any collateral in order to avail these loans. With these loans you can avail
an amount ranging from 5,000 and 500,000. Loan amount varies according to
your credit status, repayment ability, monthly income etc. they are short
term loans and should be repaid within 10 years from the date of approval.
People suffering from bad credit due to arrears, defaults, IVA, CCJ,
bankruptcy etc can also apply for these loans. They carry slightly high
interest rate but that is not very high because of the competition
prevailing in the market. To avail personal loans at lower rate of interest,
you have to fulfill certain requirements like, you must have a full time
job, regular source of income, repayment ability etc.

As unsecured personal loans are short termed in nature, they can be easily
repaid. These loan plans very helpful for tenants who don't have any
property to apply for secured loans. Also the homeowners who don't want to
risk their properties can apply for these loans. You can use the loan amount
to meet any of your personal expenses like buying a car, going for holiday,
wedding, paying previous debts and so on.

Always apply for a loan keeping in mind your repayment ability and apply for
an amount that you can repay without any hassle. In case of non-payment of
loan installments lenders may take legal action against you. There are many
financial institutions, banks and lending firms that offer you unsecured
personal loans. Compare the features of loans at different lenders before
applying for any loan. You can use Internet to search for lenders offer
personal loans without any residential property at competitive interest
rate. You can also apply for these loans online. For this you just need to
fill up an online application form and after it the lenders will get back to
you with their offers.