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.

A home within your budget

Old homes are available at a discount of 25%, or even more, compared to new homes in many localities. If you aren’t finicky about latest facilities, you could get a good bargain

 

YOU may have to live with higher residential prices. After all, in a country where citizens are increasingly flocking to big cities for job opportunities, is there any other way that property prices could go? But then if you are a smart buyer, who is willing to see through the dust, there are opportunities galore to buy that dream house. And yes, that too at an affordable cost.

   There is light at the end of the tunnel for home buyers. Old houses in the same locality are available at much cheaper market rates than the newlyconstructed ones. So should you toy with the idea of buying an old house? Raj Kumar of Jones Lang Lasalle Meghraj says: “That depends on one’s level of need, one’s paying ability and the condition of the house. While a new house is always a better investment, there are certainly occasional good deals available in older units, too. Units in projects by reputed builders often do have sufficient resale value, especially if they are in good locations. If the unit is in a location that meets the buyer’s need, all necessary conveniences are available in the vicinity and if it is in good condition, buying it makes sense”.

 

More space

 

 

The biggest advantage of going for an old house is that of getting more carpet area. This is primarily because of the low-loading factor in old constructions. Today, most of the residential constructions come with amenities such as clubhouse, gymnasium, swimming pool and all these spaces get loaded into the overall property rates. So, for instance, a new residential house might be a 1,000 sq ft home, giving only 750 square feet of carpet area (33% loading). In case of an old house, you could get probably get 800-850 sq ft.

 

Spruce up old homes

 

 

“Newly-built houses are usually designed keeping in mind the requirements of the existing generation. Be it more attached bathrooms with bedrooms or service area for maid servants, you name it and they have it. In contrast, older houses mostly have provision for only one bathroom, says Dharmesh Thadani, a Mumbai-based interior decorator. Even the modern kitchens are wellequipped with additional plug points and right electrical fittings. But then the big question is to ask about the incremental cost to redo the old house with such state of the art electrical fittings.

But….

There are some things though, which can’t be done even if you wish for it. Take for instance, the elevators which some of the old house might not have. This could be an area of concern, especially if there are elderly members in your family. Also, one might have to forego the commonly available amenities. “The new constructions usually have large housing complexes with common facilities such as swimming pool, recreation club/gym, etc. They also have appropriate provisions like a lawn or a park for the children to play in the compound itself, adds Mr Thadani.

 

Renovation costs and lower resale value

 

 

An old house comes at a lesser cost. But one has to discount the renovation cost before zeroing in on one. Used homes tend to deteriorate in overall condition and often require extensive repairs and refurbishing. They have far less resale value than new units, and no home loans are available on them after they have reached a certain age. This further reduces their marketability. They may have flawed titles and pre-existing litigation issues, since the transparency in property deals is only a recently emerging phenomenon in India, says Mr Kumar.

   In the end, the choice of whether to go for an old or a new house is an individual decision. Some might want the best amenities and are also willing to pay for it. But if you feel that affordability is pinching you, old homes — (of course, those that have been constructed not more than 10 years ago) could be a good consideration. After all, you get it at a discounted rate — not to mention more space to boot.

What is an Interest Only Mortgage

An interest only mortgage has scheduled monthly mortgage payments consisting of interest only. Generally, the length of the interest mortgage payments last for a period of 5 to 10 years. If you pay only interest during this period your proceeding balance will remain unchanged. However, you may choose to pay more than the minimum interest payment every month.

An interest-only home loan represents a higher risk for lenders; hence, your mortgage loan will have a somewhat higher interest rate. If you expect a substantial increase in income in the forthcoming years the interest only mortgage loan gives you leverage financially. The excess savings from a lower interest only monthly payment can be used for various purposes, ranging from investment into the stock market, to home renovations, among other uses.

Interest-Only Mortgage Loans Benefits

• Lower monthly payments during the interest-only payment period
• If you have irregular income, like bonuses, commissions, etc.; an interest-only mortgage gives you the flexibility to have increased cash flow to meet your other financial goals
• Increase your cash flow, take the extra cash and invest the rest
• Real estate investors can leverage the savings and invest in other properties

An interest-only mortgage gives you the option of leveraging your dollars by taking advantage of more affordable mortgage options. More new homebuyers are able to enter the housing market by using low interest-only mortgage payments. Also, if you are a current homeowner looking to upgrade you can leverage the interest-only mortgage loan into a more expensive home that otherwise would be unaffordable.

Home Loan Finance

After buying your home it is now time to find the perfect mortgage financing. Make sure you consult an expert Mortgage Consultant in terms of financing that fits your needs. There are many choices available to you for home loan finance and mortgage refinance. But it is critical that you take your time to understand the various choices before making a final decision. Here are some home financing options:

· Fixed-Rate Mortgages

· Adjustable Rate Mortgage(ARM)

· Interest-Only Mortgage Loans

· Conforming Loans

· Jumbo Loans

· Subprime Mortgages

· Hybrid Mortgage Loans

· 100% Financing

· Conventional Loans

· Government Loans

Refinance for My Current Home

If you presently own your home, refinancing to a lower rate can save you dollars. Help increase your cash flow. Here are some reasons to refinance;

· Consolidate and pay off your debt

· Pay for your home improvements

· Start your business

· Pay your major medical bills

· Buy your car

Leverage the Equity in My Home

A home equity line of credit (HELOC) is an alternative to finance major items. The mechanics of a HELOC is analogous to the way a credit card work. The equity in your home is used as collateral for a loan which is a revolving line of credit from which you can draw money. You receive a set checkbooks or a type of credit card you can use to pay for items during times of purchase. HELOCS can be used for:

· Your home improvements

· Consolidating and paying off your debt

· Taking your dream vacation

· Buying your second property

· Paying for your major purchases

· Pay for college tuition