Q.	What is Fixed and Floating Rate?

A.

Under a floating rate loan, the interest rate on the loan varies from time to time depending on the Prime Lending Rate fixed by the Reserve Bank. This change can happen as frequently as one in six months. If the PLR falls, you benefit as the effective interest rate on your remaining loan falls. However, your payments every month stay the same. The Finance Company will refund some of your EMI cheques and effectively compensates you by reducing the tenure of the loan. The reverse happens if the PLR rises, much to your disadvantage.

Q.	Other Information on Loan and EMI?

A.

In the last 2-3 years the PLR has fallen as the Indian economy had slowed down and demand for money was low. If you expect this trend to continue, you stand to benefit from a floating rate loan. If interest rates begin to rise again, you can prepay your floating rate loan and lock in to fixed rate loan. You must them choose a floating rate loan with no repayment charges (one is offered by HSBC). However, if you do not want to speculate on interest rates and need a stable loan to help planning the future, then go for a Fixed rate loan. Rest: Interest rates are quotes on a daily rest, monthly rest or annual rest basis. The annual rest quote implies that the company gives you the credit for the monthly principal repayments only at the end of each year. Such loans are therefore more expensive than a monthly /daily rest loan. The shorter the tenure of the loan, the greater the effective interest rate difference will be. AbodesIndia.com has standardized all interest rate quotes from companies on a MONTHLY REST basis (rates will therefore look different from Company brochure quotes which maybe on an annual, monthly or daily rest basis) Processing Fee: A one-time fee, which is normally non-refundable and payable along with your initial loan application. Rates can vary from 1-2% of the loan amount. Administrative Fee: A one-time fee, which is normally non-refundable and payable before your loan is disbursed. Rates can vary from 1-2% of the loan amount. Commitment fees: This interest is charged if you do not draw the sanctioned loan within a period of 6-9 months. The rate of interest is usually about 1-2% a months. Interest Tax: Housing Finance companies have to pay a tax on the interest income they receive from you. They sometimes pass this on to the customer. AbodesIndia.com has standardised all rates AFTER Interest Tax, to aid comparison across companies. Prepayment charge: Most Housing Finance companies charge a fee for prepaying your loan before its full tenure is over. This helps them plan their finances, at your expense. Your earning capacity will normally increase with age and a prepayment fee can be a big cost. This fee also limits your ability to refinance the loan if interest rates fall after a few years. The fee is normally in the range of 1-2% of the prepaid amount . Refinance Charge: Some Housing Finance companies do not charge you for prepayments from your own savings. However, if you retire a loan using money borrowed from another Finance Company, you will have to pay a Refinance charge of 1-2% of the loan outstanding. Down payment: Housing finance companies would normally give a loan up to 80-85% of the value of the property. The remaining amount would have to paid by the buyer (to the seller), as a down payment before the he draws on the loan. Tenure of the loan: Normally, loans are given for a period of 1-15 years. Some companies also give loans up to 20 years at an additional interest cost of 0.25% - 0.5%. Most companies do not allow loans for a fraction of a year.

Q.	Should I buy House or Take a House on Rent?

A.

We all need a house to live in. However the choice that needs to be made is, whether one should stay in a rented house or buy it instead. In the present scenario, the cost of living in a metropolitan city is rather high. Also, the property prices and home loan rates are moving up sharply. Given that both buying a house and renting it have their unique set of costs attached, one must evaluate both the options closely and then make an informed choice. If an individual stays in a rented house, he could be paying a substantial amount as rent, depending on the location and the area of the property. On the other hand, if he buys a house by taking a loan from a housing finance company (HFC), at the end of the stipulated period, he may find that the total repayments on the loan far exceed the actual value of the house. In this article, we conduct an evaluation to help you determine whether it's better to buy or rent a house. Let's consider an individual (say Mr Sharma. ) who lives in a metropolitan city (say New Delhi) and earns Rs 45,000 per month (pm) as salary. In terms of housing, he has two options; either live in a rented premise or take a home loan and buy a property for himself. The assumptions for the purpose of this discussion - ' Mr Sharma. gets a 5% increment on his salary every year and he falls in the highest tax bracket i.e. 30.9 % (including education cess) ' There is no change in the tax laws during the period considered i.e. 20 years Option 1: Live in a rented house In the first option, Mr Sharma.stays in a rented house for 20 years and pays Rs 13,500 pm or Rs 162,000 per annum (pa) as rent. Besides the rent, he pays an initial deposit of Rs 100,000. The house rent increases by 5% pa. Thus, over the 20-Yr period, Mr Sharma.will pay Rs 5,356,685 as rent (for the initiated, this is the future value of all the rent installments). However, as per Section 10(13A) of the Income Tax Act, an individual can claim tax benefits on the house rent allowance that he receives. Therefore, we estimate that Mr Sharma.gets a tax benefit of Rs 1,103,477 on his house rent over the 20-Yr period. Particulars Tenure of residency Years 20 Rent per month Rs 13,500 Annual rent Rs 162,000 Initial deposit Rs 100,000 Increase in rent (pa) % 5 Result: Total expenditure on rent (over 20 years) [A] Rs 5,356,685 Tax benefit on house rent (over 20 years) [B] Rs 1,103,477 Loss of interest on account of deposit (over 20 years) [C] Rs 366,096 Total expenditure on rent after accounting for tax benefits (A-B+C) Rs 4,619,303 As mentioned earlier, Mr Sharma.pays an initial deposit of Rs 100,000 (refundable once he vacates the house). We have assumed that if this amount were to be invested in an investment avenue fetching 8% return pa, then, at the end of 20 years he would have earned Rs 366,096 on his investment. Since the Rs 100,000 is inaccessible for 20 years (as a deposit); Rs 366,096, which he could have earned by investing the deposit amount, is an opportunity loss. Taking into consideration all these aspects i.e. his expenditure on house rent, the opportunity loss and the tax benefit he would receive, the net expenditure for renting the house would amount to Rs 4,619,303. Option 2: Take a home loan to buy a house Suppose Mr Sharma.decides to take a home loan and buy a house. The cost of the house is Rs 2,500,000. He takes a home loan of Rs 2,000,000 from an HFC for a tenure of 20 years at 12% rate of interest. The balance amount will be paid as initial payment (HFCs finance around 80% of the total cost). Therefore, the total sum required as initial payment for the property is Rs 725,000 including stamp duty (8%) and registration charge (1%). Based on the loan amount and the interest rate, his EMI (equated monthly installment) is Rs 22,022 pm. Thus, Mr Sharma.will repay Rs 6,010,280 (including initial payment) towards the home loan. Particulars Cost of the house Rs 2,500,000 Loan amount Rs 2,000,000 Tenure of loan Yrs 20 Rate of interest % 12 EMI Rs 22,022 Initial payment: (a) Personal contribution (20% of property cost) Rs 500,000   (b) Stamp duty (8% of property cost) Rs 200,000   (c) Registration (1% of property cost) Rs 25,000 Total initial payment (a+b+c) 725,000 Result: EMI outgo (over 20 years) and initial payment [A] Rs 6,010,280 Tax benefits received from EMI (over 20 Yrs) [B] Rs 1,235,173 Loss of interest on account of initial payment (over 20 years) [C] Rs 2,654,193 Total expenditure after adjusting for tax benefits (A-B+C) Rs 7,429,300 However, he can also claim tax benefits under Section 80C and Section 24 of the Income Tax Act on the home loan repayments (towards interest and principal). With this, we estimate he can claim a tax benefit of Rs 1,235,173 on the home loan. If Mr Sharma.had chosen to live in a rented premise and not buy a property, he would not have made the initial payment of Rs 725,000. Furthermore, he could have invested the same in an investment avenue offering 8% pa. At the end of 20 years, he would have earned Rs 2,654,193 on his investment. Effectively, this amount is an opportunity loss for Kumar. After taking into consideration all the aspects such as total home loan repayments, tax benefits and the opportunity loss, the net expenditure on buying a house would amount to Rs 7,429,300. On comparing the two options, one would find that over the 20-Yr period, the option to live in a rented house (total expenditure Rs 4,619,303) turns out to be much cheaper than buying a house on loan (total expenditure Rs 7,429,300). However, this cannot be taken as conclusive since there are other essential factors that also need to be addressed. 1. Although the option of staying on rent seems cheaper, individuals should appreciate that by buying a house they are creating an important asset for themselves. 2. While staying on rent would be a pure expenditure, buying a house should be regarded as an investment, as an asset is created for the home buyer. The asset's value is likely to increase over the course of time (a vital factor that we have not considered). 3. In our description, we have made some assumptions based on normal expenses and trends . Now, if any of these assumptions related to the interest rates, rent payable or tax laws were to change, they will have a significant bearing on the end result. For example, if the home loan interest rate was 8%, then the net expenditure on buying the house (after adjusting for tax benefits) would be Rs 6,277,025 (as compared to Rs 7,429,300 in the current example). Similarly, if the rent of the house were Rs 20,000 (instead of Rs 13,500; this is possible if the demand for rental properties were to increase significantly), then, the net expenditure on rent would rise to Rs 6,922,578. This clearly proves that a change in the assumptions can radically alter the end result. For instance, under the revised assumptions, buying a house would be more economical vis-a-vis staying on rent. It should be understood that whether an individual buys a house or stays on rent is on one level largely a personal choice. There are factors, financial as well as non-financial (individual needs and aspirations), which need to be considered while determining the feasibility of options. At Assetventures, we maintain that every individual must own property (for residential purpose), as the same has a vital role to play from an asset allocation perspective. To that end, buying a property should be taken up on priority, and discretion can be used in terms of the location and size of the propert

Q.	Ways to Increase Home Loan Eligibility?

A.

Home loan interest rates have inched up in the last few months. This in turn, has affected the loan eligibility for home loan borrowers. Loan eligibility is inversely related to rates. As interest rates rise, loan eligibility becomes stiffer. In such a scenario, some home loan borrowers might have to re-evaluate their options (in terms of loan amount) on account of the new eligibility criteria. We present 5 ways by which individuals can enhance their home loan eligibility.. Home loan interest rates have inched up in the last few months. This in turn, has affected the loan eligibility for home loan borrowers. Loan eligibility is inversely related to rates. As interest rates rise, loan eligibility becomes stiffer. In such a scenario, some home loan borrowers might have to re-evaluate their options (in terms of loan amount) on account of the new eligibility criteria. We present 5 ways by which individuals can enhance their home loan eligibility. 1.Increasing the loan tenure One very elementary method of enhancing the home loan eligibility is by opting for a higher tenure. This is so because the EMI (Equated Monthly Instalment) per lakh, which an individual has to pay, starts to decline as the tenure increases. The reason being that other factors like interest rate as well as the principal amount remain the same, despite the higher tenure. What changes though, is the net interest outgo, which rises with a rise in tenure. And since the individual is paying a lower EMI now, his 'ability to pay' and therefore his loan eligibility, automatically increase. 2.Repaying other outstanding loans For example, if the home loan seeker has an outstanding personal loan, where 16 EMIs remain to be paid, then he can prepay the same and approach the HFC with a clean slate. Alternately, he also has the option of prepaying 5 EMIs thereby ensuring that the existing loan liability doesn't impact his eligibility for the home loan. 3. Clubbing of incomes Another way of increasing loan eligibility is by way of clubbing incomes of spouse/father/mother/son. An illustration will help in understanding things better. Suppose an individual's loan eligibility, based on his income, works out to approximately Rs 1,000,000 for a given set of criteria. But the individual wants a loan worth Rs 2,000,000. Assume that this individual's spouse too is earning a similar annual income. In such a case, the individual can club his spouse's income alongwith his own income and then opt for a home loan. The eligibility in this case, will be calculated on the clubbed income of both husband and wife- thereby enhancing the individual's eligibility to the extent of the spouse's income. In our example, the eligibility will now stand doubled at Rs 2,000,000 from Rs 1,000,000 earlier. 4. Step-up loan Individuals can also opt for step-up loans and enhance their loan eligibility. Simply put, a step-up loan is a loan wherein an individual pays a lower EMI during the initial years and the same is enhanced during the rest of the loan tenure. For example, a Rs 1,000,000 home loan at 7.5% for a 20-Yr tenure would imply paying an EMI of Rs 6,760 the first 2 years and Rs 8,340 for the remaining tenure. HFCs usually consider the lower EMI of the initial years to calculate his loan eligibility. The initial lower EMI helps increase the individual's 'capacity to borrow'. 5. Perks Salaried individuals must ensure that variable sources of income like performance-linked pay among others are taken into consideration while computing their income. This in turn will imply that the loan amounts they are eligible for, stand enhanced as well. As can be seen, there are many ways to increase loan eligibility. However, individuals need to keep in mind that increasing the eligibility can have an impact on their financial planning. For example, if an individual decides to prepay an existing personal loan for the sake of becoming eligible for a higher loan amount, he might be faced with a cash crunch. Hence a detailed scrutiny of one's financial standing is warranted before opting for an inflated home loan. The examples in this note should only be treated as illustrations. Individuals need to work out solutions best suited for their profile after speaking to their home loan consultant and only then consider acting on the options discussed

Q.	Iinformation related To Stamp Duty ?

A.

1. What is Stamp Duty ? It is a type of tax which is paid for the transaction performed by way of document or instrument under the provisions of Bombay Stamp Act, 1958 and Indian Stamp Act, 1899. 2. Whether Stamp duty is payable on transactions or on instruments? It is payable on instruments and not on transactions. The definition of the term instrument is very wide. 3. What is instrument ? Instrument means any document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. . 4. What is document ? As defined in Evidence Act, document means only matter expressed or described upon substance by means of letters, figures or marks or by more than any of those means intended to be used or which may used for the purpose of recording that matter. . 5. Why Stamp Duty has to paid on document/instrument ? The payment of proper Stamp duty on instruments bestows legality on them. Such instruments get evidentiary value and are admitted in evidence in Court of law. The instruments which are not properly stamped are not admitted in evidence . . 6. How Stamp Duty is calculated? Broadly the 62 articles of Schedule I are grouped in three categories. Category i) Articles whose amount of Stamp duty is fixed irrespective of the value mentioned in the document / instrument. ( Viz. Administration Bond, Adoption deed, Affidavit, Divorce, Appointment in execution of power , Apprenticeship deed, Article of clerkship, Award, Cancellation deed, Charter party, Duplicate, Copy of Extracts, Entry of Memorandum of Marriage, Indemnity Bond, Letter of license, Memorandum of Association of a company, Notarial Act, Power of attorney, etc.) Category ii) Articles where depending upon the value mentioned in the document, the amount of stamp duty is varied. (Viz. Agreement relating to deposit of title deeds, pawn, pledge or hypothecation, Clearance List, Lease , Article of association, Mortgage deed, Security Bond, etc.) Category iii) Articles which attracts Stamp duty on the consideration mentioned in the document or True Market Value, whichever is higher. ( Viz. Conveyance, Agreement for sale, Gift, Exchange,Partnership Deed,Partition, Development Agreement, Transfer, Trust, etc.) For category I and II types of instruments the Stamp duty payable can be ascertained by referring to the Schedule I; but to ascertain the Stamp duty on the instruments mentioned in Category III, the expertise in valuation is required. The True Market Value is determined as per the provision of the Bombay Stamp ( Determination of True market value of the property ) Rules, 1995. . 7. What point of time of Stamp Duty payable. ? The Section 17 & 18 of the Act states the time of payment stamp duty. Generally all the instruments executed in the state shall be stamped before or at the time of execution or immediately thereafter or on the next working day following the day of execution. Similarly, the instruments which is executed out of the state and within three months from its receipt in the state, shall be stamped. . 8. How is Stamp Duty payable? Stamp Duty can be paid by 1. Using Stamp paper 2. Using adhesive stamps 3. Franking . 9. Who is liable to pay Stamp Duty ? As per the provisions of Section 30 the onus of payment of Stamp duty in the absence of an agreement to the contrary, shall be borne by the executing in the manner provided their with respect of certain kinds of documents viz. Mortgage deed, release, security bond, settlement, bond etc. in the case of conveyance, the grantee and lease the lessee shall pay the stamp duty in the case of exchange of property, both the parties in equal share shall pay stamp duty. In case of partition, the parties thereto in proportion to their respective shares should pay stamp duty.