People Living in Tier 2 Cities in India Should Consider Term Insurance

According to a recent study, Ahmedabad, Bhubaneshwar, Chandigarh, Coimbatore, Jaipur, Kochi, Indore, Nagpur, Vadodara and Visakhapatnam were identified as the top 10 emerging cities of India. While Coimbatore has over 25,000 small and medium enterprises, Visakhapatnam was found suitable for industries such as mining, heavy manufacturing, etc.

Jaipur was counted as a significant service sector investment, while Ahmedabad was hailed as an attractive investment for the manufacturing sector. Another study by Cushman and Wakefield revealed that the growth in tier II cities is being aided by increasing disposable income of people, which has created immense opportunities for the companies looking to grow.

This is positive news for the insurance market as well, which is still trying to break into the tier II cities. If you are planning the financial future of your family, products like term insurance might be the right option to begin with.

Benefits of Term Insurance

• Low Premium: One of the reasons why rural insurance or tier II insurance is low in India is that people believe they are unable to afford it. However, the advantage with term insurance is that it is the least expensive form of insurance and provides coverage for the lowest premium. The cost does increase during renewal but it is still an affordable option. Since most term policies are structurally similar, they can be easily compared to choose the best possible option.
• Best Alternate Available: It is the best alternative for temporary life insurance needs. If you want protection for a fixed term of 10 to 15 years, then it is your best investment option. The policy holder gets similar benefits to that of a traditional policy.
• Flexibility: It is much easier to opt out of a term plan than a traditional policy. If you stop paying the premium, the policy is terminated automatically and the cover ceases. This is particularly beneficial in the context of rural insurance, where people may not have a fixed income.
• Tax Benefits: Although the premium paid is lower, it is still eligible for tax benefits under Section 80C of the Income Tax Act, just like endowment policies. The savings you get in the premium can also be invested in other tax efficient schemes.

A term policy can also be purchased to meet a specific financial obligation, like the repayment of a loan. Also, if your financial goals change, it can be converted into a traditional policy. It is undoubtedly the cheapest way to protect your family and requires minimum effort and money on your part.

The Impact of Demonetization on Property Deals May Lead to Cheaper Loans

The Indian real estate segment, hit hard by the demonetization move, is hoping to revive its fortunes in the form of cheaper loans once the financial system becomes stable. The Reserve Bank of India is likely to ease its monetary policy to give the sector a boost, which in turn could result in reduced lending rates and easier housing loans in India.

Demonetization and the Secondary Property Market

The latest government action aimed at curbing illicit transactions has had a catastrophic impact on all property deals involving black money. Earlier, many developers and property owners used to insist on the use of hard cash for payment of a significant component of the price of any deal. This has stopped post demonetization, resulting in a sharp fall in real estate prices in certain areas.

While secondary market deals have been hit by demonetization, investment in new property has also been negatively impacted by the uncertainty in the minds of the people of India. More and more people are choosing to wait before using their funds to buy property. This, in turn, is resulting in the piling up of inventories with builders and property developers, and may be followed by a sharp cut in prices by real estate companies to keep their inventories in check. Thus, buyers can hope for a continued decline in property prices in the near future at least.

The real estate segment is currently in a pause mode and the trend is likely to continue for a couple of months till the situation becomes clearer. Transactions involving land, commercial property or secondary deals may not happen for some time, with everyone busy sorting their finances.

Potential for Easing of Interest Rates

Another impact of demonetization has been the sharp inflow of funds into the banking system, which is expected to put downward pressure on the interest rate structure of the banks. Reduced dependence of banks on higher cost borrowings is likely to cut the MCLR or the Marginal Cost of Funds based Lending rate, followed by a cut in home loan interest rates. An easing of the monetary policy is also likely to have a favorable impact on the home loan interest rate scenario.

An easing of home loan interest rates is expected to result in more and more investors opting for real estate purchases over investment in bonds and fixed deposits, thus giving a fillip to the real estate segment. The move will also help builders and developers to reduce their inventories.

The government is also likely to boost housing loans in India to achieve its goal of providing houses to all by 2020. It may launch special housing schemes for first time buyers at attractive rates. However, the actual and final impact of demonetization will be visible only after several months, when the transition to the new currency is complete, the cash crunch situation is resolved and some kind of stability is achieved.

EMIs – understanding the math

EMIs are a big part of our home purchase decision. We explain how a percentage of your monthly income pays the home loan. 

If you are about to take a home loan, you are justifiably worried about the ‘EMI’ you have to pay the bank every month. The higher the EMI, the higher is the deduction from your monthly income till the loan is completely repaid. The EMI computation can also get slightly tricky, so it is best to understand how your bank calculates the numbers.

The EMI (Equated Monthly Instalment) is an amount of money calculated by the lending institution after taking certain factors into account. These factors include, and are a combination of, the principal amount (P), interest payable (I), and total number of instalments (N). The loan tenure is calculated on the basis of the number of years chosen but in terms of the number of months.

Do note the formula that your bank uses to compute the EMI:

[P x I x (1 + I) x N] ÷ (1 + I) x (N-1)

Now suppose you seek a home loan of Rs 40 lakh (P) at an interest rate of 12% (I) for a tenure of 10 years, i.e. 120 months (N). You may use the formula above to arrive at the EMI calculation. Or if you don’t want to be bogged down by the mathematics of it all, simply use your bank’s online home loan EMI calculator to arrive at the estimated EMI payable per month.

Points to note about the EMI calculations:

1. The EMI does not comprise equal parts principal amount and interest. In the initial years of the loan, the interest component is higher. It gets correspondingly lower as the loan progresses, while the principal amount is higher.
2. Thus, you cannot think that half of your loan is repaid after 5 years out of a total tenure of 10 years.
3. The EMI structure is liable to change during the repayment tenure, for three reasons:

• You may opt for a floating rate of interest, which can reset the interest periodically.
• You choose to pay differential or staggered EMIs, i.e. lower amounts for a few years and then larger EMIs later. This option is offered only by a few financial institutions in India.
• You repay incremental amounts in addition to the regular EMIs. The prepayment amounts reduce the principal amount of the loan and the interest is recalculated on the balance amount.

Premier banks and housing finance institutions offer an online home loan calculator that makes the EMI calculations easy. All you have to do is fill in the numbers as prompted for a close estimate of the EMI you will pay for your home loan.

Important Mortgage Tips for Home Buyers in 2016

According to an article published in The Economics Times on October 5, 2016, the Reserve Bank of India (RBI) has reduced the repo rate from 6.5% to 6.25%. The repo rate is the rate at which the RBI lends money to commercial banks, in case they run short of funds. It is believed that this action will promote a good borrowing environment in the country, especially for retail customers, which will ultimately increase the demand for personal and home mortgage loans.

Getting a home loan is not a bumpy ride anymore. Here are some tips that can get you the best deal for the most important investment of your lifetime.

10 Smart Mortgage Tips for Home Seekers

1. Work on Your Creditworthiness

Nothing works better than your creditworthiness when you are applying for a home loan. It is the valuation performed by certain agencies, considering factors like repayment history and credit score. If you're managing your current debt responsibly, paying your bills on time, etc., then you are most likey to be eligible to for the desired loan amount.

2. Always Save for the Down Payment

It is believed that paying 20% as down payment on a mortgage is ideal. The down payment will highly affect you and your family, so it is strongly advised to stay prepared.

3. Seek Advice from a Professional

It is not necessary to be an expert in homebuying, instead look for assistance from qualified professionals. They will answer all your questions about your financing needs too.

4. Look for the Best Mortgage Lender

Taking on a loan is much more than just getting a favourable interest rate. You should get the loan estimates from multiple lenders before reaching any decision.

5. Understand the Loan Types

A fixed-rate home loan doesn't suit every home buyer in the same way that an adjustable-rate mortgage isn't right for every home buyer either. An ideal situation is a 30-year loan, if you are buying the house to raise a family. If you are opting for a 10-year loan, an adjustable-rate mortgage is preferred, which is fixed for the first few years and then starts reducing for the rest of the tenure.

6. Consider Preapproval

It is recommended to have your funding preapproved even before you start looking for a house. After determining the amount of money that you are qualified to borrow, your house-hunting process will become much more realistic and fall within your budget.

7. Nest amongst Like-Minded People

Humans, being social animals, are highly affected by their surroundings. Interestingly, your house plays a key role in all aspects of your life. Consider the community, extracurricular activities and nearby facilities before narrowing down your search.

8. Don't Forget Your Budget

You have to take into account the additional burden of monthly expenses on other non-negotiable expenses, such as property taxes, insurance and other household expenses. Stick to a budget when finalizing a home mortgage loan.

9. Negotiate on Closing Costs

When you receive the loan estimate after applying for the mortgage, you'll get a rough idea about the closing costs or “cash to close”. Hence, shop for the best closing costs.

10. Strengthen your Saving Account

It is not wise to spend your savings on down payment or closing costs, ignoring emergencies. A golden rule is to save money worth 3 to 6 months of your living expenses beforehand.

Home loans – The answer to your house purchase question

If you are still on the fence about taking a home loan, we give you four reasons to tilt your decision in favour of taking one.

The never ending escalation of real estate costs in India has made it practically impossible for first time home buyers to buy a house. Every time you decide to take the plunge, interest rates increase or construction costs shoot skywards and raise the overall house costs. Ultimately, you realise that there is no way you can raise the capital to make a full payment on a house you like. So you continue living in rental accommodation, because you do not want to take a home loan.

This is why you should consider taking a home loan, if you want to make that all-important first home purchase.

1. Prices keep increasing! Most people feel that they can save money and take a lower loan amount to buy a house in the future. But real estate prices normally show an upward trend, unless there is a severe economic downturn. So even if you save money for a year, you will still be short of funds when prices rise and you try to buy a house. So take a home loan now, not later.
2. Your finances may change at a later date. Those who have a stable income at the moment can afford to take a home loan and repay it in a reasonable amount of time. It may become impossible to take a loan if you have to take a pay cut or if your spouse quits working to take care of your child. Your financial life will keep changing as the needs of your family change, so postponing the home loan decision for later might not be such a good idea.
3. Your eligibility changes as you age. Home loan insurance companies compute your home loan eligibility basis your current income, age and overall repayment capacity. Thus, the tenure of the home loan is higher if you are younger, to account for the number of working years you still have left. It is better to take a home loan at age 25 rather than do the same at age 35, because your loan tenure will automatically be reduced by about 10 years. You can use a home loan eligibility calculator to find out how much loan amount you can get basis your income and age.
4. You can always sell at a later date. There is every chance that the house you can afford to buy today may not suit your needs tomorrow. Since property is quite liquid in nature, you can sell the house you bought today to buy a bigger one in the future.

Only a home loan from a reputed financial institution can help you buy your dream home. So why wait to make your dream come true?

Tip of the day: How to buy your dream home sooner rather than later

Buying your own home is now easy and hassle-free with the best loan product making the purchase possible.

In the hurly-burly of life, we strive for a semblance of security and comfort for ourselves and our loved ones. All we expect is that at the end of the day, we may have a place to call our own and our family members with us till the end of time. This entails owning a home that we can craft with love and ingenuity.

But in India, many people today are forced to make their peace with rental accommodation. Real estate prices have spiralled out of control in recent years, so most people are unable to take the plunge and buy their own homes. The home purchase dream remains a dream for years: but you can bring it to reality with a home loan.

If you are sceptical about taking a home loan, don’t be. It is the best way to finance your dream home purchase, in which you must raise only a small percentage of the overall home value from your own resources. Besides, a bevy of premier housing finance companies in India have several home loan products to suit your needs. So whether it is a first home purchase or a home renovation loan, you will always find a product that suits you.

Choose the most reputed housing finance institutions for the home loan – they simplify the process and reduce application processing times so that the loan amount is disbursed quicker. They also follow a stringent background check on each applicant’s credentials as well as inspect the property/land you wish to buy so that there are no legal lacunae to be faced at a later date. 

Meanwhile, you can get up to 80% of the property value as the home loan, or even higher, depending on the housing finance institution.

The best news is that many financial applications now have an online home loan option, which cuts both time and processing charges for the applicant. You can apply for both pre-approval and online home loan, attach the approved list of documents (self-attested) and pay the fees via credit/debit card or Internet banking. Once the documents are verified and the property is inspected via on-site inspection, the loan application is processed further. 

Within days, you get the loan approval and the amount you seek is disbursed to you. It’s so quick and easy – and it gets you the dream home you always wanted.