Posted: 20 Sep 2011 07:40 PM PDT

With SBI doing away with teaser loan and RBI increasing policy rates, home loan has become once again more expensive for Indian borrowers. The home loan rates since then have been raised to at least 9.5% offered by SBI and few NBFCs such as Indiabulls finance. Other banks and NBFCs may charge even higher. We cannot do much in this case as the interest rate is affected by RBI's policy rate. However, we could certainly do our due diligence before buying home on home loan.

Let's look at top five points that we need to consider before buying our dream house.

Your Home Budget

This is one of the most crucial decisions. Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer.

As a general rule, the EMI for all the loans you have taken and going to take should not exceed 40% of your income. This is when you have saved 3-6 months gross income for any emergency purposes. Hence if your income is 1 lakh per month, your combined EMI for all the loans you have taken should not exceed 40,000 per month. Some banks enforce this on their own. However, the responsibility lies with you.

Bank Loan

The interest rate varies from Bank to Banks and now after NBFCs started competitive rates, you have more choices. In this context, you should also check other fees such as processing fee, documentation fee, and any prepayment penalty associated with the home loan. At the same time do research on the best option that banks offer. Home loan is a huge amount and hence even a difference of 0.5% can make big difference in pay-outs.

You should also get the maximum tax benefit from your home loan. See if you can make your spouse co-applicant and avail the tax benefits. You will simply double the tax benefits if there are two co-applicants.

Builder's track record

Check the name of the builder and do your research on how the builder has delivered in the past. Check internet discussion groups and forums for views on the builder. Talk to people who are living in homes built by the same builder. This is very important as you are going to make the biggest investment of your life. There are sites such as India Property Review (www.indianpropertyreview.com). This site has rating of building and housing societies. They also publish research reports on housing societies.

You have to have long term view of the investment. The property should be stable enough to last 50-60 years so that if you want to sell it and buy a bigger home, you should be able to do it without much hassle. This is where buying from a reputed builder becomes more important.

At the same time, see if you can link your loan disbursal based on construction instead of time. This will put pressure in builders to build the home faster.

Legal and Documentation

You need to get a lawyer who can search the title and associated documents before you buy the home. You should get everything in writing from the builder. The sale deed should be duly signed by both the buyer and the seller.

You should also ensure that lay out plan, building plan, number of floors, and ownership documents are in order. You should take legal help from a lawyer if you do not understand any document. Apart from these documents, make sure to get the encumbrance certificates from the sub-registrar. The encumbrance certificate tells you the record of last 30 years.

All taxes should have been paid on the property. You should get this from municipality and from the owner too as he or she will have the receipt of the taxes paid.

Last but not the least, the NOC certificate from water and electricity boards has to be obtained.

Location

The most important part of a real estate piece is location. Even if you have to pay little extra, you should do it. The most important aspect of the right location is future prospect of big construction such as mall, IT Park, company, SEZ, airport, railway lines, or any other commercial space. Apart from this, the points to consider in any location are the following:

ð Availability of civic amenities such as power, water, roads

ð General environment

ð Closeness to main road, markets etc.

ð Possibility of renting out your home

There are times when borrowers buy property to sell it once it is complete and pocket the profit. If you have such intentions, location becomes more important.

Protect yourself from credit card fraud!

Posted: 20 Sep 2011 07:15 PM PDT

Whenever you use your card, always ensure that the transaction is completed in front of you and that no details are written down by the merchant. Do not provide photocopies of both sides of the credit card to anyone. The card verification value (CVV) which is required for online transactions is printed on the reverse of the card. Anyone can use the card for online purchases if the information is available with them.

Sameer (name changed), is a business man, who has always been prudent with his money. Whenever he used his credit card, he ensured that he would pay his dues back immediately. He also made sure that he never used his credit card for expensive purchases, using cash instead. Imagine his unpleasant surprise, when he got a credit card bill showing that he had used up his entire credit limit. On checking his statement, he saw purchases that he had never made. He went through hell trying to making payments over those purchases. Apparently, Sameer was the victim of credit card fraud.

Credit card frauds are on the rise these days. The credit card number, the Card Verification Value (CVV) or the Card Security Code (CSC), date of birth, credit card limit, residential address (stored on your card's magnetic tape) is all that is needed for someone to misuse your credit card.

Being vigilant while using your credit card is the only way of preventing fraud. Here are some tips.

Card Verification Value (CVV) or the Card Security Code (CSC)

The CSC or CVV number is a security feature for credit or debit card transactions, giving increased protection against credit card fraud. It is not embossed like the card number, and is always a group of numbers printed on the back signature panel of the card.

This provides a level of protection to the bank/card holder, in that a corrupt merchant cannot simply capture the magnetic stripe details of a card and use them later for "card not present" purchases over the phone, mail order or Internet.

Using cards online

When using your credit cards for making purchases online:

Ensure that website is a secure site. This can be done by checking whether the site is secured by a reputable net authentication agency like VeriSign.
Do not click on links in email seeking details of your account; they could be phishing emails from fraudsters. Most reputed companies will ask you to visit their website directly.
Do not give out your credit card details on unknown or suspicious websites.

Stolen Card and Suspicious Transactions

The first and foremost thing to do, after you have confirmed that you have lost your wallet or card or have seen suspicious transactions on your credit card statement, is to call up the bank's 24 hour call centre and deactivate the card or inform the customer service representative about the suspicious transactions. The representative will help you file a complaint in regard to this. In case of lost cards, check if any transactions have been made on the card and if there are any; inform the bank about the ones that are not yours. This has to be done within a particular number of days which varies between 30 and 60 days according to different banks.

Some general tips

On receipt of a new card ensure that it is in sealed condition and that the seal is not tampered with.
Sign on the back of your new card as soon as you receive it.
Monitor your account regularly either on the Internet or from call centers. Also subscribe to email and mobile alerts to keep track of card usage.
Memorize your card's PIN number.
Destroy and dispose all documents that mention the card number, such as copies of receipts, airline tickets, travel itineraries etc.
Personal account information should never be shared with anyone unless payment for the purchase is being done from that account.

Another important thing is keeping any useful information such as card number, expiry date, CVV number, and pin number etc. of your cards handy. However, that does not mean that you keep the information in places where it is easily accessible. Protect your card information as you would protect your money.

Finally, always stay at least 40% below your credit limit and review your account information either online or through the credit card company's call center frequently. This will help you identify any suspicious transactions immediately.

Credit cards, though an easy way to have access to money without carrying around a lot of cash can become a big liability if not used prudently and carefully. Ensure that you use the card responsibly.

Get the best deals on loan offers

Some useful personal finance calculators

EMI calculator
Loan repayment calculator

Do your math before you shift your home loan!

Posted: 20 Sep 2011 04:40 PM PDT

Does it make sense to reduce one burden by taking on another? This is the first question that would be top of mind when faced with the question of whether to refinance an existing home loan. Given the fact that a home loan is the biggest reason for cash outflow in most Indian households, this decision has to be taken after a lot of thought. Here is some food for thought to help you arrive at the best decision.

Refinancing a loan can give multiple benefits depending on the situation of your current personal finance

- Get you a lower interest rate thus reducing your EMI and monthly burden

- Give you the option to go for lower tenures and be out of the burden soon

- Reduce your EMI by going in for longer tenures

- Shift from a Floating rate to fixed rate or vice-versa depending upon interest rate trends.

Wow! With so many benefits, I should immediately go and refinance my loan! On second thoughts, should I?

Every home loan buyer will agree that it is a paper work loaded process to get the loan, as all the previous procedures have to be repeated afresh. Add to this the many levels of small print and jargon and it gets more confusing. This one fact alone can trouble you while deciding whether to go for a refinance or not. Here are some facts to help you take the decision.

Refinancing refers to the replacement of a loan from one entity, with a new loan from another in order to gain some benefits. The word refinance though could seem a bit confusing as there is no reworking on your old loan but you simply take a new loan in order to repay the old one.

How do I know if "my" situation warrants going in for a refinance?

The fundamental behind every personal finance decision has to be cash flow. This same principle needs to be applied to your decision. Life is a lot simpler with online tools readily available. A simple "refinance calculator" search will give you some great tools, which will help you know with clarity as to how much lesser or how much more you will pay by deciding to go for refinance.

These calculators have multiple options to try out every scenario. You can choose your tenure, interest rate etc and find out the outflow for each scenario.

Refinance – Yes! When? -If any scenario gives you a positive saving of over 15,000/-, then that would be the ideal choice. The Rs 15000 benchmark is to cover up all the miscellaneous costs that will be involved including your time spent.

Refinance – Maybe, When?- Taking a refinance to get a lower EMI at the cost of a higher net outflow can be harmful in the long term as you will have to pay more interest (negative cash) over the period. But it also depends on your current ability to service the loan. If you feel that the cash saved every month on a lesser EMI can help you lead a better life, then it could make sense.

Refinance- Never- When? If the refinance is going to result in a net outflow of more than 15% of the outflow of current loan, it is better to stay away from the refinance.

How Aparna took her decision regarding Refinance?

Aparna had taken a home loan of Rs 2,5,00,000/- for a 25 year tenure at a fixed rate of 14%. She had already paid the EMI regularly for 5 years when, she happened to go to a loan mela. Dinesh, a sales manager offered her a refinance at an interest rate of 13%. The offer of 2% lesser combined with the fact that her EMI would be lesser made Aparna think of the offer seriously. She met her personal finance advisor to take an informed decision utilizing an online calculator (refer pictorial alongside).

Aparna's current principal outstanding was Rs. 24,20,066/- this was the amount that Dinesh was ready to fund as a new loan.

Aparna had three choices:

1. Lower rate, 20 Years tenure (Lower EMI) – from the calculator she could see that if she reduces her EMI by around Rs.1700 every month and also saves Rs.2,99,257 in interest over the next 20 years.

2. Lower rate, 15 year tenure (Higher EMI, Lower months to pay) – This results in a marginal increase of Rs 526/- but saves her Rs 15, 92,377/- over a period of 15 years.

3. Lower rate, 25 year tenure (Lower EMI) – This results in reducing the EMI by Rs 2800 but an extra interest outflow of over Rs 10 Lakh.

Aparna's Choice: Based on the calculations Aparna and her financial advisor decided to not only take the refinance option but also to go for a lower tenure.

Next time you are faced with a similar decision making process all that you need to do is to just go online and do the math for yourselves.

STI NEWS;"5 points to consider before buying a home!"plus 2 more

5 points to consider before buying a home!
Protect yourself from credit card fraud!
Do your math before you shift your home loan!

5 points to consider before buying a home!