Have you ever run into a situation where you find your current outstanding dues on your credit card suddenly overwhelming? Do you wish you had better benefits on your card? There is a way out which will give you more time to pay off the dues and also get rid of your current credit card. Balance of Transfer facility is the answer.

What is `Balance of Transfer’ ?

It is facility offered by credit card issuing companies to card holders wherein the outstanding balance on the credit card can be transferred to a less used card or a new card. Banks provide incentive for customers who use balance of transfer by providing a low interest or interest free period.

When an individual opts for balance of transfer, the less used card or the new card from which the facility is being used will lower the credit limit proportionately to the balance transfer amount. So if your credit limit is Rs. 100,000 and you have opted for balance of transfer to the tune of Rs. 40,000, your credit limit will be reduced to Rs. 60,000. Also, balance of transfer limit cannot exceed 80% of the credit limit.

When is it useful?

• High interest rate charged: If individuals face a situation where the interest rate charged by a new credit card is lower than what is charged by the current credit card, interest cost could be reduced by transferring the outstanding balance to the new credit card.
• Dissatisfied with the service: For those individuals, who are not content with the service provided by the current credit card company, due to various issues such as improper billing, non receipt of bill among other things, can opt for balance of transfer. The individual can transfer the balance of such a card to another card and get rid of the old card.
• Inability to finance the debt: If an individual has a high outstanding balance on a card and is unable to finance it currently because of short term liquidity crunch, or if the individual has an exorbitant debt to pay off, balance of transfer can come a temporary relief.

Charges involved

In order to induce customers, banks offer low rate of interest or sometime even zero interest on balance transfer for around specified period. What is noteworthy is the fact that these attractive rates (zero or low rates) are valid for only an introductory period i.e. 3-6 months, post which the bank will start charging you the normal rate of interest. A processing fee is also levied by banks which can be in the range of 2% and 5% of the total amount.

Let us take the example of Bank ABC which offers two plans for balance of transfer:

1.    Transfer at 0% interest rate for 3 months, 2.95% interest rate after the 3^rd month and 2% processing fee or Rs. 199 whichever is higher.

2.    Transfer at 0.75% for 6 months, 2.95% interest after the 6^th month and 1% processing fee or Rs. 100 whichever is higher.

The process

Inform the credit card company to whom you would want your outstanding debt to be transferred to.

• Fill in the form provided by them with details pertaining to your old credit card along with a copy of your latest credit card bill and submit it.
• Within 7-10 working days, the credit card company will send you a demand draft (DD) which will have the name of your old credit card issuer on it. After having submitted this DD to your old credit card company, your outstanding debt gets cleared with them and the same will be transferred to the new credit card issuer.

In order to make the most of the balance of transfer facility, make sure you make the maximum payment during the low interest or interest free period so that your finances are not impacted when the interest rate kicks in. More importantly, note that moving from one card to another is provides you with temporary interest relief. Also, do remember any purchases and expenses on the card on which you have opted for balance of transfer will not fall under the low or zero interest purview.

The most significant advantage of a joint home loan is the increase in home loan eligibility. Incomes from all joint home applicants are pooled in to enable the applicants to obtain a higher loan amount towards purchasing their dream home.  All the joint home applicants are eligible for tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid.

There are a number of advantages when you combine incomes and apply for a joint home loan. A bunch of these advantages are detailed here for your reference.

a. The most significant advantage of a joint home loan is the increase in home loan eligibility. Incomes from all joint home applicants are pooled in to enable the applicants to obtain a higher loan amount towards purchasing their dream home.

b. All the joint home applicants are eligible for tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid.

c. Another advantage of jointly taking a home loan is that all the borrowers can simultaneously avail these income tax rebates, thus maximizing the tax benefits of the home loan.

d. The number of people who can avail a joint home loan can be anywhere between 4 and 6, depending on their individual credit profiles.

e. The one criteria banks insist on is that all co-owners of the property should also be co-applicants but the reverse need not be true.

Who can take a joint loan?

– A married couple or a parent and child can take a joint loan.

– Some banks allow brothers to take a joint home loan provided they will both be co-owners of the property. Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.

Exceptions: Sisters, friends or unmarried couples living together are, generally, not allowed such loans by banks.

Do both borrowers get tax benefits?

Yes. You as well as the co-borrower can avail tax rebates on the principal and interest repaid on the loan.

This way you can maximize your tax benefits.

A home loan transfer (also known as refinancing or balance transfer) is an option that most individuals opt for to avail the benefit from lower interest rates prevalent in the market. Usually the existing borrower of a bank who is about 2 or more years into his loan tenure does not get the benefit of reducing interest rates in the market. RBI has been insisting on lower interest benefits to be passed on to the existing borrowers as well but it seldom happens.

Such individuals could discuss with their bank on re-negotiating the interest rates based on the good repayment track record etc. If the bank is not amenable, then they could shift to another bank which offers a lower interest rate prevalent in the market.

How does the process work

You will need to submit a letter to the existing lender requesting a loan transfer. Based on your request, the bank will give a consent letter / NOC and a statement mentioning the outstanding amount. This needs to be provided to the new lender who then sanctions your loan amount to the old lender for an account closure. Once the transaction is over, your property documents will be handed over to the new lender, the remaining post dated cheques / ECS will be cancelled.

The bank you are shifting to will offer you a loan based on the current home loan rates they are offering to their home loan applicants.

A prepayment penalty was earlier levied by the existing lender which can vary anywhere between 2%-5% of the principal outstanding of the loan at the time of refinance. However recently  NHBs and some banks like ICICI and SBI have waived this fee, but some banks could still charging a penalty. Do check with your bank and try to negotiate a waiver as the RBI and NHB mandate clearly are not in favour of penalty for prepayment in the case of a floating interest rate loan. Also, remember that you will also need to pay a processing fee to the new lender, which could also be negotiated and waived in this high interest rate regime.

This can range anywhere between 0.5% to 1% of the loan applied, most banks restrict this amount to Rs.5000.

Factor in all these costs when comparing the total loan cost between the two offers. If you feel there is a significant amount of interest to be saved from the move, then you can make a profitable switch.

The current interest rate climate however looks unfavourable for a switch unless you want to do it for other reasons. Starting this new year all major banks have increased their interest rates by 0.25% to 0.75%. More hikes are expected after the RBI monetary policy review slated for the end of January.

Remember that for a home loan switch you need go through all the procedures involved afresh. These include a credit appraisal, legal verification of property documents and technical evaluation with the new bank  etc. and a loan will be approved only when conditions are met.

Apart from saving on interest there are a few other reasons as well to switch a home loan, these include:

Bank is not agreeable to change loan terms: You might want to re-negotiate certain terms and conditions with your bank. For example, you might wish to extend the tenure of your loan to lower your EMI, your bank might not be ready for this change and hence prompt a shift.

Top up loan: The property value might have climbed much higher from its original price. On the basis of this you might want a top up loan to meet a money requirement or for a home renovation perhaps. If your lender is not open to finance this you might opt for a new lender.

Service issues: Sometimes you might just be unhappy with your bank’s service and accessibility, which might prompt a change.

Things to watch out for:

-        It is always better to switch the loan early on during the tenure as you would have already paid out a substantial amount of the interest due initially.

-        In the recent past a loan transfer was the most sought after when teaser loan schemes hit the market. However one should keep in mind that the teaser rate will contractually rise after a stipulated time frame.

-         Get a statement from your current lender stating that property documents will be dispatched within a certain time frame to avoid hassles on this front.

-        Remember that a loan switch will not be possible if you have been irregular with your loan repayment with your current lender.

These are some basics that you should know when obtaining a personal loan. These days, securing a loan is easy. Repayment is the tough bit. When you don’t repay on time, the recovery agent may come knocking at your door. When getting a personal loan it is important to ask yourself ‘Will I be able to pay it off?’

Personal loans are the one of the most widely chosen options, in case you are in a spot and need some urgent cash. However, personal loans are tricky and you need to know as much as possible about their basics before applying for one. Let’s start with some common questions.

What is a personal loan?

Personal loan is credit that is granted to the borrower for personal use. These loans are usually unsecured (no security or collateral required/asked) and is based solely on the borrower’s integrity and ability to pay.

Who is eligible for a personal loan?

The eligibility criteria and their specific details may differ from banks to bank based on their perception of the risks associated with given out personal loans. However, nearly all banks divide the potential borrowers into three categories:

• Salaried individuals
• Self employed individuals
• Self employed professionals

Other factors which are taken into consideration are, age, residence, work experience, repayment capacity, past obligations and place of work.

What kinds of interest rates are offered on personal loans?

Personal loans are offered in:

• Fixed rate
• Floating rate
• Flat rate

Of the three, flat rates turn out to be the most expensive since the other two are calculated on a reducing balance basis.

What is the average interest rate for personal loans?

The interest rate for a personal loan is decided on the basis of your credit repayment capability and history. Depending on this, interest rates could be anywhere between 14% and 25%, depending on the financial institution.

What documents are required for personal loans?

Personal loans require the least number of documents, making it the fastest to be approved. Typically, financial institutions would require proof of identity, residence, income and also 3 to 6 months of your bank statements. Some banks also require guarantors and the same set of their documents.

How is a personal loan repaid? Is prepayment of a loan possible?

Normally, personal loans are offered between 1 to 5 years. The loan is repaid with Equal Monthly Instalments (EMIs). Prepayment is possible but will generally carry a significant prepayment charge.

How is a personal loan different from credit card cash advances and loan against property?

Personal Loan	Credit card Cash Advance	Loan Against Property
Unsecured loan	Unsecured Loan	Secured Loan
Between 15% and 25%	For rollover credit (amount allowed to be rolled over and paid later) interest can go up to 35%	Between 12% and 15.75%
EMIs are higher because of high interest rate	Minimum monthly payments can be made. However, the interest keeps on adding up	Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turns out cheaper
Maximum loan eligibility is determined primarily by an individual’s income	Maximum amount is determined primarily by the credit limit on the card	Maximum loan eligibility is determined primarily by the value of the property and income
Tenure between 1 to 5 years	Can be paid off monthly	Tenure maximum of 15 years

These are some basics that you should know when obtaining a personal loan. These days, securing a loan is easy. Repayment is the tough bit. When you don’t repay on time, the recovery agent may come knocking at your door.

When getting a personal loan it is important to ask yourself ‘Will I be able to pay it off?’ Some things which can help you pay back your personal loans are:

• Pay off your credit cards: Try to pay off your credit cards as soon as possible, since credit card debts inadvertently hamper loan payments.

• Budget your spending: Once you have taken a loan, ensure that you budget your spending, so that if in any unforeseen circumstance you cannot make a monthly payment, your savings will help you out.

Personal loans if not utilized and repaid properly, can become a curse in disguise. Make your decisions prudently to ensure a safe financial future

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Also Read:

• Things to remember about your personal loan!
  
• Why LAP is a better option than a personal loan?!
  
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Gold is one of the most influential financial instruments in the India. Banks, NBFCs and unorganized lenders are actively engaged in providing loans against gold value. The loan against value of gold has played a great role by providing liquidity for an idle asset kept in the lockers.

However, in its latest move, RBI has come up with a norm for NBFCs that does not allow them to offer a loan above 60% of the value of gold.

RBI grew uncomfortable with the high growth rate of gold loans for NBFCs. It has increased its inquiry of the gold loan portfolios, even for the banks. RBI wants interest rates and growth rates on gold loans to come down, especially for NBFCs considering concentration risk and the risk of a fall in gold prices.

Furthermore, RBI’s directive that a bank credit to NBFCs for giving loans against gold jewelry will not be treated as exposure to the agricultural sector would hinder companies to raise easy funds for gold financing.

Some of the key points from the RBI’s latest guidelines for NBFCs include transparency in interest rates, due diligence in understanding the repayment capacity of the borrower, awareness of his existing debts, explicit loan agreement etc. Also, NBFCs that have gold loans of more than 50% of total financial assets have to maintain Tier -1 capital ratio of 12% from April 2014.

Why it is a setback for NBFCs?

RBI’s guideline is a setback for NBFCs because the new rules require greater capital adequacy for the financing companies and the thresh hold for the value of loan against gold is proposed to be at a lower value. This would mean that ornaments of the same value are expected to result in a lesser loan amount and that too at a slightly higher cost.

Let’s check out other aspects where NBFCs could be adversely affected. Earlier NBFCs used to provide up to 80% loan against the gold now it would be reduced to a mere 60% of the gold value. Gold loans from banks would now become more attractive than NBFCs until they are allowed to lend more on the value of pledged gold. The cost of funding for NBFCs would go up due to the RBI’s restriction to allow the NBFCs to finance its gold loan from the banks as an exposure to agricultural loan. NBFCs might have to reduce the interest rate to sustain hold in the gold loan market. Hence the current profit margin would come down significantly.

What’s in favor of NBFCs?

Though this regulation would hit hard on the revenue as well as bottom-line of the NBFCs there still some positive aspects to this move:

NBFCs would continue to enjoy the niche segment advantage due to its deep presence in the gold loan market. At present, NBFCs have a 32% share of the total gold loan market. The gold loan would still be cheaper than the personal loan, so the size of market is set to grow bigger in coming days. There are many untapped areas where NBFCs could have a better reach than the banks. The advantage of trouble free and quick loan processing by NBFCs would give them the edge over the banks. NBFCs can raise funds through market borrowings, i.e. commercial papers to lower the cost of the fund.

On gold loans

The RBI move would create a gap between bank and NBFC gold loan operations.  The banks are expected to make an aggressive take over on the gold loan segment in the absence of a strong NBFC presence. In the current scenario, RBI’s recent regulations have hit the top as well as bottom-line of the NBFCs. In India, gold buying is a regular process, and people are expected to continue its inclination towards gold in the future. The regulations may negatively affect the gold loan business in the short term for NBFCs but in the long term, the overall gold loan market is set to grow as long as the demand for gold is growing in the country, and NBFCs just need lay the foundation to pick up the pace again and devise ways to cater to their customer base in an innovative manner.

Try and pay the down payment from your own money, savings or by liquidating some assets. Opting for a personal loan can be a costly affair, as interest rates are very high. If you don’t have enough savings or assets to pay up the money, then its wise to wait and build assets and savings that can come handy for the downpayment, when the time is right.

Down payment generally amounts to 10-20% of the total cost of the home, as banks generally fund only about 80- 85% of the loan amount. This is to make sure the buyer has some stake in maintaining the property. Also, this ensures that the loan amount lent by the bank is always lower than the market value of the house.

Age of the building

Another factor banks consider while determining the total amount to lend, is the age of the building. Depending on the age of the building the down payment is likely to increase, the older the more down payment, you may need to shell out. The Bank always decides the home loan eligibility based on the property first. This means if the building is old and the down payment chunk is huge, banks will still insist on the down payment, even if your income can easily qualify for larger loan amount.  Banks adhere to such measures to safeguard their interests and to help them indulge in safe lending operations.

Make as much down payment as possible

Try and pay the down payment from your own money, savings or by liquidating some assets. Opting for a personal loan can be a costly affair, as interest rates are very high. If you don’t have enough savings or assets to pay up the money, then its wise to wait and build assets and savings that can come handy for the downpayment, when the time is right.

The concept of a down payment exists due the following reasons:

a. It indicates borrower’s credit worthiness due to access to the down payment

b. The amount of real investment a borrower has in their purchase, and their fidelity in continuing to make payments regularly are linked

c. It acts as a sort of insurance for lenders, since borrowers know that if they default on their loan; they will not only lose the property but their down payment as well

d. It ensures that the buyer (borrower) has some stake in maintaining the property

e. It ensures that banks are protected from fall in interest rates since the amount that they lend is lower than the market value of the house. Therefore, if there is a fall, they can still recover the losses

You had been saving up for this wonderful trip to Europe and you finally made it! You spoilt yourself silly with more than an eyeful of Europe, some fine dining and went a bit overboard with your shopping as well!

You could afford some of the unplanned expenses thanks to your international credit card! You made sure you did the smart things and noted down the exchange rate too on the day you were making the transactions! You did some calculation of your own and determined with all the conversions that your credit card bill was likely to tally to around Rs. X.

After a jolly good time you arrive at home and begin the daily grind! Soon your credit card bill also arrives! What follows is shock! The bill amount is nowhere the nice round X number you had in mind! It overshot it by nearly 5-6%. In this article we will find out how exactly the amount on your credit card is calculated, so as in future you take this into account to avoid unpleasant surprises!

Why your calculated value and amount on the credit card statement differ?

The two entities involved in the transaction apply additional fees for a foreign credit card transaction resulting in an additional cost of 5 to 6% for the end user. The first entity being the issuing bank like SBI or ICICI and the second, network service providers like VISA and MasterCard.

Why additional fee is applied?

The primary reason additional fee applied is because of intricacies and additional cost involved with currency conversion. Yet another reason is addition of a small margin of profit by the issuing bank and Visa/MasterCard.

What is the type and amount of charges involved?

There are basically three types of charges involved:

1.  Foreign Currency Conversion fee – Since you own an Indian credit card, your balance is automatically in Indian Rupees. When you do a transaction overseas, say 50 Euro you will be charged a foreign currency conversion fee as well. Visa and MasterCard automatically charge a 1-2% fee on foreign currency exchange and anything in excess of it is generally a small margin of profit for the bank.

2.  Foreign Transaction Charge – Irrespective of the currency, transaction amount, or cash withdrawal, providers (SBI, ICICI, HDFC, BOB, PNB, City Bank etc.) charge a Foreign Transaction charge, which makes up for around 2.5 -3.5% figure off the total transaction amount.

3.  Cash Advance Fee- It’s common knowledge that cash advances are expensive even within the country. If you are using your credit card overseas, withdrawing cash will definitely increase the fees. You can be imposed a 1%-4% additional fee every time you carry out an overseas cash withdrawal. You will also be charged the standard cash withdrawal rate for your credit card together with the international cash withdrawal fee.

What about the currency conversion rate on the day of transaction?

The exchange rate that is applied to a transaction is the exchange rate as of the day of settlement, which is the day that VISA or MasterCard determines the settlement amount to be exchanged between the acquirer and the issuer. The settlement date is therefore typically different from the date of the actual transaction. So don’t be surprised if the exchange rate you were using for calculation differs from what has actually been used, as your transaction might have been posted to VISA or MasterCard after one or two days by your merchant. The exchange rate is calculated one day in advance by Visa and MasterCard and is applicable throughout the day for every transaction at the same rate.

Where to find out the information regarding these charges?

To avoid surprises in future it’s advisable to be equipped with the complete knowledge of charges which will be applied on your credit card transaction. The data of Foreign Currency Conversion fee is available on VISA and MasterCard web sites. Please refer it just before you travel as these rates keep on changing.

Data of Foreign Transaction Charges and Cash Advance Fee is available with the issuing bank like SBI, ICICI etc. and you can call their customer care to find out the same before packing your bags. These charges are also dynamic and you might see them fluctuating at regular intervals.

How to choose the best credit card?

If you are a frequent flyer please enquire about the foreign transaction charges and cash withdrawal fees before applying for the card. You might find a difference if 1 to 2% in the offers of credit cards from various banks. Choose the one which charges you the minimum. Nothing much can be done about the currency conversion charges as they are levied by MasterCard and Visa so no point in worrying about that!

It is critical to read the offer document of the credit card provider. You should not treat it as a piece of paper, which just dies a silent death in the offer envelop. Next time around atleast scan your offer document. You will come across a lot of facts which might surprise you. The details of all the charges will be clearly detailed in the offer document. You might not find the exact values as they are pretty dynamic in nature but the rules which govern them are present in the offer document. Mind you, credit card business is one of the most lucrative businesses for the bank and it’s very easy for them to charge a heavy transaction fee.

The importance of paying the full amount cannot be stressed more as banks can charge you a hefty interest rate if you just keep paying the minimum amount due! It’s a practice best avoided. Another big no is cash withdrawal on your credit card, it’s the most expensive form of credit one can avail, so steer clear of it.

When we talk about credit card usage we find different people managing it in a different way. Some people are highly disciplined and never default on their monthly installments and others are so messy that they are always on the top of the defaulter list. Managing finance is a complex task and it’s very easy to fall into a debt trap if you misuse the power of free credit. Credit card provides you the power but it never suggests that this power is unlimited. You have to pay the dues back at the end of the free credit period but somehow the human mind doesn’t listen. To avoid getting into trouble in future it’s advisable to understand your credit personality and choose the credit card which suits you the best. Credit card companies provide credit cards with different features like different interest rate, different reward structure, different credit limits etc. If you understand the way you deal with credit it gets easier to choose the best combination for you. Let’s see what kinds of credit personalities exist and what card they should opt for.

The Beginner

You are just out of college enjoying your first job. You never had surplus money and hence no financial planning was required. You have never used credit previously and find the concept amazing. As expected, you are in a hurry to apply for one.

For beginners it’s advisable not to go for cards with high credit limits. You still do not know how you are going to use your card. Your financial wit has never been tested so better be cautious. This is just the beginning and once you are sure that you can manage your finances well, you can opt for credit cards with a higher limit.

The Disciplined

You have been there and done it all. You are great at financial planning and almost everything is in perfect shape. You never default on your monthly payments and never spend beyond your means. Reward offers don’t alter your spending pattern and you plan every move before executing.

For the disciplined the best suited card is one with cash back facility and good reward structure. The reward points should accrue irrespective of the type of purchasing done and can be redeemed at one go. Interest rate on your card doesn’t matter much as you always pay on time.

The Carefree

You love spending and believe that spending is the motivation for earning. You plan things beforehand but don’t mind going overboard at times. You cross your spending limit at times so you don’t make full payments on your credit card.

The most important feature which the carefree should look for in a credit card is the interest rate. As you carry forward the balance your interest expense is going to be high. It’s advisable to choose the card which offers the lowest interest rate. You should also make sure that your card does not have any annual maintenance charges attached to it.

The complete mess

You don’t understand financial management. Almost every time you do not even pay the minimum amount due on your credit card. All the customer care executives of the bank know you by name and are in constant touch with you. You always end up paying heavy interest and late payment charges.

For the messy it is better to use prepaid cards as it will save a great deal of money which you pay in the form of interest and various charges. This will prevent you from spending beyond your means.

The Credit Fearing

You never wanted a credit card in the first place. According to you being in debt is a crime. You applied for the card just because it made your life easy in some scenarios like booking air tickets and overseas purchases. You only swipe it in some kind of emergency and it goes unused at times for months.

The best card which will suit your needs is the one with no annual maintenance charge. You never make late payments and you are not a frequent user so interest rate and reward structure of the card doesn’t matter much for you.

Conclusion

There are a wide variety of credit cards available in the market and it’s not possible to research all of them. The better approach in such a scenario is to research your personality and then research the cards available. While you define your personality you get to know the basic traits your card should have. Once you are sure about the traits the list of cards automatically gets shorter. The best approach is to talk to the bank and discuss with the executive regarding your needs and spending behavior. They will definitely guide you with better options as banks are getting more and more cautious about their relationship with the customer. The existing competition in the market compels them to give better services to their clients. Rather than doing the entire math yourself, put forth some direct questions to them, which will help you make the best decision.

Home buyers are always looking for the best home they can buy with the resources and time available with them. Now, more than ever, real estate prices are subdued and buyers are again active in the market.

Buying a home is the most exciting and at the same time, tedious task for people. While the excitement of owning your own home pushes you harder to expedite the process, the tedious task of going through enormous amount of details frustrates you. Going through the process is a necessity. Though the process is tedious and demanding, any negligence on the due diligence can cost us big in the future.

In this article, we will take a look at some options that home buyers have and how they can choose the best one based on their requirement.

Buying an under-construction home

This is the most popular way of buying a home. A builder announces a new housing complex through newspapers, TV, or any other media. Agents start going around the market, companies, malls, and even homes of people to advertise the same. The goal of the builder is to sell as many as possible before the housing complex is built. In fact more than 75% of the flats of known builders are booked even before a brick is laid.

The advantage

Cheaper – Buying an under-construction home is cheaper compared to buying the one that is already built or about to be built. The cost difference is significant. In the Delhi and NCR region, a ready to move flat with 2 bedrooms that costs home buyers about 40-50 lakhs can be bought anywhere in the range of 30-40 lakhs while under-construction, depending on the location. On an average, the difference is anywhere between 20% and 40%. This is a big difference for majority of the home buyers.

Low EMI – The EMI is paid as the work progresses hence the initial EMIs are low in the case of an under construction home.

Win-win situation for buyers and sellers – Buying an under construction home is a win-win situation for both buyer and seller. The seller gets a ready set of customers even before he starts laying the foundation while buyers get the cost benefit.

High returns – Since the prices are lower, you may get higher returns on the under-construction home. This kind of return is not possible in a ready to move home. However, high returns come with high risks. To give an example, people who invested in Noida authority plots earned high returns while people who invested in Samshabaad in Hyderabad are still waiting for the area to pick up.

Caution Points

Risk is high – All is not so well in under construction home buying though. There have been cases where builders could not complete the housing complex and buyers lost the money. Real estate sector is full of such stories where the builders could not complete the property because of cash crunch, high interest rate, and high raw material costs.

On the other hand, the market outlook may also change like how it happened in Samshabaad in Hyderabad. Samshabaad was supposed to host the largest Infosys campus, a chip factory, few engineering & medical colleges, banks etc. but none of it happened due to the 2008 crisis.

Many times, you don’t get what you are promised – This is another common complaint the home buyers have. They usually do not get what was promised in the documents. What is distressing is the carpet area that buyers get once the home is constructed. The carpet area is usually 70% of the super built area. The illusory swimming pool may never come up.

Important Points for buyers of under construction homes

Buyers should also check the past history of the builder. If the builder has done great in the past, chances are very high that he will repeat the same. However, if the past is checkered, rest assured history will repeat itself. Hence the track record of the builder is of paramount importance.

Buyers should clarify loan tenure and how the money will be released to the builder. Typically it is completion based.

Buying a ready to move home

A new trend is observed in home buying since the last couple of months. A good number of home buyers are slowly shifting towards moving to `ready to move’ homes than buy an under construction home and wait for a couple of years to get the possession. The reason is not hard to guess. Since the economic slowdown in 2008, there have been many cases where builders could not complete the housing complex and buyers had to wait helplessly. There have been many such cases.

The advantage

Immediately Available – Investors do not have to wait to move to their new home as it is ready and all buyers have to do is to pay the money, sign necessary documents, get all titles and required documents and transport their baggage to the new home.

Either EMI or Rent but not both – In the case of ready to move, you just pay the EMI. In case of buying under construction home, you have to pay the EMI and live in rented apartment till you get the possession.

You get what you see – In the ready to move home, you get what you see. Since the housing complex is ready and there are people living there, getting feedback about the area, maintenance, locality, shopping centers, and utility centers become easy.

Caution Points

The biggest negative of ready to move home is that you will have no idea of what went on behind the scenes, i.e. in terms of materials used, in terms of strength of the foundation etc. If the maintenance is shabby, the house can start to look old in no time!

Also, the price of ready to move home is about 25% higher than the price of under-construction home.

Important Points

Ready to move homes are generally more expensive but do not take this as gospel. Do your research; speak with a few people in the locality to find out the fair value of the home.

Group Buying

Since the last couple of months, many new companies such as www.groupbookings.in have encouraged home buyers to form a group and thus increase their bargaining power. Once the group is fairly big, the group buying companies will negotiate with builders on their behalf and get extra discounts. Essentially these companies act as a mediator between the builders and home buyers.  For builders, giving extra discounts is not a problem because they are saving big in advertisement and sales force.

The Advantage

Group buying empowers home buyers to negotiate better with the builder. The group home buyers usually get a better discount than what they can get individually.

Caution Points

In group buying, an individual buyer doesn’t make much difference and hence group’s interest takes priority over individual’s choice.

The down payment usually is higher.

Important Points

The buyers should study the documents carefully. Don’t assume that someone is reading these documents. You will be surprised to know that everyone has the same assumptions.

Group buying of homes take time and hence you have to be patient about it. The group buying company has to build the group, and negotiate the price with the builder for additional discounts. These activities take time.

Buying run-down homes

This option is not yet popular in India but slowly picking up. Essentially buyers choose to buy a rundown home at dirt cheap prices.  Once the house is yours, you can fix it and spend some money to get it up to date. This can fetch a better value in the market and the investor can make a killing in profit.

The Advantage

The houses are much cheaper even when you add the cost of repairing the house. Run-down houses are generally row houses and hence you get the land with it too.

Caution Points

The look of run down houses can be deceptive. You may have thought how must it should cost to renew but when you start to repair it, it may exceed your cost estimation.

Important Points

Unless you have experience about this field, do not venture into it. You may end up buying a worthless property in an area where people are migrating from.

What should you choose?

Your choice should depend upon your financial condition, timing, and your choice of location. Location is the most important factor in real estate.

If you are ready to wait, can take medium to high risk, and do not care much for location (in terms of being near to the market etc.), you can go for booking an under-construction home. You can even go for group booking if your requirement is to stay with people of your social standing.

If you cannot wait and cannot take high risks associated with under-construction homes and need to be near  amenities of your choice, try to find a ready to move home or go for a group buy.

If you and your spouse earn similar incomes, then its best to opt for an equal co-ownership of the property and split the tax benefits of the home loan equally as well. In case one of you fall under a smaller tax bracket,  it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. This would help you optimize the benefits from the tax exemption on principal and interest repaid.

A home loan often means all the more caution with money management and monthly budgets. It also means some smart thinking on the part of the individual who is taking up the home loan. Apart from things like evaluating fund flow, future job prospects, negotiating a pay hike, understanding loan eligibility, maintaining a good credit score and getting the best interest rate in the market, one also needs to consider the possibility of opting for a joint home loan!

Who can opt for it?

Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.

- One could team up with parents or the spouse to be able to maximize the benefits of a joint home loan.

- Some banks allow brothers to take a joint home loan provided they opt to become co-owners of the property.

The exceptions are sisters, friends or unmarried couples living together as most banks generally don’t allow them to opt for a joint home loan.

Key advantages of a joint home loan
a. Banks do not allow a person to borrow to an extent where their EMI exceeds more than around 40-50% of their monthly income. This ensures that there is no stress on an individual’s monthly budget. Hence, when the incomes of all the joint applicants are combined to decide the loan eligibility, the result is a better loan amount for a better home.
b. All co-applicants are eligible for simultaneous tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid. Do note that this is applied for each individual loan applicant thus maximizing the tax benefits on the home loan.
If you and your spouse earn similar incomes, then its best to opt for an equal co-ownership of the property and split the tax benefits of the home loan equally as well. In case one of you fall under a smaller tax bracket,  it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. This would help you optimize the benefits from the tax exemption on principal and interest repaid.

Eg. Let’s say the principal and interest repayment on your home loan for a given year is Rs 2.4 lakh and Rs 3.5 lakh respectively. Now, under Section 80C, you can get a maximum tax deduction of Rs 1 lakh on principal repaid and under Section 24 you can get a tax break of up to Rs 1.5 lakh on interest repaid. However, if you and your spouse have opted for a joint home loan, you would collectively be able to claim a deduction of Rs 2 lakh and Rs 3 lakh on the principal and interest repaid.

Do note that the tax benefits are according to the proportion of the loan. That is, if the ratio of the loan is 70:30, then a loan of say, Rs 50 lakh will be split as Rs 35 lakh and Rs 15 lakh respectively and this ratio will be applicable while calculating tax benefits on the interest and principal repaid on this loan.

Also keep in mind, that tax slabs might change according to new budget specifications each year and there could be changes in the gross income as well, not to mention changes in the total principal and interest repaid in every new year of the home loan. In this respect, the interest repaid will become considerably lesser and the principal repaid will become higher during the latter years of the loan.

For tax purposes, it is best to procure a home loan sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.
So taking a joint home loan has the significant twin benefit of increasing your loan eligibility and maximizing your tax rebate.  Do remember that though the banks insist that all co-owners of the property should also be co-applicants in a joint home loan, the reverse need not be true.