A to Z about Home Loans - The Basic Guide to Home Finance by Tata Capital

HOME LOAN

How owning a house can give you the freedom to live

Aug 16, 2018

For any average Indian, having a roof of one’s own is an aspiration, but achieving it can be a mammoth task. Scraping for a down payment, ensuring a decent credit score, figuring out the mortgage specifics, getting paperwork in order, doing up the place once you get possession, dealing with taxes, bills, and other sundry expenses, the tasks on the list are endless. However, the indefatigable Indian will pursue and persist through all trials and tribulations because the benefits of owning a home outweighs the hardships.

If you too have been contemplating to take the big leap here are seven reasons that will aspire you to become a home owner

1. Capital appreciation

Limited real estate available to service a huge housing requirement ensures that the value of your home will only appreciate over the long term. Conversely, money spent on renting a place is a dead expense.

Over a 30-year period the value of a property is usually expected to double. If you are in a metro such as Mumbai, Delhi or Bangalore, that period could be as short as 10 to 15 years.

2. Asset building

Very few asset classes can give the kind of returns that real estate does. Owning a house gives you an opportunity to create further wealth or it can help you in times of crises.

You have the option of earning by renting out space in future, or selling it at a profit and reutilising the funds to move to a bigger or better place, or reallocating funds to other investments.

In times of crisis, you can always take a loan against your property to tide you over a situation and repay it over a period of time.

3. Certainty of expenses and investment

For most of us, investment planning tends to be ad hoc. Look at EMIs as a monthly investment rather than an expense. The fixed sum every month that goes towards building your roof ensures that you prepare and stick to a well-thought-out budget.

4. Freedom to make it your own

If you’ve lived in a rented place, you know that even driving a single nail in the wall requires the landlord’s permission. You can forget about ‘doing it up’ to your taste.

With your own home, you have the liberty of making changes as you please, whenever you please. Not just cosmetic changes, but even the option to redesign the space as long as you don’t compromise the structural integrity.

5. Privacy and surety of space

With a rented place, the equation is always lopsided in favour of the owner. You would have to entertain queries and visits as per their whim.

You may have to pay increasing rentals year-on-year. You may even be asked to vacate at short notice if the homeowner needs the space or finds better prospects.

All of these factors are eliminated when you step over to the other side and become a homeowner.

6. Tax benefits

The Income Tax Act provides for various deductions for homeowners to reduce their tax outflow on buying a home, especially if a first-time homeowner.

7. Retirement security

At the end of the day, you want to live on your own terms, without being dependant on anyone. Your home provides an income generating possibility with which you could easily enjoy your golden years with your loved ones.

Owning a home is not only a great milestone, but also considered a yardstick for success within the Indian community. Tata Capital understands and values the struggles you undergo on a daily basis and aims to provide the best support it can through flexible payment options, instant approvals, lower EMIs and doing away with prepayment penalties.

Tata Capital is just the partner that help you create more freedom in life and support you to realise your dreams of becoming a proud homeowner!

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Smart ways to manage your home loan in time for retirement

Jun 26, 2018

It’s a great feeling to have a space that one can call home, and owning one is a primary objective for most Indians. However, giving away a large chunk of one’s salary as EMIs, month after month, is something all of us dread. Your entire budget revolves around the loan repayment and keeping at it for anything between 10 and 25 years can be a nerve-wracking experience.

However, with a little planning you can manage your finances and the mortgage outgo well. Also, saving and investing in the right products will help you retire with a greater peace of mind. So here are some useful tips.

Restructure your financial blueprint

Prepare a budget sheet after taking into consideration your family’s combined sources of income, list of monthly expenditures, and income from investment – after factoring in other short and long-term goals such as retirement planning.

Assess your risk appetite vis-à-vis investment options. Extending the home loan EMI in your retirement phase can put due stress on your finances. Considering the time period left to repay your loan, you could plan your retirement portfolio. If the loan is relatively new and has a long tenure of repayment, you could consider pre-paying a portion through windfall gain or bonuses. This in turn will help in reducing the EMI and effectively decrease the interest cost on your home loan.

The amount that has been saved on the interest cost by pre-paying a certain portion of your loan can be invested in equity-oriented instruments. Benefits from these equity oriented instruments will help you augment savings that can be deployed to pay off your EMI as you are nearing retirement

In case you have already retired and only have a few more years (3-5) to repay your loan, you will have to make sure that your monthly income post retirement takes the remaining EMI into consideration. Also, do remember you are eligible to get greater tax benefits on the home loan during your post retirement years.

A little goes a long way

A home loan can be quite a liability, but then a home is a permanent asset, and one that appreciates in value – at least over the long term. Let this be your motivation to save wherever possible. From taking public transport to resisting impulse shopping to forgoing annual vacations to eating at home whenever possible, remember that little drops make a mighty ocean. To maximise your financial potential, some hard calls are necessary.

Revise your EMIs

As the years pass and your salary increases, consider an upward revision of the EMI. It’s easy to maintain the status quo, but even a small increase in payment has a considerable effect on the tenure, thanks to the power of compounding. If your family gains any more earning members, it would be good to get them on board to share some of the responsibility.

Involve the family

Even if other family members may not assist financially, they can act as a huge support system. Everyone can do their bit to ease stress and offer motivation. From ensuring that water and electricity are not wasted, to undertaking small repairs and D-I-Y maintenance projects, one can save quite a bit on the operational costs of the household.

Choosing the right lender can help you reduce the stress over the years. Tata Capital offers you home loans at attractive interest rates and flexible repayment options. Log on to Tata Capital to check your loan eligibility and apply for a home loan today.

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Prepaying home loan, think again

May 25, 2018

Repayment and Prepayment

An important element of any loan is the repayment. Repayment is an obligation that borrowers need to meet to ensure they keep their loan accounts squeaky clean. If not, they run the risk of lowering their credit score which will have a bearing on their future loans. Most lenders will not extend loans to borrowers whose credit score is low. Even if they extend loans the borrowers will have terms that are not favourable to them including higher interest rate, lower tenures and lower loan amounts.

One aspect of repayment is the prepayment factor. Prepayment is the process of repaying the loan amount in full well before the loan tenure. Lenders offer partial prepayment or full prepayment with certain terms and conditions that the borrowers have to meet. While prepayment may be beneficial to borrowers it may not be so for lenders as their plans get affected. In the case of borrowers, prepayment could also be detrimental as they may lose tax benefits.

Importance of Home Loan

A Home loan is a long-term commitment and typically runs for anywhere from 15 to 30 years. It has the lowest interest rate because a home loan is a secured loan. A home is a treasured asset with emotional overtones and in Indian circumstances a solid investment that serves generations of families. Thus, borrowers need to carefully evaluate the pros and cons of prepayment before opting one way or the other.

Factors to consider for prepayment

The factors that matter when considering prepayment include

  • The point at which the loan tenure stands
  • Prepayment charges, if any
  • The type of home loan – floating rate or fixed rate
  • The movement of interest rates in the future
  • The loss of tax benefits, if any
  • Prepaying other higher cost loans first
  • Any compulsive reason for prepayment
  • Availability of surplus funds for prepayment

Factors to consider for non-prepayment

Conversely, there are factors that matter when considering non-prepayment such as

  • Continuation of tax benefits
  • Non-availability of funds for prepayment
  • Disposal of property
  • Deployment of surplus funds into other investment avenues rather than prepayment
  • Rise in interest rates

Thus, a careful evaluation of the pros and cons of prepayment will go a long way in making the right decision.

Evaluation of prepayment option

The evaluation process should include among other things, the following

  • Evaluate the costs of prepayment considering all factors that would affect the home loan – it makes sense to use parameters considered for investment decisions
  • Borrowers could consider partial prepayment and decide on either reducing the tenure or the EMI amount
  • One major factor to consider is the amount of interest payable on the balance principal amount when making partial prepayment decision – the total outflow on interest payment will reduce substantially
  • Most lenders charge up to 2 % of the prepayment amount as prepayment charges when the home loan is under fixed rate option – include this cost when making prepayment decision
  • Most lenders limit the amount of prepayment and the number of times a borrower can make repayment during the loan tenure – consider this factor while making prepayment decision

Prepayment is an option that borrowers should exercise only after evaluating all the advantages and disadvantages of doing so. If borrowers make prepayment decisions impulsively just because they have surplus funds, they may be making an inappropriate decision and lose out on the many benefits that a home loan brings to them.

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