Skip to main content

Consider these Before you buy your Home

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

Every person dreams of buying a home and, today, home loans are the means to fulfill this dream. However, buying a house using a home loan requires financial planning and prudence since it is a major financial commitment. There are, however, several elements to consider while arranging for a home loan.

 

Amount of Loan:

 

The amount of loan to be borrowed is based on the cost of the house, one's monthly income, age, job stability and other financial commitments. Based on certain parameters, some bankers may also provide a loan which is more than one's actual networth. In the end it is one's responsibility to analyse the networth and decide the amount to be borrowed. One should also consider future plans and funds required for such plans before taking the loan.

 

Down Payment:

 

Every borrower has to raise a minimum amount of money, decided by the bank, which will not be covered by the loan. This down payment along with the bank loan together will be the value of the property. Planning for the down payment should start in advance and include sources like liquidating fixed deposits or mutual funds, bonuses or any other extra income, money from family members, relatives or close friends, and by bringing down unnecessary expenses.

 

Interest Rate:

 

The interest component has to be planned carefully because while applying for a home loan, there are two options:

 

1.       Fixed Rate or

2.       Floating Rate.

 

In a fixed rate loan, the interest remains same for the entire loan tenure, while for a floating rate loan, the home loan rates change with changes in the market rates. It should be noted that when the interest rates are rising, it is preferable to opt for a fixed rate option and vice versa. However, it is difficult to shift between fixed and floating rate plans later, as the lender may not be comfortable to change the rate easily.

 

If the interest rate goes down the lender may lose the opportunity to earn higher interest. Also, it will have charges associated with it like processing fees. Sometimes it comes as a new loan where you have to pay prepayment penalties for old loan and again apply for new loan, especially for fixed interest rate loans. Prepayment penalties have been abolished by the Reserve Bank of India and National Housing Bank on floating interest rate loans. Repayment Period: Depending on ones repayment capacity, one can choose from a range of short tenure or long tenure options. Monthly Equated Monthly Installments (EMIs) are higher for shorter periods and vice versa. Also, lower EMIs means more number of EMIs, which means more interest paid.

Sometimes, when one has a windfall and has excess cash on hand one can also opt for prepayment of loan, through which one can save a lot of money by avoiding the interest cost. It is essential to find out and keep note of any prepayment penalties that banks may levy and factor it into your choice of home loan provider. Banks and NBFCs have abolished prepayment penalties for floating interest rate loans.

 

Penalty and Charges:

 

One should be aware of the processing fees and late payment terms and other penalties while taking up the loan. Such elements are usually not discussed while the loan is taken.

 

Banks may also charge for changing any other terms of the loan. These elements vary from bank- to- bank and they can be negotiated with the respective bank.

 

Security:

 

It should be noted that usually in this transaction, the purchased home itself stands as security until you pay back the entire loan amount with interest. However, also be aware of any other security, which has been attached to such loan transaction. Lender may ask for interim security if the property is under construction.

Collateral or interim security could be in the form of pledged shares and/ or other investments.

 

It can also be the assignment of life insurance policies to the extent of loan amount. Also, try keeping financials and credit rating healthy, as it determines the terms of the loan taken.

 

Insurance for Home Loan:

 

Insuring the home loan is important since it offers a cover in case the borrower is unable to repay the loan, due to any circumstances. In such circumstances, the insurance company will pay your loan.

 

Tax Benefits:

 

The borrower enjoys tax benefit on both interest and principal Under section 24( d) of Income Tax - The maximum permissible deduction of interest payable on the home loan is up to ₹ 1,50,000 for self- occupied property. Also, in the last budget, the Government has allowed additional deduction on interest of up to ₹ 1 lakh on a loan of up to ₹ 25 lakh Under section 24( d) of Income Tax – There is no limit on deduction of interest paid on the home loan for let out property Under Section 80( c) of Income Tax - The maximum permissible deduction of principal re- paid on the home loan along with other savings and investments is eligible for tax deduction up to ₹ 1,00,000.

 

Clubbing of Income or Joint Ownership:

 

The eligible amount of loan can be increased when spouses club their income, that is, where both husband and wife are earning, they could take a joint loan. This will also help in sharing the burden of repayment.

 

The key benefit of taking up a joint loan is that both co- owners are eligible for tax benefit separately.

For example, if a self- occupied property is jointly held by husband and wife, both will get benefit of ₹ 1.5 Lakh each which add up to total benefit of ₹ 3 Lakh.

 

Summary:

 

a) It is important to discuss the terms and charges, before taking the loan.

b) Always do a self- analysis of the financial situation before deciding on the amount of loan to be borrowed.

c) Compare the Term of Loan, Interest Rate, Security involved, penalty and fees of various banks before taking a loan.

d) If it is possible, it is always better to go for a joint loan

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...
Read more

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...
Read more

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...
Read more

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...
Read more

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now