Skip to main content

Debt To Income ( DTI ) Ratio

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 

 

In terms of interest rate applicability, you will come across broadly three types of home loans, namely:

 

1. Floating interest rate home loan: This is the most commonly available option wherein the interest rate is linked to the bank`s Base Rate. As and when the base rate changes (which may happen as often as every quarter), the interest applicable on your home loan will also change accordingly.

 

2. Short-tenure fixed rate home loan: In order to attract customers, banks offer the so-called `teaser` loans wherein a low fixed rate is applicable for an initial period - normally for 2 to 5 years - and thereafter it may (a) either be converted into a normal floating rate loan or (b) the interest may be reset for another 2-5 years.

 

3. Long-tenure fixed rate home loan: In such loans the interest rate is `generally` fixed for either the entire loan tenure or at least for 7-10 years. (Beware! Banks are known to add a fine print that in case the conditions become too adverse, they retain the right to increase the rate. Ideally, such a clause should not be accepted.)

 

The specifics of the scheme would, however, differ from bank to bank.

 

Among the three, floating rate loans are the cheapest. The short-tenure fixed loans would normally be about 0.25% to 2% costlier than floating rate loans, while the long-tenure fixed loans are the most expensive…at around 2-4% more than the comparable floating rate loans.

 

This is but natural. As long as you bear the risk of interest rate movements, the rates will be low. However, if the bank has to bear that risk it will charge a higher rate.

 

The lower interest on the floating rate loans makes them the first choice for any borrower; especially given the fact that the loan amount runs into many lakhs. As such, lower rate would translate into lower EMIs.

 

Moreover, under the present economic scenario, the interest rates are likely to go down in the near future. Hence, getting tied to a fixed rate today may not be a good idea.

 

Also, RBI has been taking steps from time to time to address the concerns of the borrowers regarding banks not readily passing on the benefit of rate reduction to them. (It has been observed that banks tend to promptly raise the interest rates. However, they are often reluctant to reduce them for the existing borrowers while at the same time wooing new customers with lower rates.)

 

Nevertheless, many people are risk averse and hence not comfortable with the uncertainty in interest rates, especially when the loan runs over 1-2 decades. This is a very pertinent apprehension. If you do not like risk, you could opt for long-tenure fixed rate loans even though they are somewhat expensive. It is like paying insurance premium for protection against rise in interest rates.

 

But risk is rather a qualitative aspect. And sometimes people have exaggerated fear of risk. So how does one `rationally` determine his or her risk appetite and make the right choice?

 

Financial prudence suggests that your total EMI outgo - for all loans put together including the proposed home loan - should not be more than 45-50% of your total monthly take-home pay. This, in financial parlance, is referred to as Debt-to-Income (or DTI) ratio.

 

Therefore, if your DTI at current interest rates is already around this mark, any hike in the interest rates in future is likely to push you into the danger zone. Hence, it would be safer to opt for fixed rate loan.

 

Only when your DTI is less than 30-35% and you have the cushion and the capacity to absorb the risk of higher interest rates, should you consider a floating-rate loan.

 

By the way, making a choice between fixed and floating rate is never a one-time decision that would hold good for next 10-20 years. Many changes will happen in the interim. As such, you must be prepared to make at least 2-3 switches during the loan's lifetime.

 

If you have a fixed rate loan, you can always prepay and switch to a cheaper or a floating rate loan if in future the interest rates fall or your DTI comes down. Or if you had earlier opted for a floating rate loan, you can always switch to fixed-rate later if the interest rates start becoming too expensive. You would, of course, have to consider the costs involved in switching.

 

It may, however, be noted that while almost all banks are willing to lend at floating interest rates, fixed interest home loans are offered by only a few of them. Therefore, you will have to hunt a bit harder to get a suitable fixed rate 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

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...
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