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Early Payment: How to use your surplus money optimally

Individuals should utilize their surplus money to prepay long-term debts such as credit card balances, personal, vehicle, and mortgage loans at a time when fixed income products are yielding lower yields and stock markets are still exuberant.

use your surplus money

Experts advise that if a person can earn a better post-tax return than the current interest rate on a home loan. In this case, he should invest the extra cash. They claim that equity the valuations inequities are stretched and the returns may be muted. Furthermore, investors who begin investing in equities now should not expect substantially higher returns. Before prepaying loans that will help you grow an asset in the long run. Be sure you have enough emergency money to cover a year’s worth of expenses, as well as enough life and health insurance. Otherwise, if the person faces any financial instability it might push them for a personal loan; which has a significantly higher interest rate than a home loan.

However, it is preferable to pay off a vehicle loan with extra cash because a car loan has a higher rate of interest than a home loan. It has no income tax benefits, and, finally, a car is a depreciating asset. Whereas a house is normally an appreciating asset.

Prepay home loan

In cases where equity investments have produced higher returns, earnings can be booked and a portion of the home loan can be prepaid. According to experts, the best strategy in this bull market is to stay invested while taking partial profit bookings. As well as transferring some earnings to fixed income or prepaying higher-interest loans. Prepaying a house loan is perfect now that interest rates have fallen in the last two years; as a jump in the interest rate will burden the borrower even more.

use your surplus money

If a person is unable to make a lump-sum payment, experts advise that they take a systematic withdrawal plan from their mutual fund assets. Then the user shall use the surplus monthly income to increase the EMI. Users can request an increase in their ongoing EMI, at any time; it is generally free of any fees. Stepping up the EMI for a salaried employee also helps as the borrower advances in his profession. Furthermore, they receive better pay packages, resulting in more disposable cash.

Clear credit card dues

Any surplus money must be utilized to pay off credit card dues. Rolling the credit by paying the minimum amount due is not a good idea; as banks charge an interest rate between 35% and 45% per annum depending on one’s spend, payback, and utilization patterns. In fact, rolling credit is a lot more expensive than even a personal loan, which can be availed at 13-15% per annum. For more such updates, keep watching this space!

Daily News

Home loan Vs Mortgage loan: Which one should you opt for? Find out

A loan is a finance tool to meet the requirement to sponsor or purchase something. While there are many reasons, one may require a loan for. In this article, we will discuss Home Loan and Mortgage Loan, and which one you should choose?

There are several classifications when it comes to home loans. There is a unique category of home loans depending on what the borrower intends to accomplish with the money from the home loan.

home vs mortgage loan

For instance, home loan categories have home rehabilitation loans, home extension loans, top-up home loans, property loans, plot loans, construction loans, home loan balance transfers, non-residential premises loans, loans against commercial property, and mortgage loans, and many more.

Some of these loans can be used in combination with a primary loan. For example, both home loans and mortgage loans are secured loans and offer extra top-up loan facilities, balance transfer services, etc. These loans are available depending on the total loan amount that a borrower is eligible for.

One may require a loan for a variety of reasons. However, experts warn that with so many different home loan options on the market today, it is very confusing for potential borrowers. Home loans and mortgage loans are two of the most confusing types of loans.

home loan
Home Loans
  • A home loan is only for the construction of a new home or the purchase of a property that is ready to move in.
  • The loan-to-value ratio on a home loan is high. A loan of up to 90% of the property’s market value is available to the borrower.
  • In comparison to mortgage loans, home loans have a lower interest rate.
  • A home loan processing charge normally varies from 0.8 percent to 1.2 percent of the loan amount.
  • Home loan has one of the longest payback periods available to borrowers, up to 30 years.
Mortgage loan
  • With mortgage loans, the borrower is free to spend the money any way he or she sees fit. There are no restrictions on how the money from the loan can be spent. The money can be used for any home-related expenses or personal requirements by the borrower.
  • In comparison to home loans, mortgage loans have a low loan-to-value ratio. This financing option allows for a loan of up to 60% to 70% of the property’s market value.
  • Mortgage loans often have interest rates that are 1 to 3 percentage points higher than home loans.
  • Mortgage loan processing fees are also greater than home loan processing fees. Lenders typically charge a processing fee of roughly 1.5 percent of the loan amount.
  • Mortgage loans generally have a payback period of up to 15 years.
  • Borrowers can also take advantage of the top-up facility, which allows them to acquire more funding on their existing loans with little or no additional paperwork.
Daily News

Do’s and Don’ts while applying for a home loan online

Nowadays various financial transactions have become more frictionless as a result of technological advancements. All one needs is a computer or smartphone with an internet connection. This is also true when applying for a loan of any kind, including a home loan online.

home loan

The typical offline option, on the other hand, is time-consuming and inconvenient, since it requires a commute to the loan provider’s offices with all of one’s documentation. The majority of home loan companies now allow you to apply for a loan through their website. An applicant can register on the lender’s website, fill out the application, and submit it electronically along with his or her documentation. When applying for a house loan, one can go to the lender’s website and utilize the home loan eligibility calculator to figure out how much money they can borrow.

For first-time homebuyers, there are usually a variety of bargains and incentives to choose from. Furthermore, if one is refused the amount that he or she needs to borrow owing to a low credit score, income restraint, high debt-to-income ratio, or any other failure to meet the loan eligibility criteria. Experts advise that accepting a shared loan could help. Taking a combined loan, whether with a family member or a close relative, boosts your loan eligibility.

The loan approval process for a cooperative house loan with a co-applicant with a superior credit score may also become easier. It can increase the possibilities of a borrower’s loan approval, as well as their eligibility for a larger loan amount. By comparing loans from several lenders, you’ll not only be able to acquire the greatest interest rate. But you’ll also be able to keep your overall interest costs low until the conclusion of the loan term.

Do's and Don'ts when applying for a home loan online

Dos and don'ts

Do's

  • Before applying for a home loan, the applicant should check his or her loan eligibility.
  • Prepare your documents before beginning the online application procedure. Go over the list of documents you’ll need ahead of time.
  • Investigate the various types of home loans available. One must specify the type of loan required by the borrower: home loan, home improvement loan, home extension loan, plot loan, and so on.
  • All information requested by the loan provider to process the application must be submitted honestly.

Don't s

  • One should not apply for any arbitrary or unreasonable loan amount, without verifying eligibility, .
  • It is preferable to complete the loan application process in one sitting rather than in stages. Take your time and settle down to complete the application.
  • It is important to have all of one’s documentation ready, do not forget to submit important documents.
  • The CIBIL score of a borrower has an impact on their loan application. As a result, when applying for a loan, the CIBIL score should not be overlooked.

For more such updates, keep watching this space!

Finance Financial Advice

Here are five smart ways to boost your home loan eligibility and approval chances.

Buying your own house is a very proud moment for everyone and it is something that almost everyone thrives for. To help this pursuit of ours, many finance organizations offers the home loan. However, a home loan is a very important financial decision and we must evaluate many home loans eligibility thoroughly while applying for a home loan.

To increase the odds of approval of your home loan application, you must look for several things. Eligibility for Loan applicants with insufficient income, low cibil scores, higher overall EMI obligations, etc has higher chances of home loan rejection.

While analyzing a loan application, lenders put several factors into consideration. The most important eligibility factors are; income, age, remaining working age, LTV ratio, property characteristics, and your existing loan repayment obligations. Failure in reaching the cut-off set by the lenders can lead to the rejection of your home loan application.

The lenders have the approval of RBI to finance up to 75 to 90 percent of a property’s market value through a home loan. The buyers have to cover the remaining proportion of the property’s cost from their own resources. The down payment or margin contribution is the proportion of the cost paid by the buyer’s own resources. There are certain home loan eligibility you need to have and we are going to discuss them all step by step.

Why a higher downpayment is better for your home loan?

Smart Ways to Increase Your Home Loan Eligibilty

Finance companies often ask for a minimum contribution from buyers as a down payment or margin amount of the property’s cost. However, paying a greater margin incurs many benefits and often makes more sense financially. Higher down payment means lower loan amount, which in turn results in smaller EMIs and lower interest costs.

Moreover, a higher down payment or margin contribution on a home loan by the buyer reduces the credit risks for the lender. Which in return, increases the likelihood of your home loan approval at a probably lower interest rate and thus improves eligibility. This will cut a large portion of your EMIs and thus more savings for you.

I know it makes a huge sense now to make a higher down payment on your home loan, but this can sabotage your financial goals as well. Always avoid compromising your emergency fund or investments earmarked for your crucial financial goals in making a higher down payment. Emergency funds help you in tackling your financial emergencies, compromising that may force you to take another loan. Diverting your investments can sabotage you from achieving your crucial financial goals.

Home loan

Why a higher downpayment is better for your home loan?

Loan applicants with insufficient income, low credit scores, higher overall EMI obligations, etc have very little chance of approval. Such borrowers can improve their home loan eligibility by adding a family member as their co-applicant(s). While choosing co-applicants one must give preference to those with stable income and good credit scores. Not only it boosts the chances of your loan approval, but it can also increase your eligibility for a bigger loan amount. In some cases, female co-applicants can additionally fetch you lower interest rates.

Why you should apply for longer repayment tenure?

reduce home loan emi

Choosing longer repayment tenure for your loan reduces your EMI amount and makes them more affordable. A lower EMI amount is more affordable, it lowers the risk of default and hence, increases the chance of approval. However, an unnecessary longer repayment tenure can increase the overall cost of your home loan. Thus you should always use the loan EMI calculator and determine an optimum loan tenure for your home loan. This optimum loan tenure gives adequate considerations to your repayment capacity and your contributions to your crucial financial goals. A borrower can reduce the interest cost of their loan by making prepayments whenever there are surplus funds available.

Home loan lenders prefer lending money to those having their total EMI obligations, including the EMI for the new home loan, within 50-60% of their monthly income. Home loan applicants exceeding this limit can boost their eligibility for home loan approval by applying for the longer repayment tenure.

Always compare home loan offers from multiple lenders

Different lenders offer different interest rates, processing fees, loan tenure, and other costs associated with a home loan. These differences are due to the differences in credit risk evaluation of a loan application by different lenders. Hence, it is wise to compare as many lenders as possible for your home loan before zeroing in on any specific lender.

Home loan lenders offer preferential rates or other terms & conditions to their existing customers. Thus, prospective home loan applicants should first approach those financial institutions with which they already have an existing consumer relationship.

Later, they should check online financial marketplaces for a better comparison of interest rates and other home loan features offered by other lenders. This allows buyers to determine the best home loan deal with the lowest interest rate, optimal loan tenure, and adequate loan amount.

Review your credit score before applying

Your credit score can fetch or drop the approval for your home loan or any loan. A credit score is one of the first filters used by lenders while evaluating a home loan application.

A good credit score is usually a score of 750 and above. This score can boost your loan eligibility and fetch lower interest rates from lenders. Hence, it is better if applicants review their credit scores before applying for home loans. This way, applicants with lower credit scores can apply adequate corrective measures to improve their credit scores.

Moreover, it is advisable to develop the habit of periodically reviewing one’s credit score, ideally at least once in three months. This will ensure sufficient time to use corrective measures for the improvement of the credit score and get any errors if present to be rectified at the earliest.

For more such updates, keep watching this space!

Advices Business Education Finance Financial Advice

Secured Loan – What it is and When to take it?

Secured Loan

A loan against collateral or Secured loan is a type of loan where the borrower takes debt against collateral. In other words, the borrower pledges a valuable asset as a security to the financer. This type of loan is called a Secured loan because it provides security to the financer for their money.

loan

In most cases the borrower use secured loans to finance a commodity like a house, vehicle, etc., here the borrower pledges the purchased commodity as collateral. Alternatively, the borrower can take a loan by pledging their stocks, property, jewelry, fixed deposits, etc.

Why Secured Loan?

From Borrowers perspective Secured Loan offers greater flexibility, longer repayment tenure, and higher loan amount than an Unsecured Loan.
For lenders, it offers more security and lowers the risk of default by borrowers. In case the borrower fails to pay the loan, the lender can recover their money by selling the asset pledged.

Types of Secured Loan

  • Mortgage loan
  • Home loan
  • Vehicle loan
  • Secured Business Loan

Eligibility Criteria for a secured loan

  • Applicant must be an adult (above 18 years of age)
  • Some Financers expect you to have an annual income greater than a prescribed amount. Although the income can come from business, regular salary, or non-salaried resources.
  • Applicant must have an asset whose valuation matches or exceeds the loan

Pros and Cons of Secured Loan

Pros

  • Lower Interest Rate than an unsecured loan.
  • More Flexible repayment options.
  • Can offer Longer repayment tenure.
  • Faster Loan Approval
  • Loans are Customizable to cater to specific needs.
  • Can be availed by a non-salaried person.
  • Offers Higher Loan amount than an unsecured loan
  • A guarantor is not required
  • Can be availed even at a low CIBIL score. Moreover, it improves the CIBIL score when the loan is fully paid.
  • Lenders have more confidence and security for their money.

Cons

  • Seizing of collateral in case of default in repayment of the loan.
  • The money borrowed can only be used for a specific function as per the loan agreement.
  • It involves Heavy Paper Work more complex than an unsecured loan.
  • It expects that the applicant has full ownership of the collateral pledged.
  • Longer repayment tenure also means a greater total amount in repayments
  • Even after the bank seizes the collateral, any income you generate will go straight to the bank. More often than not, applicants keep paying only the interest and fines whereas the principal amount remains the same.
  • Default on the repayment can heavily reduce your CIBIL Score.

Even with many advantages of a secured loan. It is always wise to plan your finances because defaulting on a secured loan is very brutal for your financial health.

How to compare Secured Loan?

compare loan

Before making any purchase, a good rule of thumb is to compare what other options are available in the market. A secured loan is no exception to this rule, and hence it is important to compare every proposed offer against your assets. While making a comparison among secured loan look for the following factors:

  • The type of collateral required to secure the loan.
  • Minimum and Maximum loan amount.
  • The interest rate for the loan
  • Any additional fees charged by the lender, such as processing fees, prepayment penalties, etc.
  • Credit Score and Income requirement of the loan.
  • Proper analysis of the loan agreement and whether or not it suits your financial aspirations.

Secure or Unsecured, taking a loan is no joke and has many risks involved, so before taking any type of debt you must ask a few questions to yourself.

  • Do I really need this debt, and what other options are available to me.
  • How this debt will affect my life in the best and the worst-case scenario.
  • How much loan I can afford and how little do I really need.

 

For more such updates, keep watching this space!

Advices Budgeting Business Financial Advice Strategy

Home loan and EMI strategies!

Whenever we take a home loan, there come certain questions in our minds. You will find some of your answers in this article. For example: What should be the future strategy to pay my home loan? Should I pay the maximum amount of down payment? Should we pay off or continue?

Is it a good idea to get a home loan?

A home loan is an incredibly significant scheme. The government promotes that every citizen has their home in which home loan serves as the best helping tool. This facility is provided by Banks and NBFCs at a very nominal rate. Home loan in fact is the least expensive loan when we compare it to car loans, business loans, personal loans, and education loans.

Under section 80c and section 24 in the constitution, the government provides many kinds of rebates for home loans. So, a Home loan is a good idea provided we pay the EMIs regularly.

Should we pay off and foreclose?

You need to analyze if you have any big amount of expense in near future i.e education fee, wedding, etc. Suppose you have lump sum liquidity available. And in near future, you need your money for your education fee. So, in that case, you should not pay off your home loan. The important purpose should not suffer. Do not stick up your money in a home loan.

Income tax rebate fall

If you are paying much amount of money as your tax payment, then continuing a home loan is an incredibly wise idea. There are some sections in our constitution regarding income tax. According to those sections, you can get benefits up to 3.5 lakhs on single properties, and the profits included in the last budget give benefits of rupees 5 lakh on two properties. It means you can reduce your taxable income up to 5 lakh rupees. Continue the loan and do not pay it off if you pay lots of income tax.

Payment in parts

If you receive a big amount of liquidity, it is always a wise idea to divide it into payment and investment. With this strategy not only you make long-term returns but also you will use the benefits of section 80c. Use the part payment process in a disciplined manner.

Now we will discuss few points on how a new or an existing home loan borrower can reduce the EMI of their home loan.

Investment Loan

What should you do if

You are a new Home Loan borrower

Firstly, you should find a lender who can provide a home loan at a lower interest rate. It is an overly complicated job to find an appropriate lender.

Let us gather few ideas which can help you get a good deal on home loans.

  1. Try to opt for a longer repayment duration on your loan – However, in longer tenure borrowers end up paying more interest that is why you should opt for longer tenure only if you are not able to afford EMI. You may try to maximize your EMI payments but not more than what you are able to pay every month.
  2. Analyze the rates of Interest offline as well as throughout the internet – When you do your home loan research there may be good offers through your agents but there is also another way to check it online as well and have a summarized look at the rates of interest, fee and other charges of different lenders. Thorough research will ensure you the best deal for your home loan.
  3. Make a bigger down payment – As home loan lenders are allowed to finance up to 80-90% of the property’s value and those who are looking to avail a home loan have to contribute a minimum of 10-20% as a down payment. So, instead of arranging just the minimum down payment, it would be prudent to provide a higher contribution from your own pocket.

 

The higher you contribute as a down payment, the lower your LTV ratio will be.

LTV ratio- Loan to Value Ratio. It means the ratio of a loan to the value of the property purchased and the loan amount required would be. Consequently, it will increase your loan eligibility and enhances the chances of loan approval. Do not overstretch your finances in order to make a higher down payment.

home_loan

What should you do if

You are an existing Home Loan borrower

Few simple steps to follow in case of existing Home Loan borrowers are -
  1. Refinance the loan by changing your lender – If you think you have taken a loan at a high-interest rate you always have an option to refinance it. Banks offer interest rates based on the MCLR regime which changes from lender to lender.
  2. Negotiate the service terms with the existing lender – You need to maintain a good relationship with your existing lender, you can negotiate the service terms of the home loan. This way you may be able to procure lower interest rates on your loan amount.
  3. Make your home loan prepayment from time to time – It is important to repay your loan payment on time because it reflects in your credit history. it also reduces the loan liability.

For more such information, keep watching this space!