Sunday, 5 February 2017

Have you rented out a property? You can borrow a loan against it

Any financial planner today will tell their clients that if they really wish to make a good investment, they must buy property. Owned property can even pay for its upkeep when you lease it out. If you need money quickly, you can borrow a loan on the property or even sell it (depending on the need and immediacy of requirement).

If you have rented out your property, you can still raise a loan against it. This is known as the Lease rental discounting’ loan and it is offered by the most reputed banks and financial institutions in India. It is calculated and approved on the basis of the rent potential and the current market value of the property.

How lease rental discounting works

The most dominant aspects of this kind of loan are:

  • The loan amount takes into account the current rent being collected on the property, as well as the future rent receivables on it.

  • This loan would traditionally be taken by businesses or sole proprietorships that owned commercial properties. Today, reputed lending institutions offer this loan against residential properties as well.

  • The property’s rent potential and the applicant’s eligibility and repayment capacity determine the loan amount.

  • Factors that determine the loan amount include the property’s rent potential, the locality where the property is located, its market value, duration of the current lease (it should be leased out for at least six months before applying for the loan), the owner’s credit history, repayment capability and the property documents.

  • Compulsory documents for the lease rental discounting loan include: registered lease rental agreement, share certificates issued by the building society, and monthly rent receipts.

  • The loan amount is calculated on the discounted value of the rent received.
Once the lease rental discounting loan is approved, the lending institution opens an escrow account. Once the loan is disbursed, the rent is no longer paid directly to the owner of the property – the renter pays the rent into the escrow account. The property owner does not receive the rent on the property till such time that the loan is repaid to the lender. The property cannot be sold till the loan is repaid, and the lender must be notified if the current renter leaves the property.

Saturday, 4 February 2017

Mortgage loans – What they are, what they do

As a rule, most people steer clear of taking loans. Admittedly, taking a loan is a huge responsibility – you must be sure to make regular repayments and juggle your other finances for years. But there comes a time when taking a loan becomes a necessity. One may be in urgent need of money for a personal or professional need. It is not always possible to raise money from private sources.

Hence, it is feasible to take a loan from a reputed financial institution. You may choose to take a personal loan, or you may leverage your owned property by taking a loan against it. This option is known as a mortgage loan.

You can pledge your owned residential or commercial property to get a mortgage loan. These loans are more affordable than personal loans, since they are secured loan products. The best financial institutions in India offer quick, hassle free mortgage loans at good rates of interest as well.

Why consider a mortgage loan?

Mortgage loans are computed up to 70% of the property’s market value at the time of application. Such as is done with home purchase loans, the property and the applicant’s credentials are thoroughly vetted before the approval is granted. The paperwork for the loan is straightforward and hassle free. The lender issues a list of documents required to be submitted with the application form – these include the applicant’s antecedents, monthly income, credit history, property papers, etc. Like with home loans, the borrowed sum is paid back via EMIs.

Mortgage loans are more affordable than personal loans, but slightly more expensive than home purchase loans. The home loan rates are normally in the range of 9% to 10.5% (these have reduced after demonetisation across banks and financial institutions), while mortgage loans may have interest rates of 12% and higher. However, lending institutions are more amenable about granting mortgage loans, since the property credentials have already been established. Thus, the turnaround time from application to disbursal is lower as compared to other loans.

The applicant is also likely to get a higher loan amount when applying for a mortgage loan. Make sure to use a loan EMI calculator to get an approximation of how expensive the EMI will be. When taking the loan, you must check for the interest rate being offered, the lender’s repayment terms (if foreclosure fees are charged, for instance), processing charges, etc. 

Thursday, 2 February 2017

Understanding home loan eligibility

In an increasingly uncertain and financially strapped environment, it is understandable that most people yearn for stability. And the highest symbol of stability is owning a home.

However, buying one’s own home remains a pipe dream for many people. The real estate market is certainly sluggish and looking for customers, but prices are still out of the reach of most first time home buyers. Those who are willing to accumulate their finances and take the plunge are the ones who are scouting for suitable home loans.

But there are many misconceptions related to taking home loans. For one thing, many loan applicants mistakenly believe that they can get a large loan amount if they make a good living. While this may be true to an extent, there is an important element called ‘home loan eligibility’ that is determined by a mix of other factors.

What is home loan eligibility?

Simply put, it is the loan amount one may reasonably expect to get basis their current income, credit history, loan tenure and the rate of interest being sought. When insurers check the applicant’s income, they deduct such categories as LTA (Leave Travel Allowance) and Medical Allowance, and focus on the Basic component of the salary. Hence, if a person’s annual CTC pay is Rs 10,00,000, the insurer will compute the eligibility after deducting the LTA and Medical Allowance, and not on the entire Rs 10,00,000.

You should use a home loan eligibility calculator to find your home loan eligibility. It computes the eligibility basis your age (a lower age = more income earning years, hence a longer loan tenure), current income, any other existing loans, and interest chargeable by the particular financial institution.

Eligibility and home loan calculations

The eligibility is often the first step in the home loan amount calculations. Normally, lending institutions in India may grant a loan amount up to 60 times of the applicant’s net income. Once the paperwork is processed and the property is approved for purchase by the lending institution, the loan amount is disbursed. The home loan EMI is calculated on the basis of the rate of interest, tenure and overall loan amount.

Factors affecting eligibility

Your eligibility is reduced if you have:
  • A history of loan defaults
  • Multiple unpaid loans – the more loans you have, the lower is your monthly repayment capacity
  • Poor credit score
  • Lower income than required to get a certain loan amount

Monday, 9 January 2017

Lower Interest Rates: A Reason to Look Forward To 2017

The most eventful year in recent years has finally come to an end. And if you think that Donald Trump as the US President, Baahubali: The Conclusion, Deepika Padukone's XXX: Return of the Xanger Cage and even Priyanka Chopra's Baywatch aren't enough reasons for you to look forward to 2017, there is exciting news for those who are still to buy their own home in India.
Despite demonetisation, weird weather conditions and growing hostilities between India and Pakistan, 2016 laid the foundation of some much needed reforms for a brighter future for the country, in which curbing black money and a push towards a cashless economy top the list.

What's New in the Housing Sector?

The Modi government is mulling a new scheme to boost the housing sector which will be announced in the 2017 budget. This scheme may use the money from the demonetization drive. A news article published in The Financial Express on November 29, 2016 says that the new housing scheme will have just 6-7 % home loan interest rate. There are prominent chances that banks and home finance companies will find room to lower loan rates as well, in order to encourage people to buy homes.

Need for Lower Interest Rates

Interest rate is the cost of borrowing money or simply compensation for the risk of lending money. Lower interest rates make it cheaper for the customer to borrow, encouraging spending and investment.

In theory, here is what lower interest rates can do:

  • Lower Interest Payments: Decline in the interest rates means lower housing loan EMI, which in turn means that the borrower's monthly cost of mortgage repayments decline, leaving the householders with more disposable income. This should cause a serious rise in consumer spending.

  • Stimulates Economy in Recession: It is known that during a recession, the RBI lowers the interest rates to entice customers to purchase more credit products and loans. This activity helps to boost and stimulate the economy. It is an economic mindset that people buy homes and automobiles when rates are low.

  • Increased Demand for Products and Rising Employment: As economic activity picks up, demand for products increases. And in order to meet the demand, companies hire more workers. This activity can create more jobs and put a full stop to the surging unemployment rate.

  • Boost in the Price of Shares: In the lower interest rates period, assets like shares, bonds and assets become relatively more attractive, and people tend to buy shares that offer a better rate of return than saving their hard earned money in a bank.

Banks, home finance companies and people are eagerly waiting for what the 2017 budget holds in store for them.

Friday, 6 January 2017

Are We Heading into a Year of Digital Economy?

In last few years, India has seen a tsunami in terms of payment services, led by eCommerce websites, wallet services, digital payments and FinTech start-ups. According to a report by The Economic Times, India accounted for 14% of the total online transactions in FY2015. The major reason for this spike was the growth of e-commerce websites in the country, with retail electronic clearing accounting for 71% of the overall cashless transactions.

The already rising sector witnessed a major boost in the form of demonetisation. As the government withdrew the Rs. 500 and Rs. 1000 notes as legal tender, which had accounted for 86.7% of the currency in circulation, people had no other option but to turn to digital banking and mobile wallets. 

There are many factors that indicate that 2017 might be the year when India finally becomes ready to adopt technology completely.

Better Adaptation after Demonetisation

It won’t be wrong to say that 2015 was the year of awareness for digital banking in India, 2016 witnessed better use of technology and application of innovative methods, and in 2017, since people have seen it all, they might be ready to use these services for extra convenience.

According to the data released by the Reserve Bank of India, mobile banking transactions jumped to Rs. 49,029 crores in December 2016, as compared to the previous month. An improvement of 82% was seen from the September to December period. This should clear any doubts regarding the adaptability of the Indian public to technology.

Higher Penetration of Smartphones

Smartphones are a very important tool in making mobile banking popular. The number of smartphone users is expected to reach 340.2 million by 2017 and India is expected to leave the United States behind in this regard. Better penetration means more people will have access to technology and knowledge. This will eventually increase cashless activities in the country.

Full Government Support

The dream of a cashless economy cannot be achieved without full government support and Prime Minister Narendra Modi has already made his intentions clear by urging people to use the digital mode of payment.

According to the National Federation of Urban Cooperative Banks and Credit Societies, about 2,13,000 farmers had activated mobile banking accounts by the last week of 2016 and about 81,000 farmers had started using e-wallets. This is a major milestone towards achieving the goal of cashless economy. As the word spreads, more of the rural population will begin to move to digital banking and 2017 looks like the year in which the digital platform will really take off. 

A virtual wallet that does everything for you!

The world has become much smaller due to the presence of the Internet in our lives. The digital medium has brought spontaneity, ease of operations and reduction in time and effort in our lives. What would take days or hours previously – paying bills, communicating with far-flung corners of the world and even banking – is now reduced to a matter of minutes. You just need to log on to the Internet on your laptop or pick up your smartphone. Whatever task you need to complete, you can do it in minutes without even shifting in your seat.

It is this ease of operations that has made us all highly demanding customers. We want instant feedback, instant redressal to our problems and immediate solutions. If businesses tell us to wait or keep redirecting our calls all over their customer care centre, they lose us as customers. Rapid turnaround time and cutting edge products and services decide the fate of businesses today.

The same applies to banking. It is not enough for banks to have an Internet presence; they must present customers with innovative solutions and complete security. Their banking solutions must be customised to suit the mobile UI. Of all the banks in India, DBS Bank scores on these points much more than the rest.

Not only is DBS’s Digibank mobile banking app easy and seamlessly integrated with the bank’s various products and functionalities, it offers a slew of exciting features for daily banking needs. For starters, it is the only app to offer 7% interest rates on savings deposits, applicable from the first Rupee of deposit. Next, it offers 24/7 AI-powered virtual assistance at the press of a button. Third, it is a new age mobile wallet that can be opened in just 90 seconds – once operational, you can use it to shop online, book travel and movie tickets, and get a host of cashback and discount offers all month.

All you need to do to enjoy the Digibank advantage is to convert your account to a digiSavings one. You start receiving 7% interest rate on your savings, and there is no minimum account balance stipulation. Plus, there are no maintenance fees charged on the account and you can withdraw money from any ATM in the country any number of times, for free!

Also, your Digibank mobile wallet helps you shop at over 1,00,000 online merchants and win attractive discounts and cashback in return. So you can buy movie tickets, book travel, shop and enjoy a host of experiences while also being rewarded for doing so.

Thursday, 5 January 2017

5 Questions You Should Ask Yourself When Expanding Your Business to a Second Location

For any business venture, expansion through a new location is an accomplishment, and with easy term loans available, doing so is not just a dream anymore. However, before you expand your business, you need to put some serious thought into it. Here are some of the issues that you should look at before looking for loans to purchase commercial property.

  1. Can Your Business Run Without You?
When you are looking to expand your current business by opening a second location, the first thing that should pop into your mind should be whether this new location will function without your physical presence at all times. A second location calls for added responsibilities, since you can’t possibly be at both locations at the same time. Make sure the employees are well trained and everything works systematically, irrespective of your presence at any particular time.

  1. What is the Strength of Your Existing Business?
When your current location is generating enough profit for you, thinking of a new location doesn't appear to be a tedious task, given that you might have the required finances. However, if you are thinking of taking a term loan for expansion, first identify your current strengths and work on replicating them at the new place to ensure its success. After all, you do need to repay the loan.

  1. Have you Conducted Proper Market Research on the New Location?
When shopping for new business premises, you need to have a clear picture of what you wish to achieve at this new location. Conducting market research on various locations, understanding what each place has to offer and having a clear strategy of making the new premises work for you are essential before narrowing down your choices.

  1. Will You be Able to Manage the Budget?
Opt for term loans that come with a variety of advantages. It is the best option for financing large investments, including the opening of a second location. This type of funding can be repaid through regular payments over a given period of time, which could be anywhere between one and ten years, and even more in certain cases.

The key to growing a business is expanding to new territory, whether it is in terms of your offerings or your location. So, never give up on the idea of expansion but definitely have an actionable plan in place before doing so. And don’t let concerns regarding the investment slow you down.