Is Your Financial Life On Track?

While we all have different goals in life, there’s one that we all share—the goal to be financially sound. All our lives, whatever we do, we do it with an aim of earning better. It becomes quite frustrating if, after that entire struggle at work and burning the midnight oil, things don’t go the way we want them to. The ultimate reason for working that hard is not merely a raise or a promotion; we do it for something more—to be financially sound. This keeps us going.

Some of the basic parameters to judge anyone financially are—their income, their spending habits, their savings and investments. If you’ve got all or most of these right, your finances are more or less on the right track.

Even if you’re not facing any financial troubles at the present, that doesn’t ensure a safe future ahead. Here are some pointers to check whether you’re doing enough to keep your financial life on track:

What does your bank balance say?

Your bank balance at the end of every month acts as a great indicator to show you how well you’ve done. Did you exhaust it all by spending on a sale or on some expensive gadget that you don’t even use? According to most financial experts, you must save at least 20 per cent of your monthly salary. If you’re unable to do that, you’re doing something wrong.

Are your resources growing?

Your resources include everything you own—your bank balance, property, cars, gold. To evaluate your financial standing, you need to evaluate the net worth of all your resources and see if there’s a positive growth. It doesn’t mean that your net worth needs to grow exponentially, but there just needs to be a positive growth curve for it. Continuous growth in your resources is a great indicator of a good financial record.

How many loans do you need to repay?

You might be earning well, but if you have a lot of loans to pay off, you need to plan your money better. First of all, you must not borrow so much. In the worst case, even if you need to borrow, you must balance it well. If you’re in need of a house, it makes sense to opt for a Home Loan. But to take a Personal Loan just to fund a dream vacation simultaneously might not be a great option. If you’re heavily dependent on loan money, you have a lot to work on!

Do you have insurance?

‘Why do I need insurance to check my financial stability?’— that’s probably what you’re thinking right now. Consider this scenario—you just saw the house of your dreams and arranged for a huge down payment for a Home Loan. But suddenly there’s a medical emergency and you have no other option but to use that down payment money to take care of the emergency. 

As you rise up to the occasion and look into the emergency as a priority, your dream to occupy that house gets postponed. Heart breaking, isn’t it? Well, you could’ve easily avoided this situation if you had taken a Health Insurance cover, right? You could’ve used the insurance money for the emergency, while your down-payment money would’ve remained untouched. Now you know why staying protected from potential external damages are essential for your financial security, don’t you?

[Source: https://blog.bankbazaar.com/is-your-financial-life-on-track/]

How to Get Pre-Approved For a Home Loan

Have you been thinking about buying a home? Which in turn has you thinking about applying for a home loan? Some of you may not know that both Marc and I used to work in the mortgage home loan industry. This experience comes in extremely handy for our real estate business because we know the back end finance component.

Marc owned a mortgage group joint venture and I worked as a loan officer for over 5 years. We have helped home owners obtain the financing they needed to buy their home. Since then lots of things have changed in the mortgage industry, but the basics remain the same.

We have built relationships with the best of the best on the mortgage loan side, you can request our complimentary referrals by sending us an email HERE and write in the subject line, help connect me with a mortgage lender.

When it comes to buying a home you have two options:

1) Pay Cash

2) Financing with a Mortgage Loan

Regardless of your financial scenario we take a consulting approach which helps us better understand your needs and match you with the appropriate vehicle to get you to your destination.

Here are some quick tips to get you prepared to speak with your mortgage loan officer:

5 Things You Need To Get an Emi for Home Loan

Proof of Income

Proof of Assets

Good Credit

Employment Verification

Documentation (Driver's license, ID, Social Security #)

Those are just the basics and speaking to a professional who specializes in mortgage loans will help go into more detail of the specific documents needed. Being pre-approved before you start house hunting is most important, when you find the home of your dreams and want to buy it a pre-approval letter is sent with your purchase offer on the home. This gives the seller assurance that you are the real deal!

Stay tuned for more of our Commitment of Service Series and don't forget you can contact us anytime for help with your San Diego real estate needs!

[Source: http://teamschuco.blogspot.in/2016/01/how-to-get-pre-approved-for-home-loan.html]

EMI for Home Loan - What Is EMI and How Is It Computed?

EMI is an oft repeated term that is associated with any loan taken. Let us understand how EMI works and what are the different aspects associated with EMI. The EMI facility helps the borrower plan his budget. The EMI is calculated taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum.

An Equated Monthly Instalment (EMI) is usually a fixed amount of money that you need to pay your bank or lender every month as repayment of a loan taken, until your loan is totally repaid. It is essentially made up of two parts, the principal amount and the interest on the principal amount, divided across each month of the loan tenure. The EMI is always paid to the bank or lender on a fixed date each month. This could be done though post-dated cheques issued in favour of the lender or by providing auto debit instructions to your bank for the same.

Here’s the formula to calculate an EMI:

Now, you might assume that the equal parts of the principal and interest are repaid to the financial institution every month. However, this not the case. During the initial years of repayment, the interest component repaid is higher while in later years, the principal component is higher. So, you cannot assume that you will have repaid half of the loan amount once half of the loan tenure is over. A more likely scenario we that you’ve reduced the total interest component that was due by a considerable amount while the principal amount remains to be paid.

Here is a simple example that explains how the repayment of your EMI reduces your loan amount during the repayment period leading up to the end of the loan tenure.

Here the loan amount is Rs. 1, 00,000, which is lent at an interest rate of 12% with a loan tenure of 12 months.

The monthly EMI is calculated at an annualized rate of 12% and amounts to Rs.8,885 per month with the total interest component amounting to Rs.6,619.

You will notice that the interest repaid decreases with each passing month while the principal repaid increases at the same time. This means that with a larger loan amount of say Rs.5 lakh and a longer tenure of 20 years, the interest component will form a greater portion of the EMI. This interest portion will reduce leading up to the loan tenure, while the reverse is true for the principal component.

Will the EMI change during the loan tenure?

There are three reasons why your EMI might change during the tenure of your loan.

§  Interest rate on your loan changes – If you have opted for a floating interest rate, the interest rate on your loan will change whenever the floating rate is reset by the lender. This, in turn, will result in a change in your EMIs. However, note that you can instruct your lender to not to change the EMI and instead request for change in the tenure of the loan.

§  You prepay the loan – In case you prepay the loan amount during the tenure of the loan, your EMI will change. This is because the principal of the loan will have gone down and the interest due will be based on this new principal. Here too, you can ask your bank to change your tenure instead of the EMI. This will help you repay the loan quickly.

§  You opt for progressive EMIs – Some lenders offer the option of repaying the loan through staggered EMIs. Here, you pay a fixed EMI for a specific number of years initially and after that term, you start paying larger EMIs. This is generally chosen by young earners who have just started their career and cannot afford to pay large EMIs initially and hope to pay larger EMIs as they grow in their profession.

At the end of the day, loans are liabilities and it is best to close them as quickly as possible, unless you are getting other benefits such as tax exemptions. It is best not to reduce your emi for home loan even if interest rates fall.

Source: https://blog.bankbazaar.com/what-is-emi-and-how-is-it-computed/

EMI for Home Loan - What Is EMI and How Is It Computed?

EMI is an oft repeated term that is associated with any loan taken. Let us understand how EMI works and what are the different aspects associated with EMI. The EMI facility helps the borrower plan his budget. The EMI is calculated taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum.

An Equated Monthly Instalment (EMI) is usually a fixed amount of money that you need to pay your bank or lender every month as repayment of a loan taken, until your loan is totally repaid. It is essentially made up of two parts, the principal amount and the interest on the principal amount, divided across each month of the loan tenure. The EMI is always paid to the bank or lender on a fixed date each month. This could be done though post-dated cheques issued in favour of the lender or by providing auto debit instructions to your bank for the same.

Here’s the formula to calculate an EMI:

Now, you might assume that the equal parts of the principal and interest are repaid to the financial institution every month. However, this not the case. During the initial years of repayment, the interest component repaid is higher while in later years, the principal component is higher. So, you cannot assume that you will have repaid half of the loan amount once half of the loan tenure is over. A more likely scenario we that you’ve reduced the total interest component that was due by a considerable amount while the principal amount remains to be paid.

Here is a simple example that explains how the repayment of your EMI reduces your loan amount during the repayment period leading up to the end of the loan tenure.

Here the loan amount is Rs. 1, 00,000, which is lent at an interest rate of 12% with a loan tenure of 12 months.

The monthly EMI is calculated at an annualized rate of 12% and amounts to Rs.8,885 per month with the total interest component amounting to Rs.6,619.

You will notice that the interest repaid decreases with each passing month while the principal repaid increases at the same time. This means that with a larger loan amount of say Rs.5 lakh and a longer tenure of 20 years, the interest component will form a greater portion of the EMI. This interest portion will reduce leading up to the loan tenure, while the reverse is true for the principal component.

Will the EMI change during the loan tenure?

There are three reasons why your EMI might change during the tenure of your loan.

§  Interest rate on your loan changes – If you have opted for a floating interest rate, the interest rate on your loan will change whenever the floating rate is reset by the lender. This, in turn, will result in a change in your EMIs. However, note that you can instruct your lender to not to change the EMI and instead request for change in the tenure of the loan.

§  You prepay the loan – In case you prepay the loan amount during the tenure of the loan, your EMI will change. This is because the principal of the loan will have gone down and the interest due will be based on this new principal. Here too, you can ask your bank to change your tenure instead of the EMI. This will help you repay the loan quickly.

§  You opt for progressive EMIs – Some lenders offer the option of repaying the loan through staggered EMIs. Here, you pay a fixed EMI for a specific number of years initially and after that term, you start paying larger EMIs. This is generally chosen by young earners who have just started their career and cannot afford to pay large EMIs initially and hope to pay larger EMIs as they grow in their profession.

At the end of the day, loans are liabilities and it is best to close them as quickly as possible, unless you are getting other benefits such as tax exemptions. It is best not to reduce your emi for home loan even if interest rates fall.

Source: https://blog.bankbazaar.com/what-is-emi-and-how-is-it-computed/

What is a Home Saver Loan?

Pre-payment of home loan is a double-edged sword. It reduces the future obligation but at the same time, also incurs opportunity cost and risk in case of an emergency when you urgently need cash. This is exactly where a home saver loan helps.

Background

Home Loans or Mortgage is one set of financial transactions that almost every one of us is bound to encounter at least once during our life time, and then deal with it for a majority of our life. So, any available option in this area should be explored very carefully.

Most of us, after a few years of running a successful EMI schedule would also look at the option of pre-payment of home loans.

Pre-payment of home loan is a double-edged sword. It reduces the future obligation but at the same time, also incurs opportunity cost and risk in case of an emergency when you urgently need cash. This is exactly where a home saver loan helps.

What is a Home Saver Loan?

Home Saver Loan is a kind of loan where you have a dual advantage of pre-paying your home loan (and thus reducing your balance amount or tenure or both of EMIs) as well as having ready cash in hand which can be withdrawn in case of an emergency.

How does a Home Saver Loan work?

The concept, though simple, is powerful. The idea is to make use of your deposit in your current or savings account to offset a part of the principle. Once some of the principle is offset, interest obligation comes down.

Here is how it works:

1) In this type of Loan for Home, the lending bank links your home loan account (an account which you would already be running with the bank from which you have taken the home loan) with a current or savings account with the same bank.

2) While calculating the monthly interest on your home loan, the bank deducts the funds in the current account from the principal outstanding and then levies the interest, resulting in reduction of your EMI

This scheme is quite useful for a borrower who has a sufficiently large savings balance in his account, which he wishes to utilize when in need, and also for a business owner who can park excess funds in his current account.

For example, you think of making a prepayment of Rs 5 lacs. Instead of pre-paying, you can deposit that amount in a savings account which is linked to your home saver account.

Then, the interest obligation would be calculated on the loan outstanding less Rs 5 lacs, and not on the entire loan outstanding. The biggest lever is that you can withdraw this money or a part of it whenever you want.

Such savings can be quite huge when you consider the fact that EMIs will have to be paid for several years more.

What if you do not have immediate funds?

In that case, even when you deposit a recurring amount in your account, this deposit will still be subtracted from principle outstanding to calculate the EMI.

The savings would be less in initial months but will compound in the later part of the tenure.

[Source: http://elevate-your-life.blogspot.in/2013/02/what-is-home-saver-loan.html]

Problems with Home loan

With home loans come great advantages and problems altogether. RBI has recently taken a lot of measures to protect customers with home loans and get them better deals also. But, here are a few areas where RBI can look into as a part of its consumer protection initiative:

Banks have an interest in the property mortgaged with them and they need to ensure that it is protected against any eventuality. At the same time banks also gain by selling insurance policies.  But what need to be insured are the cost of construction and not the cost of land. Because, It is therefore not clear whether the bank’s insurance policy will pay a claim when the housing society is also making a claim for the property damage.

Most home loan borrowers focus on the interest rate at the time of availing home loans. But floating rates are dynamic and vary from time to time. The borrower is not aware of this because while rates vary, the equated monthly installment or EMI does not. Banks hardly change the tenure of the loan.   Very rarely does a bank communicate to the borrower about changes in interest rates.

In Maharashtra the government had made it compulsory for all mortgage interests to be registered. This was aimed at preventing fraudulent sale of the property even if the loan is outstanding.  Although the law actually protects the bank’s interest lenders. Rather than to facilitate smooth registration by the institution, borrowers are forced to approach agents and spend a few thousands to complete this process.

Lenders often poach from home loan borrowers of other institutions through Home Loan Emi Calculator. But when it comes to their existing customer they do not offer them the benefit of new rates.  If there is a special scheme running in the bank, existing borrowers are not informed of it. Also banks charge customers a processing fee even when their loan is refinanced within by their own bank but under a different scheme.

Some banks have resorted to complicating the pricing of home loans introducing interest free years in middle of the tenure of the loan. Innovation in financial products is good only as long as they do not obscure pricing. Borrowers need to have the opportunity to compare the cost of one home loan against another.  One way to make the pricing transparent is to disclose the cost in the form of annualized yield to the lender based on prevailing rates.

[Source: http://loanwalle.com/blog/problems-with-home-loan/]

Emi Calculator Home Loan - How Prepayment Interest is calculated?

Home Loan Prepayment Interest calculation is one of the grey areas from the borrower’s perspective. As the average Home Loan tenure in India is 7-8 years therefore Home Loan Prepayment is very common. Borrower prepays Home Loan as and when he/she receives an annual bonus or on the maturity of the past investment. Instances of overpayment, wrong effective date, calculation of Prepayment Interest etc are common points of dispute with the Home Loan Provider. In my post, Home Loan Prepayment – 5 Important Points, i discussed the general points. Based on the feedback/queries of my readers, i decided to write a post on How the Home Loan Prepayment Interest is calculated?

Though the calculation of Prepayment Interest is not a rocket science but the staff of a Bank/HFC fail to explain the same to the borrower. Before we move to Prepayment Interest calculation, it is critical to understand the following points.

1. Monthly Rest: Rest is basically the period at which the outstanding principal amount is calculated by the bank. Though not many borrowers pay attention to this Home Loan Parameter. By default, almost all the Floating Interest Home Loan’s are disbursed with Monthly Rest clause. Only exceptions are some special Home Loan products like SBI Max Gain, Citibank Home Credit, SCB Home Saver. The rest for these special products is Daily i.e. Interest is calculated on daily reducing balance.

In short, Monthly Rest implies that Bank will re-calculate the outstanding principal amount for interest calculation every month. Normally this date is 1st of every month. Therefore, we can conclude that Borrower is charged interest on the principal outstanding as on 1st day of that particular month. This date will be considered as the reference date for calculation of Home Loan Prepayment Interest. Any re-calculation of principal outstanding can be done only on this date i.e. 1st of every month.

2. Date of Payment: Another major bone of contention between the borrower and the bank/HFC. In one of the case, i observed that one of the leading HFC considered the date on which the cheque was en-cashed as the date of payment. It is legally wrong.  

“Under the Negotiable Instruments Act, 1881. Subsequent legal interpretation by the Honourable Supreme Court of India, a cheque is an instrument negotiated by delivery. Which implies when the cheque is tendered/deposited, there is a presumption that payment would be realized in due course of time hence the date of cheque deposit is considered to be the date of payment irrespective of the fact when it is actually presented for payment? Date of cheque deposit is considered as date of payment similar to cash payment“

In short, if you are depositing a cheque to prepay Home Loan on 15th of the particular month then your date of payment is 15th. Prepayment Interest will be calculated from 1st to 14th of the month.

3. No of EMI’s vs. Revised EMI: As i highlighted in my other posts also that at the time of Home Loan prepayment, the borrower has an option to reduce either No of EMI’s or EMI amount. By default, the bank will reduce no of EMI’s but if you would like to reduce EMI amount then you can submit written application at the time of Home Loan prepayment. In this case, your no of EMI’s will be same before and after Home Loan Prepayment. Your Monthly EMI amount will be reduced. Personally, i prefer to reduce No of EMI’s as it will reduce your interest outflow thus reducing the net cost of the property.

4. Date of EMI Debit: Date of EMI debit has no co-relation with the Prepayment Interest. Assuming, my monthly rest or date of re-calculation of principal outstanding is 1st of the month. My EMI is debited on 5th or 10th of the month, but this date has no relevance as such. Normally borrowers get confused and assume that EMI is calculated on the date of EMI debit.

5. EMI is not paid in Advance: This is another major confusion because of which most of the borrowers end up paying an extra EMI. General perception is that EMI deducted in May’15 is for the month of May’15 which is not true. The EMI for April’15 will be deducted in the month of May’15.

Calculation of Prepayment Interest

Let’s check out how the prepayment interest is calculated with an example. Assuming, i am a borrower and my principal outstanding as on 1st May, 2015 is Rs 30,00,000. My Home Loan Interest rate is 10% and Emi Calculator Home Loan amount is Rs 50,000. No of EMI’s due is 84.

Now, during the month i decided to prepay Rs 5,00,000 through cheque towards principal outstanding on 18th May, 2015. In this case, my date of payment will be considered as 18th May, 2015. For calculation purpose, the reference date of prepayment interest will be 1st May, 2015 i.e. date on which principal outstanding was last calculated. Based on principal outstanding as on 1st May, 2015, the interest for the month May, 2015 will be calculated. The EMI of Rs 50,000 for April’15 was debited from my savings account on 5th May, 2015.

If i prepay Rs 5,00,000 on 18th May, 2015 then my principal outstanding will be re-calculated w.e.f 1st May, 2015. In short, principal outstanding will be revised to Rs 25, 00,000 as on 1st May, 2015 instead of Rs 30, 00,000.  As the date of payment is 18th May, 2015 therefore Bank will charge Simple Interest on the prepayment amount i.e. Rs 5 lakh from 1st May to 17th May (Excluding the Date of Payment)? In this case @10% SI, prepayment interest will be Rs 2361. Therefore, i will hand over 2 cheques to the bank

(a) A cheque of Rs 5 lakh towards principal prepayment

(b) A cheque of Rs 2361 towards prepayment interest (Simple Interest)

Bank or HFC can re-calculate the principal outstanding during the month because EMI for the current month is due on 5th of next month. After Home Loan Prepayment, by default no of EMI’s will reduce from 84 to 65. If you wish to retain no of EMI’s to 84 & reduce EMI amount then you can submit written request for the same. Your EMI will be reduced from Rs 50,000 per month to approx. Rs 41,750.

Source: http://www.nitinbhatia.in/home-loan/prepayment-interest/