Consumer Rights

Now that you have decided that you need to take a home loan to buy your dream house, the next query is about selecting the bank from which to take a loan, as well as whether you should go in for a fixed vs. floating interest home loan. I have some friends who have taken a floating interest loan, and others who have taken a fixed interest loan, and there is no major dissatisfaction levels that I have seen in either, so basically, it is more about your comfort level with either type of loan. Let me outline some of the parameters / factors that could help you decide:
- In a fixed interest loan, like the term fixed means, the interest rate will remain the same during the course of the loan even if the Prime Lending Rate changes. However, as was in the past 2 years, this is not totally true, the banks / financial institutions did put into the small print that in some situations, they could even change the rate of the fixed interest loan (something that scared and puzzled a large section of the borrowers); so keep this in mind
- In a floating interest loan, the loan is benchmarked to some interest rate, which could be an internal benchmark, or even the Prime Lending Rate (PLR). When either the rate increases or decreases, the bank will typically adjust the time period left in the loan and keep the EMI constant (since you might have given post-dated checks, or signed an ECS agreement of a certain amount). You can request them to change the EMI amount.
- When the interest rates are at historic lows, that is a time when people try to lock themselves into a fixed interest rate regime so that they can avail the benefit even when the interest rates rise (although if the interest rates rise too much, the banks will reset the interest rate)
- People who tend to more conservative fiscally do no find the idea of a changing EMI amount or a changing loan tenure comfortable, and hence try to ensure that they get the required stability in a fixed interest rate loan
- When you compare fixed interest rates with floating interest rates, it is generally found that you end up paying for this stability, with the fixed interest rate working out to be more than the floating interest rate
- When you have a floating interest rate loan, then you should be prepared for the uncertainty, such that an increase in your EMI or loan tenure through an increase in the interest rate not causing your personal finances to be in jeopardy
In the end, you need to take a call. Evaluate your options, calculate the effective rates and do some personal calculations of what would be the impact of changes and then decide which option you want to take.

May 27th, 2010 | Tags: EMI, Finance, Flexible Interest Loan, Floating interest loan, House, Housing Loan, India, Interest, Interest Rate, Loan, Loan Tenure, Stability | Category: Finance, Loans, Property | Leave a comment

In most cases, when you are looking to buy a house, you would be looking at getting a home loan (there are few normal middle class folks who can buy a house on cash); and to get a home loan, even though a bank says that it is very easy, there are steps to be followed, procedures that take time, and documents that need to be inspected and then passed, and then only is a house loan approved. However, given that there are multiple banks and financial institutions from which the loan can be taken, it is advisable that you look around, evaluate the financial institution and the terms of the loan before going in for the same. Since the terms that you (and the millions of other people taking a house loan) will be evaluation will not be very different, it is possible to create a checklist that will work for the majority of cases when you want to take a home loan. So, here goes (and remember, such articles are meant to be in the nature of advice, you should certainly evaluate many sources and information before going in for the house loan), and we are not even considering the rate of interest charged by the various banks (since that is a big factor by itself):
- If there are going to be multiple applicants (and in the case of many couples, both the husband and wife would want to be co-applicants), should consider whether the bank handles those easily in the loan process
- Your property could be a piece of land on which you are going to construct, or an existing property that you will tear down or modify, or a flat that is already available or being constructed, and so on. You need to know whether the housing loan will work in your specific case
- What are all the documents needed by the bank or financial institution for sanctioning the loan (some banks can be more rigid than the others)
- How long does the bank say it will take to process your loan request, how many meetings it will want, and how long will it take to disburse the loan
- How much does the bank expect you to contribute (this matters a great deal since you have to pay this amount and for properties in the 10′s of lakhs, this can be not an insignificant amount)
- How does the bank incorporate changes in interest rates in re-calculating your EMI (including whether the bank has a past history of actually passing on reduction in interest rates)
- Documentation and processing charges applied by the bank / financial institution for the loan
- Prepayment charges, and the maximum amount of prepayment possible
- Whether you can easily switch over between fixed and flexible interest rate regimes, and what are the charges applied by the bank for the same
Remember, the chances of negotiating with banks is much higher when you are wanting a property that is part of a project that is already cleared, you have a good credit history, can show proper income documents, and don’t already have a loan on your head. If the market is good in terms of banks wanting to disburse loans, you can negotiate better, but when the scene is bad in terms of a recessionary trends, then banks tend to be more careful and more rigid.

May 24th, 2010 | Tags: Application, Bank, Documents, Finance, Fixed Interest Loan, Flexible Interest Loan, India, Interest, Loan, Processing | Category: Finance, Loans, Property | Leave a comment

There are enough occasions in life when you have to sell your house (independent house or flat). It could be a distress sale (when you need the money), you could be doing speculation and the house made money for you in the sale, you could be moving to a new location, etc or many other reasons. In all such cases, you would want that your house is sold quickly and the transaction is a not a long drawn transaction. What will help you in this case is if you are fully prepared for this transaction and consider the needs of the purchasing party as well. It is very much possible that the person who is planning to buy your house would need a bank loan for this purpose, and as a result, would want all the documents for the house in perfect order so that the bank loan can go through fine. Here is a list of documents that you should have in order (and if they are not in order, better make sure that you are working to get them in order or possible substitutes):
- If the property is a part of a housing society, then you will need a housing society share certificate
- In the above case, you will also need a No Objection Certificate from the housing society (there have been recent cases in Mumbai when the housing societies have objected and refused to provide these certificates)
- You will need the original sale deed for the property which proves that you have the right to sell the property and it is indeed in your name; and if the property has changed hands, then you need the copies of previous deeds in order to show that the transactions were proper
- To ensure that stamp deed and registration of the house was done (although there are cases when the property is sold before the property is registered), you need to have these documents
- For flats, there are a number of other details that need to be provided, such as the payments for parking, for power backup, as well as the documents that specify the carpet area, the super area, the original construction date of the building, etc need to be provided.
- If the property has multiple owners, then these owners also have to provide their consent (and it means all of them)
- If the property still has a loan outstanding, then the bank or financial institution still owns a portion of the property, and you cannot sell the property without their involvement. It is preferable to repay the outstanding of the loan before the sale of the property happens.
There are many cases when all of these documents are not available. In such cases, it is best to take legal advice, although in several of these cases, it is very much possible to get duplicate verified documents available, as also indemnity bonds wherever they prove necessary.
These seem like a lot of documents, but if you were planning to purchase a property, you would want the same set of documents, so bear this in mind.

May 21st, 2010 | Tags: Building, Checklist, Documents, Formalities, House, India, Legal Clearances, Permissions, Property, Society | Category: Documents, Finance, Property | Leave a comment

It is a fairly common issue, where a person sells an old house and buys a new house. This can be done when a person is investing in real estate, it happens when a person finds that the old house they have is not big enough for their family, or when they need to move to a new location because of job requirements (and there could be other reasons for the same). Now, as per Indian tax laws, any capital gains made from the sale of a house or real estate property will need to be accounted for and if taxes are due, they need to be paid. However, for the moment, there are exceptions possible when a new property is bought soon after the old property is disposed of. Here are some more details:
- The first and foremost, if the entity is an individual or a House Undivided Family (HUF), then the sale of land / property / residential asset will be exempt if the money is invested in another residential house
- This is valid if the new property is purchased or constructed anew
- Timelines: if a residential unit is being purchased, then it should be purchased within a period of 1 year before or upto 2 years after the transfer of the property that is being sold; if the residential unit is being constructed, then this should be constructed within a period of 3 years from the transfer of the property that is being sold
- Only the amount of money that is used for the purchase or construction of the new property is exempt; so if the original property is being sold for Rs. 50 lakh, and the new purchase / construction is for Rs 40 lakh, then the remainder of the Rs. 10 lakh is still subject to tax
- What happens when the amount from the sold property is not utilized within the first year after the sale. In such cases, the amount should be deposited in a specified account with a bank or financial institution and declare the same. When the new property is being purchased or constructed, then the amount can be withdrawn from this account. If the amount is not utilized within 3 years, then the tax will need to be paid.
- However, in what can be unsettling to a purchase who does frequent sale or purchase of such properties, if the tax exemption is taken on the new property, then it cannot be transferred within 3 years. If this happens within 3 years, then its cost price for the purpose of capital gains calculation would need to be reduced by the amount of such exemption claimed earlier.

May 18th, 2010 | Tags: Capital Gains, Exemption, Finance, India, Property, Save Tax, Tax | Category: Finance, Tax | Leave a comment