Home Loan Interest Rates - The Basics

Applying for your first home loan is a big financial step. Depending on the type of mortgage you obtain, the Housing loan interest rate you secure and the length of your mortgage, you can drastically affect the total amount you pay by the time you make that final house payment at the end of the loan term.

In this article we'll cover the basics of mortgage characteristics and then go deeper into mortgage interest rates to cover how they affect your mortgage and total cost of borrowing.

There are four factors that can affect the characteristics of your mortgage - they are:

1. Interest. The interest rate is basically the percentage of the loan that your lender charges you to borrow money from them. Your interest rate, whether varied or fixed, will affect your cost of borrowing. Essentially, a higher interest rate equals a higher monthly and overall cost.

2. Terms. Most mortgages have a maximum term that typically hovers anywhere between 15-30 years. It can be shorter or longer, but that's the standard for most home buyers.

3. Payment frequency. How much and how often you pay will affect your mortgage costs. Some homeowners opt for weekly payments because they can squeeze in one or two extra payments a year, thus reducing the length of their mortgage.

4. Prepayment options. Some mortgages allow you to pay off your mortgage early, while others restrict prepayment or put a penalty on early payment.

Of all these, interest is typically the most important. Depending on your mortgage, your interest rate can fluctuate with the market (variable or floating rate) or it can remain the same for the duration of the loan (fixed rate).

A fixed rate mortgage retains the same Housing loan interest throughout the course of the loan. Homeowners benefit because they're given a fixed monthly payment that they can effectively budget for and it won't change with the market. However, because the interest rate risk is placed on the lender, fixed rate mortgages tend to have a slightly higher interest rate.

A variable rate or floating mortgage changes its Housing loan interest depending on the economic index and federal interest rates. While borrowers will typically get a lower opening interest rate, they're subject to the tides of the market. Overall, variable rate mortgages tend to be cheaper than fixed rate loans, but homeowners need to remember that they are at the mercy of the market.

Housing loan interest rates aren't the same for everyone, meaning you may not get the same rate as your neighbour. Lending institutions base their rates on the borrower's credit score, meaning a higher score typically translates to a better rate. Before you commit to any interest rate, always shop around and don't be afraid to negotiate with a lender for a better rate.

Article Source: http://EzineArticles.com/1025632

Housing loan interest

Buying a Home? Do it With Free Housing Loans

The old saying "A home is built of hearts and a house is built of bricks", it is very true. Each person should have a home, a dream home, a place to return to after a hectic and busy day. It is a place which lightens your mind, frees you from all sorts of worries and gives you a sense of belonging. Whether you buy a home with your own funds or you buy it with home buyer loans, all this holds equally true.

There are various private agencies ready to fund your dream home and also government giving you a helping hand through free Housing loan. The US government has decided to offer Housing loan in order to improve the standard of living of citizens in general and also to help homeless people as shelter is one of the basic needs. People can apply for free housing loans in many ways; mortgage is one of the oldest methods of taking a loan. It is just giving a security to the money lender to claim the debt amount in case the borrower fails or refuses to repay the loan.

Choosing a Housing loan is one of the difficult tasks in this economy, but things are made easy with free housing loans. Before applying for a loan it is necessary that have a plan of the total money you are going to spend on this venture. It is necessary that you stick to this plan and budget. Free housing loans provide the borrower a sense of relief and of course, a roof over his head!

The present government in the US is focusing on creating awareness among people about the free Housing loan, Home Buyer Loans and grants. But prospective first- time home owners should beware of scamsters in their midst claiming to be government agents and asking you to sign on documents pertaining to your assets.

The government also provides counselors who come a guide you through the process of acquiring a free housing loan.

Article Source: http://EzineArticles.com/4249083

Should you invest your money or use it to prepay home loan?

If you have an outstanding home loan, and happen to have just received an annual bonus or any other lump sum payment, should you use it to prepay your loan? Or, should you invest it to meet some other goals? Assess the following conditions to arrive at the right decision.

The first variable to be considered is psyche: some people may not be comfortable with a large housing loan and to reduce their stress they may want to get rid of the loan burden at the earliest. For them, settling the question of how to use their bonus is simple: just pay off the loan. You should pay off the home loan at the earliest. Several unfortunate happenings— job loss, death of the earning member, serious illness, etc—can cause trouble during the 10-15 year loan period. Treat it as a mind game and not a numbers game."

Tax benefit is the next variable. If a home loan does not seem like the sword of Damocles hanging over your head, it makes sense to continue with the regular EMI schedule. This is because of the tax benefits that a home loan offers. The principal component of the EMI is treated as investment under Section 80C. The interest component is also deducted from your taxable income under Section 24. The annual deduction in respect of the interest component of a housing loan, for a self-occupied house, is limited to Rs 2 lakh per annum.

You won't be able to claim deduction on interest paid above Rs 2 lakh. So, if your annual interest outgo is higher than Rs 2 lakh, it makes sense to prepay the Home Loans in India, and save on future interest payment. For example,

The annual interest on a Rs 70 lakh outstanding loan, at 9.5%, comes out to be Rs 6.65 lakh. After taking into account the Rs 2 lakh deduction under Section 24C, the interest component will fall to Rs 4.65 lakh, and bring down the effective cost of interest from 9.5% to 8.64%, even for the people in the 30% tax bracket.

You can, however, optimize the tax benefits if the loan has been taken jointly, say, with your spouse.

[Source: http://economictimes.indiatimes.com/wealth/plan/should-you-invest-your-money-or-use-it-to-prepay-home-loan/articleshow/52161038.cms]

House Loan in India

You take a home loan for buying a house or a flat, renovation, extension and repairs to your existing house. Your bank  assesses your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, and other factors like spouse’s income, assets, liabilities, stability of income etc.

The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use.The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.

Documents required for a loan approval are as follows

·         All legal documents of the house being bought

·         Identity and Residence Proof

·         Latest salary slip (authenticated by the employer and self attested for employees) and Form 16 (for business persons/ self-employed) and last 6 months bank statements / Balance Sheet, as applicable.

·         Completed application form along with your photograph.

·         Please read the fine print of the bank’s scheme carefully and seek clarifications.

Loan options by bank

Banks generally offer either of the following loan options: Floating Rate Home Loans and Fixed Rate Home Loans. For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. The EMI of a floating rate housing loans changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. 

Benefits to borrowers from monthly reducing balances method

Borrowers benefit more from a loan that’s calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.

Tenure of loan

The longer the tenure of the loan, the lesser will be your monthly EMI outflow. Shorter tenures mean greater EMI burden, but your loan is repaid faster. If you have a short-term cash flow mismatch, your bank may increase the tenure of the loan, and your EMI burden comes down. But longer tenures mean payment of larger interest towards the loan and make it more expensive.

Security you could have to provide

The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.

Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance.

Tax benefit on the loan

Resident Indians are eligible for certain tax benefits on both principal and interest components of a loan under the Income Tax Act, 1961. Under the current laws, you are entitled to an income tax rebate for interest repayment up to Rs. 1,50,000 /- per annum. Moreover, you can get added tax benefits under Section 80 C on repayment of principal amount up to Rs. 1,00,000 /- per annum.

Complaint can also be lodged by your authorized representative (other than a lawyer) or by a consumer association / forum acting on your behalf. If you are not happy with the decision of the Banking Ombudsman, you can appeal to the Appellate Authority in the Reserve Bank of India.

Source: http://priyankablogthoughts.com/house-loan-in-india/

Home Loan Checklist Questions and How to Prepare Yourself When Getting a Home Loan

If you are looking to get a home loan, don't get confused with all the "jargons" used within the finance industry. Prepare for your home loan with the checklist of typical questions asked by the lending officers employed by the lenders/credit providers. This checklist is useful when you are looking to:

>> Buy your first home

>> Refinance your existing mortgage

>> Consolidate your debts

>> Upgrade or renovate your home, or

>> Invest in another property

Question - What is the purpose of the credit you are considering?

Your response should be anyone of the following:

>> Purchasing a home to live in

>> Investing in another property

>> Renovating your home

>> Consolidating your debts, or

>> Refinancing your existing mortgage or any other needs

Question - What kind of loan repayment type are you considering?

You should consider your loan repayment options, such as:

Interest-Only repayments - You will only repay the interest on your home loan, and your loan balance will not reduce

Principal and Interest - You will have to repay the interest and principal amount together. It means your loan balance will gradually reduce.

Question - What kind of interest type are you considering?

You need to consider the interest rate type in terms of:

A Fixed Rate home loan - With this type of home loan, your interest rate is set for a fixed period, and your repayments remain the same for the duration of the fixed period, usually between one and five years, or

A Variable Interest Rate home loan - This type of home loan is very popular with first-home buyers who just want a loan product that is simple, easy to manage and offers a number of features and benefits.

Question - Are you concerned with the amount of interest rate percentage being charged?

If you are concerned with the amount of interest rate percentage being charged on your home loan, you can use comparison rates because they are a handy indicator to help you compare loans more easily. An expert finance broker will readily provide you with a number of impartial comparisons to help you when deciding and which a bank aligned lending officer is not willing to provide you.

Question - Are you concerned with interest rate movements (i.e. up or down)?

If you are concerned with the interest rates moving upwards, you should consider a Combination (Split) interest rate loan because it will allow a mixture of security and flexibility. This is how you will pay:

>> A fixed interest rate payment for an agreed portion of your home loan, and

>> A variable interest rate payment on the remaining portion of the home loan.

Question - What kind of features and benefits are you considering with your home loan?

You should make sure you fully understand all the features and benefits available to you, such as:

>> Taking advantage to make unlimited "extra repayments" each month. So, you can pay off your loan faster.

>> Taking advantage of "redraw facilities", so you can withdraw any extra payments you have made on top of your normal repayment amounts, if you need the cash.

Article Source: http://EzineArticles.com/8830399

When Should I Refinance If I Have a Fixed Rate housing loan interest?

Many home owners took up a fixed rate housing loan when its rate is relatively low. A fixed rate housing loan also gives the home owner a peace of mind, without having to worry about fluctuations. However all good things come to an end. Your fixed rate term expires and it starts to float. For some, the rate really balloons up and then you wonder if you should refinance now.   

Frankly speaking, when should you really refinance? Should you refinance after the lock in period? Refinance within the lock in period? If you decide to refinance within the lock in period, at which point of time will you be doing it?

Before we go into that, let's spend some time understanding the refinancing process. When you send in your application, the contract takes about 2 - 3 weeks to get back to you. After you have signed the contract and appointed your lawyer to do the conveyance, he or she will probably take three to six months to complete the process.  

Now let's look at this example: You are holding onto a fixed rate housing loan at 3% and it has expired. It balloons up to 5%. With the extra 2%, of course you will feel unhappy about it, so you decide to refinance now. However, you will still be paying at 5% for the next three to six months before your housing loan interest gets refinanced to a lower rate. Remember, the interest you paid to the bank cannot come back to you at all. The money you saved from refinancing can be pumped into alternative investments. No matter what kind of investment you have decided to take up, you are allowing that amount of cash to work harder.

Looking at the above example, you will realize that you should start considering refinancing, three to six months before your fixed housing loan interest rate expires. By positioning yourself to refinance earlier, you are effectively saving more money in the long run. This is also known as "lean finance". Of course, what if your housing loan has penalties, claw backs and so on? Different people have different terms in their contract. It is better to talk to your mortgage advisor about it, so he or she can help you with your refinancing option.

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Article Source: http://blogs.rediff.com/homeloaninterest/2016/08/11/when-should-i-refinance-if-i-have-a-fixed-rate-housing-loan-interest/

House Loan - Tips on How to Get the Best Interest Rates

Many people have turned to lending institutions when they want to buy a house. This is because there are many lenders out there who have different and affordable rates and it is up to you to dig deep and find them. Most times home financing normally comes under the secured loans category. This means that you will be required to put up collateral that will be security should you default. Usually the house you intend to buy is the security against non-payment of the loan.

It is important that you have all your facts and information on the type of housing loan interest you want. You can do research online and do comparisons on the various types of loans on offer. When you have narrowed down your choice, you can then approach the lenders. The lenders will then verify the nature and the value of the property that you are giving as collateral. This is where you will be requested to submit all the documents that support the value of the house that you intend to buy using the home loan.

Additionally, the lenders will scrutinize your credit history, your credibility and your employment history. There is a general rule that home financing institutions ask for which is to make a three to six percent of the total loan amount your contribution. This amount is usually negotiable. The interest rates of house loans are in two different packages. These are the fixed interest rates and the adjustable interest rates. The fixed rate option ensures that you will pay a specific interest rate throughout the loan period, while the adjustable one has the housing loan interest change according the changes of the bank's policies.

The Annual Percentage Rates (APR) are another aspect of housing loan interest that has to be taken into careful consideration. These include the capital, interest, points (profits that are earned by the lending institution), mortgage insurance, fees and other hidden costs.

Article Source: http://blogs.rediff.com/homeloaninterest/2016/08/10/house-loan-tips-on-how-to-get-the-best-interest-rates/