Common Home Loan Frequently Asked Questions

Here is some of the common home loan terms that one comes across while applying for a home loan.

· What is an E.M.I?

An E.M.I refers to an equated monthly installment. It is a fixed amount which one pays every month towards the loan. It comprises of both, principal repayment and interest payment.

· What is Pre E.M.I interest?

In the case of part disbursement of the loan as in when the property is under construction and possession is not given, monthly interest is payable on the disbursed amount only. This interest is called pre-EMI interest (P.E.M.I) and is payable monthly till the final disbursement is made, after which the E.M.I would start.

· What is Fixed Rate of Interest (R.O.I)?

Fixed R.O.I stands for the Fixed Rate of Interest. The rate of interest remains unchanged for the entire duration of the loan irrespective of the drop/increase in the market rates.

· What is Floating Rate of Interest (R.O.I)?

The Floating Rate of Interest is one that fluctuates according to the market lending rate. This comes with a little risk as in whenever lending rates go up the loanee will have to pay more than the amount set aside for loan payment per month.

· What is P.F?

P.F is the processing fees and has to be paid upfront by the customer being fees charged at the time of submission of the application for processing

· What is I.I.R?

I.I.R is Installment to Income Ratio and denotes the portion of your monthly installment on your home loan as a percentage of your income. The same is capped between 40% to 60 % of income subject to applicant’s income & profile.

· What is I.C?

Whenever a customer delays the payment of the monthly installment, a collection team is sent to the customer’s house to recover the money. The expenses incurred on such occasions are called Incidental Charges (I.C)

· What is L.T.V?

L.T.V stands for the Loan to Value and is used to calculate the loan amount that a person is eligible for on the total cost of the property.

· What is Margin Money?

Banks & N.B.F.C fund around 80% to 85% of the cost of the house. The balance 20% to 15% has to be borne by the customer himself. This difference amount is called the Margin Money.

· For what purpose can I avail a home loan?

You can take a loan for constructing a house, purchasing of a ready possession house / flat or a flat in resale, takeover of existing loans from approved banks / housing finance companies, the purchase of a plot of land, for renovation of and extension of the house.

· Who can avail of the loan?

Salaried individuals, Self-employed professionals or businessmen and individual N.R.I’s.

· Who can be a co-applicant for the loan?

All co-owners need to be co-applicants. Spouse/parents/children can be co-applicants and his / her income can be clubbed to enhance the loan amount.

· What security is to be provided?

Security for the loan is a first mortgage of the property to be financed, by way of deposit of title deeds / or such collateral security as may be necessary. The title to the property needs to be clear, marketable and free from encumbrance. There should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely.

· Can loan be repaid ahead of schedule?

Yes, the loan can be paid ahead of schedule, however if the loan is prepaid or transferred to another bank or H.F.C, a nominal fee @ 2% of principal outstanding is charged

· Are the Bank policies subject to change?

Yes. These policies are reviewed periodically.

· How is the loan repaid?

An E.M.I refers to an equated monthly installment. It is a fixed amount which one pays every month towards the loan. It comprises of both, principal repayment and interest payment.

· When does the repayment start?

E.M.I repayments start from the month following the month in which the full disbursement has been made.

· What happens in case if a P.D.C bounces?

In the case of a bounced cheque or delayed payment, charges and outstanding dues will be charged as per the prevailing company policy.

· What is the minimum /maximum loan amount?

Home loan are available from 5 lakh to 5 crore.

· What is the time frame for a loan to be approved?

It takes a 7/10 working for the loan to be sanctioned after submission of all documents.

· When is the loan disbursed

The loan will be disbursed on:

- Submission of the legal documents.

- Legal and technical clearance of the property

-Submission of Registered copy of agreement.

· What is an amortization schedule?

An amortization schedule is a table giving the reduction of the loan amount by monthly installments. The amortization schedule gives the breakup of every E.M.I towards repayment of interest and outstanding principle of loan.

Construction Loans Are Becoming More Popular Than Ever

Construction loans are becoming more popular than ever and many people are choosing to build their new home. So, if you are looking to build your dream home particularly with the continued financial assistance provided by the government with the First Home Owners Grant (FHOG) scheme, it is the best time to do it. But, before you jump on the band wagon and obtain a loan, it is important that you understand the loan package in detail.

What is a Construction loan?

It is a short-term, interim loan for financing the cost of constructing your new dream home. Lenders/credit providers will secure a mortgage over the real estate property you are financing and they will make periodic payments to your builder at periodic intervals as the work progresses.

How is a Construction Loan Funded?

Lenders/credit providers have different credit policies and requirements that they adopt when processing a loan application. However, most are similar. Here is a list of how lenders/credit providers fund construction loans:

>> Lenders/credit providers will fund the loan amount required by you to cover the cost of purchasing a vacant land and for the building construction costs

>> Before construction starts and if you have already borrowed to purchase vacant land on which you are building your new dream home, the first loan disbursement made by the lender/credit provider will go towards paying off the vacant land

>> Lenders/credit providers will break down the loan amount into “progress payment drawdown” amounts, which are made to the builder at the completion of each construction stage

How is a Construction Loan Structured?

Construction loan, whilst it is similar to a traditional mortgage, has some key differences. Here is a list of the key features of a construction loan:

>> It is typically a short-term solution with a maximum of one year

>> The borrowers will be expected to pay Interest Only payments during the construction period

>> Interest is only calculated against the portion of the loan amount that has been drawn down

>> Construction of your new home must commence within 12 months of loan settlement

>> Construction of your new home must be completed within 12 months of the first progress drawdown payment

When are Progress Payments Drawn Down?

Lenders/credit providers will arrange to prepare valuations before progress payments are made to the builder and at the completion of each of the following construction stages:

>> For the purchase of the vacant land

>> After the laying of the flooring

>> After the installation of the roof (including the frames)

>> At lock-up stage, and

>> At the completion stage

What Happens with the Construction Loan at the Completion of the Building Project?

Upon completion of the building project, your loan will roll over into a standard Principal and Interest home loan.

What Additional Documents are required for Processing a Construction Loan?

Lenders/credit providers will need to see copies of the following documents, before issuing unconditional approval:

>> Fixed Price Building Contract

>> Council Approved Plans and Specifications

So, don’t forget to provide these additional documents along with your financial documents to the lender. If you keep all the paperwork ready, the lender will be able to provide you quick approval on your loan application.

Now that you have understood everything about construction loan in detail, apply for the loan package and build your new dream home.

PLUS Loans – Parent Plus Loans a Vital Student Financial Aid Component

Unlike the annual borrowing limits imposed on students in the both the FFEL and Direct Stafford student loan programs, Parents of dependent students can borrow any amount up to the cost of attendance minus any other aid the student receives. For example, if a student’s cost of attendance is $12,000 and the student has a student loan for $3,500, a parent or stepparent of this student could be eligible to borrow up to $8,500 in Parent Loan. The common acronym for the federal parent loan is PLUS, or Parent Loan for Undergraduate Students.

Unlike the student loan program, PLUS loans do require a credit check and therefore are not guaranteed in the same sense as the Stafford student loan. Those eligible to borrow include either natural, adoptive or stepparent of the dependent student. The parent who provides information on the FAFSA application is not the only parent who can access a PLUS loan. Grandparents, parents’ domestic partners or unmarried partners and foster parents are currently ineligible to borrow. However, if a parent is denied on the credit check he or she can pursue a co-borrower, or endorser, from any willing party (Alternately, the student can receive additional unsubsidized loan at the independent level upon a PLUS denial). One interesting and often used option of the PLUS loan is the program’s ability to allow two or more PLUS loans to be originated for one student. The benefit of this flexibility is especially helpful for divorced parents who choose to share, either equally or otherwise, in their child’s educational costs. In short, each parent can borrow a PLUS loan during the same loan period for their child’s college costs. If your institution does not advise you of this possibility, contact them and ask how to go about making it happen.

Current terms of a PLUS loan make it an economical option for many families who cannot meet the full cost of attendance or expected family contribution. The interest rate for the PLUS is variable, changing every July 1. The interest is based on the Bond-equivalent rate for 91-day T-bills plus 3.1% with a cap of 9 percent. The interest rate for new PLUS borrowers for loans disbursed from July 1, 2007 to June 30, 2008 is 7.9 percent. The PLUS is a non-need based aid program and should be accessed after all need-based programs are exhausted for the student.

Funds from PLUS loans are disbursed, after loan fees and insurance fees have been deducted, in the same manner as the Stafford student loans with one exception. PLUS refunds, the amount of loan borrowed in excess of the student’s account balance at the time of disbursement, will be refunded to the parent borrower instead of the student. Any remaining funds disbursed to the parent are intended for the sole purpose of supporting the dependent student while in school. Some schools may have a by-request option allowing the funds to go directly to the student with parent borrower permission.

PLUS loans have no grace period. Repayment on the PLUS loan begins 60 days after the last disbursement of the academic year. It is likely that a parent who relies on PLUS loans to fund their child’s education will have more than one parent loan at more than one interest rate after all is said and done. Therefore repayment options and consolidation options will be of particular import to those parents. Any parent owing on more than one PLUS loan is eligible for a consolidation. Three repayment options are available for PLUS loan borrowers. As is the case with Stafford loan borrowers, parent borrowers can choose from the standard ten-year repayment plan, the graduated plan or the extended plan. The only plan not available for parents is the income contingent option. When it comes to college student loans, the PLUS parent loan should not be overlooked.

The Best Car Insurance Rates

If your car insurance is due for renewal and you are considering buying another policy then this article will provide you with important facts that you should know about. Car insurance policies are getting increasingly expensive and you should do all that you can to reduce your costs. How much you have to pay for your car insurance is dictated by a variety of factors as they apply to you and your vehicle.

In this article we will examine coverage limits, your age, gender and marital status, your location and insuring other household members. All of these factors will have a great influence on how much you will have to pay for your policy.

Coverage limits are generally dictated by the price that you are willing to pay for your insurance. A higher level of coverage will generally result in higher premiums. The best way to find a good value policy is to comparison shop. Nowadays it is generally accepted that the best way to do this is by using a car insurance comparison website.

Your age, gender and marital status will have a great effect on the auto insurance rates that you are offered. Insurers rate drivers using a variety of criteria, if you are a young single male driver you will usually have to pay higher rates. If you are a middle-aged female married driver then your rates will be lower. Insurers calculate the best car insurance rates for you by comparing levels of risk. Those groups which are statistically more likely to be involved in an accident have to pay correspondingly higher rates.

Location plays an important part in deciding how much your premiums will cost. Drivers who live in an urban environment will usually pay more than those from a rural area. This is because drivers who live in cities and heavily populated areas are more likely to be involved in an accident, or to have their car stolen or vandalized. Insurers generally offer better rates if you’re able to demonstrate that you keep your vehicle in a garage at night. You may also be able to improve the security arrangements of your automobile by fitting an alarm, immobilizer and steering wheel lock.

Insuring other household members will have an influence on the cost of your policy and the best car insurance rates that you offered. If you have teenage family members living with you and they are added to your policy, then your costs will increase. This may still work out cheaper than if your teenage driver were to have a separate policy in their own name.

In conclusion, there are a variety of different factors which can affect your ability to be offered the best insurance rates. Some of these are coverage limits, how old you are, whether you are male or female and whether you are married or single. Your rates will also be affected by the area where you live and whether other household members are included in your policy.