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Loan survivor
Home buyers get confused about which interest to opt for: floating or flat rate
Most potential home buyers are confused whether to opt for a loan on floating or fixed rate. This is mainly because a rising rate regime makes fixed rates look attractive. However, once you fix it and when the interest rates start falling, then floating rate begins to look better. And given the fact that a home loan is generally for a 10 to 20-year period, it is natural that one would get into a cycle when the rates would be rising or falling for three to four-year periods. Before you choose a scheme, check the various repayment options available. Some banks offer a step-up facility under which you can pay a lower EMI (equated monthly instalment) in the initial years and gradually increase your payments corresponding to the growth in your income. There is also an option to accelerate the EMI whenever you feel you have a higher disposable income. If you have obtained the loan to buy a property under construction, some banks allow you to decide on how much you want to pay back till the property is ready; the interest component being the minimum required to be paid. This helps you begin the repayments as soon as possible and finish the repayment within schedule. Also, check if you can pre-pay the loan at any point if you have lump sum in hand. But do not forget to compare the charges for exercising any of these options across lending institutions. That is the million-dollar question — fixed interest rate or floating rate. Fixed interest rate is always a tad higher than a floating interest. But that is the premium you pay for maintainng the same repayment amount, month after month, year after year, irrespective of the interest rate fluctuations that may occur. In today’s stiff-interest scenario, this would seem a good idea. But remember to ask your banker/lender if the fixed rate is really fixed or it will be reviewed, say, once every two or three years. Floating rate loans are cheaper, but they come tagged with uncertainty. For example, if you had taken a housing loan three years ago, when interest rates were benign, your monthly instalments today would have hit the roof unless you extended the tenure to stick to the same amount of instalment. But this may be temporary. If the rates go below the fixed rate in another two years, you will enjoy quite a bit of savings. Given the long-term nature of the loan, an overall view on interest rate movement is what should guide your choice. However, if one wishes to take advantage of both floating and fixed, there is another option. This is called the mixed option. Mixed loans are for people who do not want to take a directional call on interest rates but still want to take advantage of some benefit of the floating rates (if they were to come down). According to T.N. Singla, a renowned chartered accountant in the tricity, this is a good option for people who want to hedge some part of their risk as far as floating rates go. Also, it works well for customers who are also not clear about their future income streams. The product can be helpful in other ways as well. For instance, if you are expecting some large income to come to you from other assets or investments then you could take that part of the loan in the floating and the rest in fixed. If you take a sum of Rs 20 lakh as home loan and you have another property that you are planning to sell in the next few months. Also, you are expecting this property to fetch Rs 10 lakh. In this case you can opt for a fixed plus floating mix (60:40) whereby you take Rs 12 lakh on floating interest and the rest Rs 8 lakh on a fixed rate. Accordingly, after selling the property you get ready cash of Rs 10 lakh, you can prepay a large part of the loan amount that is on floating, if floating rates have been rising. However, if the floating rates have been coming down you can even pay off the entire fixed part of the loan and take advantage of it. In short, this is a good option for home buyers who are risk averse and looking to prepay their home loan. RBI Governor Y.V. Reddy has said about unfair pricing of loans that if substantial improvement is not seen in the near future or complaints continue, the apex bank should move decisively to discipline banks. The RBI has taken cognisance of practices allegedly adopted by some banks. Home loan borrowers have faced a double whammy, with cost of homes escalating due to higher prices for steel and cement and rise in interest rates on their existing borrowings. In particular, people who borrowed funds on a floating rate of interest have been hurt by rising rates. Over the years, home loan rates have moved up by 55 per cent. Borrowers have seen either a steep rise in the monthly outgo on repayment of their loan or elongation of the tenure. The primary complaint has been that banks continued to charge older borrowers higher rates even as it offered new customers lower rates. Lower rates were possible when banks reduced the spread between prime lending rate (PLR) and home loans, while the rates on older loans were linked to a PLR that was not revised. Even fixed rate borrowers are now wholly protected from rising rates as banks have built in clauses in the contract allowing them to reset the rate every 2-5 years. Even some banks are saying no to fixed rate home loans beyond five years as many fear an asset liability mismatch if interest rates change significantly. Banks, unlike housing finance companies, do not have access to long-term funds. Recently, with the ICICI offering to reduce the EMI of existing customers for long-tenure loans, many may like to exercise this option because it would reduce their burden for the time being. Also, with the rise in the interest rate in the last couple of years, many have found their EMIs rising by over 15 to 20 per cent. For instance, if a 30-year-old had borrowed Rs 40 lakh at a floating rate of 8 per cent for 20 years in 2006, his EMI would have been Rs 33,460. As the rates have risen to 11 per cent in two years, the EMI on the remaining amount would be Rs 40,720. Given such a rise, any relief for the consumers would be welcome. However, though the monthly outflow would come down due to the reduced EMIs, rise in tenure implies that the interest payback will be much more. If you are aged 30 and have taken a home loan of Rs 40 lakh at the rate of interest of 10 per cent for 20 years, the EMI will be Rs 38600. The total interest payback over 20 years will be Rs 5264000. This home loan you will be repaying by the time you will attain age 50. Any increase in tenure will reduce your EMI burden. Now, as ICICI bank has increased the tenure to 25 years, the EMI will come down to Rs 36350. In this case, your EMI has come down by a mere of Rs 2250 per month, while your loan tenure has increased by a good 60 months and the interest burden will also go up to around Rs 69,04,000. The interest burden will shoot up by Rs 17 lakh and certainly this will not inspire you to exercise this option. T.N. Singla says the basic idea is to reduce your payback to the bank instead of increasing it and such option is only advisable for those who have taken a loan and are finding it difficult to service it. It is also advisable to try to keep the EMI to around 40 per cent of your total salary outgo. This will allow you to have better control over finances. According to experts, do look at your home loan agreement carefully before signing on the dotted line. More often than not, a bank does not provide the home loan agreement unless you want to sign it. But that should not stop you from asking for a copy. A banker cannot deny it, as per the existing stipulation. Read the fine print before you make your largest investment decision. Otherwise, it could become a liability for you.
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Baddi gets Brand aid With quality malls making an advent in the industrial hub of Baddi-Barotiwala-Nalagarh, the region is all set to witness a resurgence in shopping. Hitherto acclaimed as Himachal’s industrial hub, accounting for nearly 70 per cent of the business investment, it now has malls as a predominant presence. Among the pioneers in the area is the Homeland Mall, which is sprawled across about 4 lakh sq ft. The project includes a plush hotel and four multiplexes housing cinema halls in addition to a shopping area. Another project under way in the region is the Space Nine Mall located on the strategic NH-21-A New Sai Road. Covering an area of nearly 3 lakh sq ft, the mall is slated to house two multiplexes and a hotel besides shopping space for popular brands. “What we have tried to ensure is affordability to enable the middle class to buy shops at reasonable costs beginning at Rs 16 lakh. Since a shop in the surrounding area of Chandigarh costs anything from Rs 16 to Rs 70 crore, the only place which promises an affordable opportunity is Baddi,”quips its promoter Prem Goyal. A number of popular brands are all set to open their outlets in these malls with renowned names in jewellery, foot ware, outfits and eateries already assuring them of business. The malls promise something special for each customer, right from kids to teenagers, women and adults. To take jewellery shopping a step forward, renowned brands like Asmi, D’damas, Gili, are all set to open shop. To entice the younger generation, brands like Koutons, Adidas, Action, Bata, Club City, Liliput, Desire, etc too are raring to enter this virgin territory. Not to be left behind is the eateries segment with Café Coffee Day, Food Bazaar, Pizza and Co, Dosa and others set to enter the burgeoning market too. “ Talks are under way to get names like Raddison to the region,” says an investor who is enthusiastic about setting an example in quality malls. With retail chains like Vishal Mega Mart having already opened their outlets in the area, the entry of others will further pave the way for quality shopping. The initial misgivings about the malls doing well in this hitherto undeveloped area appear to have been allayed with these two projects managing to tie up with renowned brands. Getting a go-ahead from bigger names has helped boost the image of this prime industrial area of Himachal, which has attracted an investment of nearly Rs 23,000 crore. Having a workforce of nearly 1.5 lakh and with ambitious projects like Expressway connecting it to Mohali, and with rail connectivity being proposed, the flourishing industrial area is all set to write a new chapter in growth. The high expectation from these malls are being pinned on the virtual lack of any entertainment or quality shopping place in the nearly 325-km-long stretch of Baddi-Barotiwala-Nalagarh Industrial area (BBNIA). “It is a Gurgaon in the making with an express highway under way to link it to Mohali and the Chandigarh-Siswan road, which would considerably reduce the distance between Chandigarh and Baddi to 26 km. Besides, with the Haryana Urban development Authority (HUDA) already having planned a township between Pinjore and Baddi, these malls would cater to that area as well. Land acquisition is under way for its proposed 31 sectors,” observes Goyal.
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The Namesake Satish Narula
Many a time, there is confusion about the identity of the plants which causes gardeners problems while procuring them from nurseries. This is due to the availability of look-alikes, the miniature forms or wrong nomenclature. The wrong name thus given even becomes familiar, at times, the world over with no attempt at correction. Let us familiarise ourselves with some of the ‘similar sounding’ plants and also put the record straight in other cases. Gulmohur (Delonix regia) is one of the very common flowering trees that is valued for the crimson blooms that cover the whole tree like a canopy. This very handsome, fast-spreading tree has an ornamental deep green feathery foliage. The tree, due to its typical flowers, is also called the Peacock Flower. But there is Caesalpinia pulcherrima, a shrub by the same name too, i.e. Peacock Flower. It is also known by the name Gulmohri. It hardly grows to a height of six to seven feet and a row of this Gulmohri presents a spectacular mass display almost all through the year, the flowers bearing a striking similarity to Gulmohur. Whereas the tree is good for roadside avenues; a row of shrubs is good for dotting the walkways in the parks. Both, the tree and the shrub, thrive with little care in the garden. Unlike the tree, however, the shrub is pruned near to the ground level once in a year. Both are propagated by seeds. The shrub is also multiplied through cuttings. However, a distinct variation exists in case of Caesalpinia pulcherrima var flava, which has sparkling yellow blooms. Moving about in Chandigarh these days, you must have come across trees with a profusion of mauve or pink blooms. These are Lagerstroemea flos reginae (mauve) and Lagerstroemea flos reginae var rosea with pink or red flowers. In view of the tree’s beauty and profuse flowering, it has rightly been named the Pride of India. The tree is fast-spreading and grows like a big guava tree. Another species of this series is the Lagerstroemea thorelli that bears white blooms with longer stay. Enter any garden and you will find the lookalikes, their little brothers in dwarf form growing about four-to-five-feet high. The leaves are also small. The flowers are small but frilled. These are small bushes, the shrubs called Lagerstroemea indica. To distinguish them by colour these are named as Lagerstroemea indica alba (white), purpurea (mauve) and rosea (rose coloured). Unlike trees, however, these are clipped near the ground during winter when these are dormant. The blooms appear on the current season growth next year. When it comes to wrong nomenclature, it is the most common the ‘Lucky Bamboo’, kept indoors by a large number of people ‘for better luck’. Let me make it clear, it has nothing to do with the bamboo or any species near to it. This, in fact, is a dracaena plant with complete name as Dracaena sanderiana. It can be kept in the shade with wet feet. But for best results, the plant should get plenty of indirect light. The writer is a senior horticulturist and can be contacted at
satishnarula@yahoo.co.in
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HUF & puff S.C. Vasudeva Q. My grandfather created H.U.F in 1991 having as members me (his grandson), my wife and my two sons. My father (his only son) had expired in 1978. My grandfather (karta) expired in 2004. According to my CA my grandfather's H.U.F should merge into mine since members of both HUFs are the same. However, in a similar query you have replied that in such case H.U.F would stand continued until finding of partition is given U/S 171. Another tax consultant advised that HUF can be continued only by adding my sisters as members in my grandfather's HUF. Kindly guide. — Dharmender Goyal, Talwandi Bhai A. The Hindu Succession (Amendment) Act 2005, provides that where a Hindu male dies after the commencement of the Amendment Act, a share in the co-parcernery property shall be allotted to a daughter equivalent to that allotted to the son. The facts in the query indicate that your father had died in 1978. The amended provisions are thus not applicable in this case. In any case, yourself and your sisters (i.e. grand-daughters) would not have been covered by the above provisions as the amended section covers daughters only. Your sisters cannot be coparceners of your grandfather’s HUF. However, this being a civil matter, it would be advisable to get the opinion of a civil lawyer.
The writer can be contacted at sc@scvasudeva.com
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Puravankara to promote 300-cr project Bangalore-based Puravankara Projects Ltd, one of the leading real estate companies, is promoting a Rs 300-crore standalone project in Chennai's IT corridor. It has acquired over 10.5 acres in Kelambakkam in the IT corridor. It is creating a land bank in and around Chennai to promote large residential townships around the city. Puravankara's first residential project in OMR, Chennai's IT corridor, Purva Swanlake, will have 600 apartments of two and three bedrooms. The apartments, whose sizes vary from 1,250 to 1,750 sft, will be priced at Rs 3,490 onwards per sq ft. The company, which had launched an IPO for the purpose, is also in the process of acquiring the land around the city to promote large residential townships which will have facilities like schools and health services, besides entertainment, says Ashish Puravankara, director and in-charge of Tamil Nadu. Fifty acres have been identified in Medavakkam in suburban Chennai to promote residential townships. It has also acquired land near Sriperumbudur. The company is developing two commercial projects offering 0.5 million sq ft of quality space, one project of over three lakh sq ft is coming up in the Race Course area near Guindy, and the other at Thoraipakkam, also in the IT corridor. Puravankara is also looking at other cities in Tamil Nadu like Coimbatore. Ashish says that at present the company had over 99 per cent of its projects in the residential sector. The company’s focus on the residential sector will come down to 80 per cent, and the remaining 20 per cent will be in the commercial sector in a couple of years' time. It is constructing 14 residential projects and one commercial project aggregating about 10.98 million sq ft of saleable area.
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To
own a house is every person’s dream. But with every bank in the street
offering myriad home loan options, you might end up paying a heavy price
if you do not zero in on the one that best suits your financial profile.
