An article on house loan from an IM reader

Pre-payment and Pre-closure penalty on housing loan:

Housing loans are one of the biggest mortgages you are going to take in your life. Taking a housing loan can change the direction or way of life of a middle class family. Since buying houses isn't like walking around the mall and grabbing them off the shelf, there is a particular science to it that you need to at least take the time to understand; consequence if you don't: Face a big hole in your pocket. For middle to low income group of people in India, it's not fun at all. Truly speaking how many of us have been given opportunity, even if it is given had patience to go through the loan agreement or offer letter or loan product brochure completely.

On availing Housing Loan we the borrowers pledging not only the house that we are buying or constructing out of that loan but also our rights to planning for our better future. All Financial Institutions are invariably charging rather imposing Prepayment or Preclosure penalty, normally 1 to 3%.

What I would suggest for middle income groups is to do a complete financial analysis before getting into a housing loan venture. Do a cash flow analysis for both outflow and inflow (i.e. for repayment of loan and your projected income) and do calculate Net Present Value of the entire cash flow, consider the stability of your income, and your future rental commitment if you choose not to buy a house, be realistic and do not be sentimental at all, since housing sector is commoditized and no more a worthwhile property. From my own experience am telling that we are very naive, when we buy.

The curse on middle class is 'we work to make others rich'

Government (when planning to revive the moribund housing sector) and IBA should come out with specific package to help small borrowers not the real estate giants, in order to completely waive Prepayment and preclosure penalty, since it affects the financial
planning of a common man. Banking institutions are NOT OBLIGATED under any law or contract (usually) to provide waivers of penalty fees to borrowers. It has to be amended, since lot more reasons are there to prepayment or preclosure of a loan to get rid
of a liability (Compassionate financial reasons - Natural disasters, personal economical problems, sale of ancestral property, accidents, etc.). The pathetic part is Under certain conditions the same penalty is charged to, where properties are sold at a loss (borrower's side) and the loan is transferred and taken up by another party with the same or larger amount.

It is advisable to borrow from a bank or housing finance company, wherever the prepayment clause or Loan Redemption charges is not harsh.
-Written by G. Kumaran

Advance tax info

Advance tax collections is one of the clues to predict the results of the companies in advance.As per the above info ( source: the hindu businessline), CBI, L&T, BOI, SBI &ACC have paid advance taxes more when compared to last year.
SBI stock is one of my favourite and a real long term bet. L & T should also be a sound long term investment. Small lots of these can be accumulated , if one is looking at a 3-5 year investment horizon.

Personal finance ratios

B- schools and finance books talk about ratios that are needed to judge and manage the finances of a company. But we seldom bother about how to manage our personal finaces using such tools.
Personal finance ratios cannot be a panacea to all our financial woes . But they can definitely be a starting point or a guiding point in managing our finances.
Found the following article in Money today very inetersting which talks about the EMI to salary ratio, Savings to Earnings ratio, Liquid money availability, etc. In these age where we dont even think twice before signing up for an EMI or swiping our credit card , having such ratios in mind can definitely bring some method to the madness.

Thinking aloud!!

If you rewind yourselves by an year, The Indian markets had "Decoupled" from the whole world and was surging ahead against all odds. Then the impact was felt slowly while the raising oil prices became the talk of the town. After that settled, India slowing down thought began to sink in amidst the mass exodus of the FIIs. Nobody's sure about the future and everybody is gloomy in predicting it too.
There are a lot of lessons to learn from this cycle and a lot of things to look forward too!. India has'nt seen as many job cuts as the US . So we have'nt really felta major impact. The economic growth for the last 4-5 years were primarily driven by the increasing spend by the salaried class. IT/ ITES jobs which triggered further more local jobs in India and ever increasing salaries led to a huge consumption boom. Many of us started living today with tomorrow's money. Many pledged their future income for 15-20 years to buy their dream homes and this inflated real estate prices. Stock market boom also created a great sense of confidence in all.
The retail consumption is going to be driven by the jobs that we have ( either internally generated or by MNCs). When the employment scenario looks bleak then the driver for consumption goes down.
If job cuts start happening in India too, it may lead to a mini-subprime within India. If Job losses are going to be minimal then we may push through and jump back faster.
IT/ ITES jobs have almost been the destination for most of the urban youth. These are the people who triggered big consumption. May be a decade from now , we may see these sectors loose sheen and become just another job ( like a Bank officer's job now which was looked at with awe a decade ago!). Such changes may bring in sanity to the society and lead us to inclusive development. If we look at the IT/ITES stock prices we don't see any encouraging signals in terms of the near future . A dent in the increase of salaries becomes a new item everyday and those who took home loans factoring higher salary growth might have to suffer.
Whatever it is, this too shall pass and these are the times we should remind ourselves of good old Indian ways of living i.e. " Living a debt free life ( living within the means)" and " Save for a rainy day". These mantras when sincerely applied to our lives will make us immune to financial crisis.

My experience with ATM

I happened to use my HDFC card at an ICICI ATM in early November' 08. I was trying to withdraw 18k . The transaction got declined .However, the cash was deducted from my HDFC account promptly. I raised a complaint with HDFC immediately and also raised a dispute along with the copy of the ( declined) transaction slip.
I got back the money after 35 days as assured but wanted to write this article to create an awareness. This 35 days may be harassing esp. when you are in real need of that money. You keep worrying while the bank keeps enjoying your money for no fault of yours.
What I have learnt
1) Avoid using the ATM card of one bank in another even if there are no extra charges involved.
2) Even if you decide to use your card in a different bank's ATM, do not try withdrawing a huge amount. If you need a huge amount , try withdrawing it in parts and not in full.
3)In case you get into such trouble as stated above , don't panic. Keep a copy of the transaction slip and raise a written dispute with your bank immediately.

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These are just opinions/ ideas exchanged. No one can claim us responsible for any investment failures /losses based on the ideas expressed here.

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