Base Rate vs. BPLR: What should you go for ?

It’s not that rare for people to notice the terms RPLR/BPLR vs. Base Rate. BPLR stands for Benchmark Prime Lending Rate and LPLR is Retail Prime Lending Rate. These terms are the determining factors when finalizing a home loan. Floating home loans are connected with base rate or with BPLR. Now it is quite obvious for a layman to question why can’t there be a single criterion to link floating home loans. This is because two different groups of Financial Corporations are providing the home loans (a) ICICI, Axis etc, (b) Home Finance Companies like HDFC, PNBHF etc.

The difference between Banks and HFC’s lies in the fact that, banks are governed by RBI, whereas HFCs are monitored by NHB (National Housing Bank). But there were numerous grievances among the customers  whose floating loan was linked to BPLR regarding the fact that some customers had to pay high interest relative to the others whereas the other prime complaint was that HFC’s are not showing enough transparency in the procedure. HCF’s were also reported to hike the BPLR when the Reserve Bank of India increased the key rates but when there was a subsequent drop in key rates, these institutions didn’t bother reducing the BPLR. These infuriated a lot of customers. Although the Banks and HFC’s came up with an explanation that BPLR is related to the average cost required to acquire the funds, the customers weren’t totally convinced.

To deal with this, RBI came up with a guideline that was brought into effect from July 01, 2011. The guideline issued stated that existing customers can shift from BPLR to Base Rate and the banks were directed not to charge any extra amount for this. Base rate is essentially the lowest amount of interest rate below which the banks can’t lend any money.

RBI too suggested about scrapping the BPLR system as it is essentially market driven and there are a lot of inconsistencies in the system.  Shifting to Base rate from BPLR will ensure that the part of your EMI which depends on the interests will come down in tandem with the rates. That is to say that when RBI reduces the interest rates, your EMI too will come down. Base rate is also related to the marginal cost rather than the BPLR which is based on average cost. So it goes without saying that if you have taken a floating home loan which is based on BPLR, it might be a wise idea to shift to base rate. Shifting is free of cost as banks or HFC’s won’t charge any additional amount of money from you. All you need to do is to fill up a prescribed request form or simply write a request letter and sign it. The bank would then make the change in 3-7 working days. It isn’t that complicated a procedure.

So by now it must be clear to you why Base rate if more beneficial from a lender’s point of view. It is more transparent system and allows you to pay less when the interest rates come down which was not the case with BPLR.

 

The Process of Home Loans in India

Home loans are planned long term loans availed by various customer segments in India. It is preferred by both individuals and business users. Home loans are important but can be tricky if proper planning and adherence of the same is not taken into account. Henceforth it is important to understand the process of seeking a home loan and following the same in a step-by-step manner.

  1. Self-Assessment:  Self-Assessment usually works on two levels. At the individual level, you got to assess your own risk factors before taking a home loan. It’s like understanding your current salary and assets and forming an idea how much loan and what should be your ideal repayment time. Secondly, if you have a property in your mind, home loan process becomes quicker. You need to visit the website of a bank or HFC (Housing Finance Company) for list of documents. For cases where you have already finalized your property, arrange the property documents as per as list of property documents required by bank. The main objective is to understand all documents are in place and you have a clear idea that you want to avail a home loan.
  2. Application: You can avail assistance of Bank Representatives or you can yourself visit nearest bank branches to avail a home loan. You can also enquire via the bank website. The representatives automatically will get in touch with you. Fill up the application form and submit all the necessary documents.
  3. Evaluation of application by Bank: Next step is the assessment by bank that the application is duly submitted with all the documents. This is the 1st step of initiation for the internal process. Bank will evaluate all of your documents and fix the loan eligibility. Some factors considered by  bank are :
    1.  Age Proof.
    2.  Income Proof.
    3. Nature of Job.
    4. Existing Liabilities.
    5. Existing Assets.
    6. Repayment capability.

                                    Banks generally carry a Residence, Office and CIBIL verification during home loan process.

  1. Bank Verifications: Banks usually do both property and legal verification for home loan clearance process. As part of the legal process, independent legal verification of the property is conducted by the lawyer. A legal verification report is submitted by the lawyer to the bank. Customers can also have the same paying a nominal amount of fee.

                                  As a part of technical valuation, Bank will appoint a valuer who will assess the fair market value of the property so that appropriate loan amount can be disbursed against the property.

  1. Home Loan Sanction: After all the requisite verifications completed by the Bank, Bank will sanction home loan against property. A sanction letter is issued to the borrower who has to sign the home loan agreement. Home loan agreement will have all the information along with terms and conditions. Borrower has to submit the original documents, ECS along with cheques, as per as Banks requirement for completion of the process.
  2. Loan Disbursement:  Borrower may finalize date of registration after home loan agreement is signed. Borrower may give written request to Bank for disbursement letter and the Bank will issue the DD/Banker’s cheques and the process is completed.

Some Important points to understand here:

  1. Property value less than Rs. 20 Lakhs, You can avail loan up to 90% of property value , else it is 80% of the property value subject to your repayment capability with the bank.
  2.  No matter where in India you want to have a property, you can avail home loan from your base location.
  3. A CIBIL score of 750 is a must but it does not guarantee assured home loan approval.
  4. The entire process usually takes maximum of 10 days to complete.

                                       So Go Grab your home Loan today only.

Tax Queries Answered Featured

Tax season is on! And so every individual (salaried or businessman), needs to do proper tax planning to ensure that excessive money is not lost or wasted. Tax planning sometimes can be tricky, especially if you don’t know how to file it properly.

Here are some  basic queries most Indians do have while filing their tax

  1. What are the major sections under which I can file tax?

Very basic, but very pertinent question while Income tax Planning, lets understand the various sections under which you can basically file your tax:

  1. Section 80C: The most prima facie section to do a proper tax filing. Section 80C deals with a total limit of Rs. 1.50 lakh from the financial year 2014-2015(assessment year 2015-2016). Under this section you can file for your tax returns if you have schemes like NSC, PPF, pension plans, life insurance plans and government bonds. Also under section 80C the principal amount paid for your home loan is also eligible for a tax deduction.
  2. Section 80D: This section deals with the health insurance premium paid with an increase of limit up to Rs.30, 000 p.a for someone who is paying premium for senior citizens.
  3. Section 80E: Payment of educational loans can be filed via this section.
  4. Section 80CCG: This section allows you to file for Rs. 25,000 if you have a Rajiv Gandhi Equity Savings scheme up to Rs.50, 000 on certain conditions.
  5.  Section 80DDB: Under this section, you can file for tax deduction on the expenses made on a dependent’s treatment for specified diseased. Maximum deduction is Rs. 40,000 (on Senior citizens, its Rs. 60,000).
  6.  Section 54EC:  If you have sold any property and have capital gains up to Rs.50 lakhs, you can invest to save tax on capital gains.
  7. How much usually it takes to get my previous year returns :

Income Tax Department usually is a streamlined process so the refunds are usually processed within 120 days if not more. However remember to file your ITR on time and provide proper bank details.

  1. When can you be audited?

If you have a turnover of more than Rs. 1 crore as a business person or you have a turnover less than 1 crore but your profit is less than 8% of turnover you will be audited u/s 44 AD. You will also be audited, if you are CA/Doctor/Lawyer and you have receipts more than Rs. 25 lakhs.

  1. What are the tax implications in the early stages  if you purchase a home loan :

You can get deductions in your home loan under section 80C only up to the extent of your principle amount paid but that also in your early stages of your home loan cycle is hard to receive full. Let’s say amount deducted for PF and insurances are Rs. 80,000. You can only receive tax deductions up to Rs. 70,000 only (Upper cap being Rs. 1, 50,000 U/s 80C), no matter how much more you pay.

  1. Difference between New and Old ITR forms:

In new ITR forms, introduction of Electronic Verification Code, easy filing for super senior citizens, detail listing of all bank accounts in FY  with details of both domestic and foreign travels, domestic and foreign assets etc. will be the new provisions which will be added for making the process more transparent for both users and the authority.

Why shouldn’t the China crisis worry you?

Markets dwindling, economies struggling and Governments fumbling!! Sounds catastrophic, doesn’t it? Well not quite that catastrophic like a typical “2012” movie or a Zack Snyder directed Superman vs. General Zod fight scene.

Nevertheless the present economic situation of the world is quite precarious. China, the manufacturing hub of the world is on the brink of an economic meltdown.  For the first time in decades, its economy has shaken up with a jolt. While the inflation rate is growing leaps and bounds, producer prices have undergone a free fall. It might not be long before the inflation rate puts the Chinese economy into tantrums.

To add to the woe, the global purchaser USA is suffering a serious dearth of cash flow. It is a widely known fact that the biggest consumer of credit on Mother Earth is the United States of America. But now the cash required to feed it’s credit is drying up slowly which might pose a serious problem to the global economy.

Other nations too are feeling the heat owning to the fact that the two mighty economies of the world is going through an economic slowdown.  This is particularly true for the Asian economies which have been stuck in a conundrum between the Chinese economic crisis and the American shortfall of cash. However, it doesn’t mean that you should be filled with despair. There are ample reasons to be optimistic as well from an investor’s point of view. Just like old leaves fall off a tree only to make way for shiny green twigs, same is the case with the economy. It is essentially a cycle and eventually the bad phase will be over to make way for a brighter economic phase.

So it’s important not to freak out yet. Don’t just start cutting down on your consumption randomly. But doing this, you are simply putting fuel to the fire. Spend on things that are necessary but avoid luxuries.

You must also keep in mind that often, economic slowdowns are the good time to invest wisely. You get time to think and invest in commodities, properties, mutual funds and stocks with a long term prospect in mind. So judge the pros and cons, and make that investment that you were always eyeing to do. You have got to mobilize your finance to make that investment happen though. You can also consider taking a loan if the investment you are going to make is worth it. Even if the economic downturn hits us, i.e. India, we still have some time left to get prepared.

 However, an economic downturn hitting India is less likely to happen. Our economy has a quite robust base and India is to a large extent, insulated from such global meltdown effects. In the past too, the effects of recessions were significantly much less on the Indian economy. So it goes without saying that the present slowdown in the Chinese economy or the USA to some extent, may open up new doors for India. But concern remains on whether to take advantage out of this situation.

So in a nutshell, it can be concluded that there is no need to go for the panic button and you can simply ease up to play it out wisely. The China crisis shouldn’t be a reason for you to lose sleep.